32.52 -0.17 (-0.52%)
After hours: 7:59PM EST
|Bid||32.59 x 28000|
|Ask||32.69 x 45100|
|Day's range||32.42 - 32.83|
|52-week range||22.66 - 33.60|
|Beta (3Y monthly)||1.62|
|PE ratio (TTM)||12.05|
|Earnings date||15 Jan 2020|
|Forward dividend & yield||0.72 (2.19%)|
|1y target est||33.70|
(Bloomberg) -- Japan’s Government Pension Investment Fund’s decision to not disclose details of its quarterly allocation breakdown has some analysts saying that the world’s biggest pension fund is backtracking on transparency.In a statement on Nov. 1, GPIF President Norihiro Takahashi said the fund won’t disclose the allocation breakdown, amounts and investment income for each asset class this fiscal year, as it reviews the composition of its basic portfolio, which totals about 161.8 trillion yen ($1.5 trillion). The GPIF subsequently posted quarterly results without the details.While the GPIF may have opted to hold back the information to corral market speculation on changes to its portfolio, the move reduces transparency and causes unwanted guessing among investors, according to Hidenori Suezawa, chief strategist at SMBC Nikko Securities in Tokyo.“It’s clear transparency has receded from this decision,” he said. “It just stirs up even more speculation. It brings unnecessary attention to the matter.”The GPIF president’s proposal to withhold asset details was debated during a board of governors meeting on Aug. 27, according to minutes released on Nov. 1. During discussions over the new basic portfolio, an unnamed executive managing director cited speculation risks seen in other pension funds. Others in the minutes said it was risky to change the disclosure procedure, with one member saying that it would look “unnatural” for the fund to suddenly not disclose information that had been available to the public.Watch BondsThe fund, which announced its basic portfolio about five years ago, is expected to reveal its new allocation sometime before the fiscal year ends on March 31. The GPIF has a general target to keep 25% of its basic portfolio in domestic stocks and 25% in overseas shares. The permissible range of deviation is 9% for local equities and 8% for stocks abroad. The target is 35% for domestic bonds and 15% for foreign debt, with a permissible deviation of 10% and 4%.“There’s a higher chance of GPIF increasing the target for foreign bonds in the next basic portfolio,” said Shuichi Ohsaki, chief rates strategist at Bank of America Merrill Lynch in Tokyo. “For example, foreign bonds may be increased by 5 points, while domestic bonds decrease by 5 points.”Investors are focused on the GPIF’s holdings of yen-denominated bonds and currency-hedged foreign debt, said Takafumi Yamawaki, head of local rates and FX research at JPMorgan in Tokyo. The fund announced last month that it would give itself leeway to buy more bonds from outside its home market by classifying currency-hedged foreign bonds as part of its domestic debt.“The GPIF is seeking a way to boost its performance,” Yamawaki said. “But it has also caused further speculation by hiding its motives.”(Adds quote from strategist in third-to-last paragraph)To contact the reporters on this story: Shigeki Nozawa in Tokyo at email@example.com;Shoko Oda in Tokyo at firstname.lastname@example.orgTo contact the editors responsible for this story: Lianting Tu at email@example.com, Naoto Hosoda, Kurt SchusslerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
SunTrust (STI) receives approval from the Federal Reserve and the Federal Deposit Insurance Corporation for the merger of equals with BB&T (BBT).
One big thing to start: Many thanks to readers who attended the inaugural DD Forum in NYC last night. Tonight we host the latest DD Forum London event. It will feature a discussion on activism and public markets between Jonathan Bush of Firefly Health and Paul Myners of Cevian Capital.
Presidential candidates are promising to help ease the burden of student loan debt but David Klein, the CEO of CommonBond says refinancing student debt now may help millions struggling to get a break.
(Bloomberg Opinion) -- Unlike the bond market, which is largely anchored in economic reality, the stock market is based on hope. Everyone knows and understands that, but it’s still next to impossible to reconcile the latest leg higher in equities — which has pushed the Dow Jones Industrial Average, S&P 500 Index and Nasdaq Composite Index to records — with the latest economic data. Consider Friday, when all those benchmark indexes posted their biggest gains of the week even though a Commerce Department report showed that retail sales in October failed to rebound enough to offset concern about September’s horrible numbers. That was enough to spur JPMorgan Chase & Co., which as the largest U.S. bank should know a little something about the economy, to cut its fourth-quarter estimate of gross domestic product to a meager 1.25% from what was an already low 1.75% on an annualized basis. But none of that matters to the stock market, which has tied its belief in an upswing in the economy to every comment made by U.S. and Chinese officials on “phase one” of a trade deal. The problem is that no one truly knows what it will contain or accomplish. White House economic adviser Larry Kudlow told reporters late Thursday in Washington that “we are coming down to the short strokes” and are “in communication with them every single day.” And here’s where hope comes into play for the stock market. The hope is that unlike in the past, when the White House signaled that a deal was at hand, this time will be different. If it is, that might ease the uncertainty hanging over business leaders, ignite faster growth and allow companies to meet earnings estimates for 2020 that remain stubbornly high at just less than 10%.This wouldn’t be much of a concern if stocks were cheap, but they’re anything but. The S&P 500 is trading at 17.2 times the following year’s projected earnings. That ratio has been higher only once since the economy began to recover from the financial crisis, and that was during late 2017, just before the S&P 500 tumbled 10% over the course of a few weeks in late January and early February 2018.Put another way, all the good news that equity investors are anticipating is already reflected in stock prices — and then some. Proof for that comes in the widely followed monthly survey of fund managers by Bank of America Merrill Lynch. The latest results were released last Tuesday and showed that a net 6% of those polled expect a strong global economy next year, compared with negative 37% in September’s survey. That was the biggest month-over-month jump on record. But that came before the retail sales report, which should provide plenty of reason for pause heading into the holiday season. Sales in the “control group” subset, which some analysts view as a more reliable gauge of underlying consumer demand, increased 0.3% as projected, but the September figure was revised to a decline of 0.1% from no change. That was the fourth consecutive month this series was revised lower. “We’re more dependent on the consumer than ever in this expansion, and we’re getting some signs the consumer is slowing” Stephen Gallagher, chief U.S. economist at Societe Generale SA, told Bloomberg News. Although the bond market is no longer pricing in an imminent recession, it hasn’t exactly embraced the “all is fine” narrative like stocks have. Yields on U.S. Treasuries average 1.77%, which is in the middle of the 1.51% to 2% range they have been stuck in since July. And don’t forget, those yields averaged 3% this time last year.The phrase “priced for perfection” gets tossed around a lot by investors. This time, it feels appropriate given how much hope is priced into stock prices. To contact the author of this story: Robert Burgess at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Saudi Arabia has abandoned plans to formally market shares in its state-owned oil company outside the kingdom and its Gulf neighbours, in the latest sign of the initial public offering’s shrunken ambitions. Bankers learnt on Monday that no formal European investor meetings would take place, a day after roadshows in the US and Asia were called off, according to people familiar with the matter. The decision is the latest setback for the kingdom, which will now seek to raise about $25bn through the flotation of Saudi Aramco — just a fraction of the $100bn it once sought.
The FBI tried to warn Bank of America against an ill-fated leveraged buyout led by former Blackstone dealmaker Chinh Chu, telling an executive that “the entire transaction was setting alarms off, and there was a concern that someone was attempting to defraud” the bank. BofA faces steep potential losses after ignoring the warnings about now-bankrupt Constellation Healthcare Technologies, which are detailed in FBI files made public by a federal court last week.
(Bloomberg) -- With all the focus on getting the positioning right for next month’s U.K. election, investors may be overlooking bigger threats beyond.Even as optimism grows that Prime Minister Boris Johnson’s party will win the vote and see through a market-friendly Brexit deal, a floundering economy and the prospect of fraught trade talks with the European Union are unnerving some. Allianz Global Investors warns against “complacency” and Algebris Investments sees the pound staying under pressure in the longer term.Sterling has surged about 5% this quarter as Johnson secured a withdrawal pact with the EU and got a preliminary approval for it from lawmakers, dissipating market anxiety about a no-deal Brexit. Yet, the annual pace of economic expansion has slumped to the slowest in almost a decade, and Societe Generale SA strategist Kit Juckes sees the effects of Brexit shaving half a percentage point off growth every year over the coming decade.“Over the long term, there is probably some complacency,” said Kacper Brzezniak, a portfolio manager at Allianz Global. “The deal currently being proposed by Johnson and the rest would have been considered the hardest of hard Brexits before where people had forecasts like $1.15 for sterling. Now it looks like if we avoid a no-deal people are going to be relieved.”Brzezniak is currently neutral on the pound but aims at shorting the currency if it climbs to $1.32 or higher, from Friday’s levels around $1.29. Sterling gained about 1% this week as opinion polls suggested support is on the rise for the ruling Conservative Party ahead of the Dec. 12 vote.The currency may climb to $1.34 should Johnson’s party win, seen as the most likely outcome, according to a Bloomberg survey last week. The next most likely scenario -- a Labour Party-led coalition -- would only send the pound down less than 1% in the short term, the survey showed.Even if Johnson manages to finalize the current deal with the EU, that would only mark of the first phase of Brexit -- leaving Britain and the bloc with the tough task of forging a brand new trade relationship, according to Jane Foley, head of currency strategy at Rabobank.“I don’t think the foreign-exchange market is really taking on board the trade talks, the part two of Brexit,” Foley said at a conference at Bloomberg’s office earlier this week. “There’s a very short window of opportunity for the trade talks and I fear that if they don’t start well then the market may start to reprice what a Tory government means for sterling.”U.K. equities are also advancing on optimism a victory for Conservatives. Mid-cap stocks that are typically more sensitive to the domestic economy gained the most from the recent Brexit optimism. The FTSE 250 Index rallied 1.8% this quarter and Vanguard Asset Management’s exchange-traded fund linked to the index saw record inflows.Yet, some investors are looking beyond the short-term picture. While allocations to U.K. equities have picked up amid easing Brexit concerns, 21% of global fund managers are still underweight the country’s stocks following years of political turmoil, a Bank of America survey of money managers this month showed. That is down from 32% in the October poll.“I’d hold off for now on investing until we get clarity on the election,” said Nathan Thooft, head of global asset allocation at Manulife Investment Management, who is underweight U.K. stocks. “Regardless of the outcome of the election, there’s going to be new worries and new anxieties, which might afford you another opportunity to buy at a new point in time.”The annual pace of economic expansion in the U.K. fell to the lowest in almost a decade last quarter, figures published this week showed. Another report showed that retail sales unexpectedly fell in October, leaving growth over the last three months at its weakest for 1 1/2 years.“Over the longer term, risks to sterling remain to the downside as uncertainty continues to weigh on the investment and growth, leaving little room for the Bank of England to normalize rates,” said Alberto Gallo, a portfolio manager at Algebris. “We are neutral on the pound but have been biased to lower levels. We remain short credit risk on U.K. firms exposed to the consumer as well as commercial real estate.”To contact the reporters on this story: Charlotte Ryan in London at firstname.lastname@example.org;Anooja Debnath in London at email@example.com;Ksenia Galouchko in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Paul Dobson at email@example.com, Anil Varma, William ShawFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Goldman Sachs Group Inc. agreed to pay $20 million to settle an investor lawsuit accusing traders at the bank, along with 15 other financial institutions, of rigging prices for bonds issued by Fannie Mae and Freddie Mac.As part of the settlement, disclosed Friday in a court filing, Goldman Sachs will cooperate with investors in their case against the other banks. The firm also agreed to make changes to its antitrust-compliance policies related to bond trading. A federal judge in Manhattan must approve the settlement before it can take effect.Investors sued after Bloomberg reported in 2018 that the U.S. Department of Justice was investigating some of the world’s largest banks for conspiring to rig trading in unsecured government bonds.Goldman Sachs has turned over 71,000 pages of potential evidence, including four transcripts of chat-room conversations among its traders and some from Deutsche Bank AG, BNP Paribas SA, Morgan Stanley and Merrill Lynch & Co., according to court papers filed Friday. The bank agreed to provide additional help, including deposition and court testimony, documents and data related to the bond market.Goldman Sachs isn’t the first to resolve the civil claims. In September, Deutsche Bank agreed to settle for $15 million. First Tennessee Bank and FTN Financial Securities Corp. agreed to a $14.5 million settlement later in September.Among the firms remaining as defendants in the case are Credit Suisse AG, Barclays PLC and Citigroup Inc.The case is In re GSE Bonds Antitrust Litigation, 19-01704, U.S. District Court, Southern District of New York (Manhattan).To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at firstname.lastname@example.orgTo contact the editors responsible for this story: David Glovin at email@example.com, Steve StrothFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Bank of America (BAC) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.
(Bloomberg) -- Apple Inc. received a rare bear call on Thursday, after the company was downgraded to sell from hold at Maxim Group, which cited the potential for lower iPhone revenue over the next year.Analyst Nehal Chokshi forecast weakness in both unit sales and average selling prices, citing an analysis of a proprietary survey.The survey data “lead us to expect 14% below consensus iPhone revenue in F2Q20 & 6% below for FY20,” the firm wrote to clients. It expects iPhone revenue will fall 5% in Apple’s fiscal 2020, and also anticipates that Apple’s operating profits will fall 2% year-over-year “as ongoing growth in services and wearables will only partially offset iPhone declines.”Maxim established a $190 price target on the stock, which implies downside of nearly 30% from Apple’s Wednesday record close of $264.47. Shares of Apple have climbed more than 50% from a June low and were little changed on Thursday.Sell ratings on Apple are somewhat rare, although the ranks of bears has been growing this year. According to data compiled by Bloomberg, Maxim is the sixth firm to recommend selling the stock, compared with the 27 firms with a buy rating and the 15 with a hold-equivalent view. The average price target on Apple shares is $255, or nearly 4% below current levels.The cautious view about the iPhone is also something of an anomaly on Wall Street. Earlier this week, Hon Hai Precision Industry Co. -- the assembler for most iPhones and iPads -- reported earnings that beat expectations, in what was seen as a proxy for solid iPhone 11 demand. Apple’s recent results also pointed to strong demand, and there is a good deal of optimism for 2020, when the Cupertino, California-based company is expected to release a 5G version of the product. Last week, BofA wrote that Apple shares still had “significant room for upside,” given the potential of the next product cycle.According to a Bloomberg MODL estimate, Apple is expected to ship 190.1 million iPhones over its 2020 fiscal year, with an average selling price of $750.71. In 2019, nearly 55% of Apple’s total revenue was derived from the iPhone, per data compiled by Bloomberg.(Updates stock to maket open in fourth paragraph)To contact the reporter on this story: Ryan Vlastelica in New York at firstname.lastname@example.orgTo contact the editor responsible for this story: Catherine Larkin at email@example.comFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.Mexico’s central bank will probably lower borrowing costs for a third straight meeting Thursday and continue monitary easing into next year as inflation slows, eroding the carry trade appeal of the Mexican peso.The central bank, led by Governor Alejandro Diaz de Leon, will reduce the key rate by a quarter point to 7.50%, according the estimate of 17 of 26 economists surveyed by Bloomberg. The other nine forecast a half-point cut to 7.25%.President Andres Manuel Lopez Obrador often points out that the peso is the strongest major currency since he took office in December. But much of its demand is due the carry trade whereby investors borrow in currency where interest rates are low and buy into those with higher rates, such as Mexico. Mexico currently has the third-highest real interest rate (the gap between the policy rate and inflation) among major economies, exceeded only by crisis-stricken Argentina and Turkey. But as Mexico’s borrowing costs tick steadily lower, the rate differential against other currencies -- and hence the peso’s allure -- becomes less pronounced.“We believe the peso will depreciate gradually for the rest of the year and into 2020 as the carry advantage of the peso erodes,” said Juan Carlos Alderete, an economist at Grupo Financiero Banorte. The rate will end next year at 6%, and the peso at 21.30 per dollar, he said.Interest rate cuts may be more important than ever now, as Mexican growth continues to disappoint both investors and the nation’s president. Lopez Obrador has brandished the strong peso as a weapon against critics who worry he’s scaring investors. But an easing cycle that weakens the exchange rate and makes exports more attractive could help Mexico’s economy far more.Gross domestic product edged up just 0.1% in the third quarter after the economy narrowly avoided a technical recession in the second quarter.The debate among economists and strategists isn’t whether the peso will depreciate, but how weak it will become. And that depends on where they see the easing cycle ending. After inflation plunged to the central bank’s 3% target, the real rate is now at 4.73%.Economists forecast borrowing costs will end next year at 6.50% and the peso at 20.07 per dollar, according to the latest survey by Citibanamex. The exchange rate weakened 0.55% to 19.4637 per dollar in early Thursday trading.For Christian Lawrence, a Rabobank strategist and the peso’s third-best forecaster in Bloomberg’s ranking, the central bank still has a while to go before robbing the peso of its appeal.“By my estimates, rates can fall to 5% before the peso loses its carry trade shine relative to other currencies,” said Lawrence. But if policy makers cut more quickly than expected, by half a point on Thursday, the peso will weaken, he says.Bank of America sees the central bank barely cutting rates, and ending the easing cycle at 7%, allowing the peso to remain strong. “We think that the differential with other countries will remain wide,” said chief economist Carlos Capistran.(Updates with peso move in ninth paragraph.)To contact the reporters on this story: Nacha Cattan in Mexico City at firstname.lastname@example.org;Justin Villamil in Mexico City at email@example.comTo contact the editors responsible for this story: Juan Pablo Spinetto at firstname.lastname@example.org, Matthew BristowFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.Japan’s economy slowed sharply in the third quarter as overall exports continued to fall amid trade tensions and a shopping splurge before a sales tax increase ran down stockpiles of goods.The deceleration comes as Prime Minister Shinzo Abe mulls the size of an economic stimulus package aimed at shielding Japan’s economy from the global slowdown and the impact of the tax hike. Abe may also need to consider the implications of Tokyo’s trade spat with Seoul, as a steep decline in Korean tourist numbers dragged on the economy.Gross domestic product grew at an annualized pace of 0.2% in the three months through September from the previous quarter, the Cabinet Office said Thursday, stuttering from revised growth of 1.8% in the April-June period. Economists had forecast a 0.9% expansion.Stronger business investment combined with robust consumer spending before last month’s tax hike helped prop up growth, though rush demand was weaker than expected. The softer jump in consumer spending before the tax increase suggests an expected contraction in the economy in the current quarter will be smaller than feared.“Given today’s data, I think fiscal spending of 3 trillion yen ($28 billion) would be sufficient for an economic package to keep the economy going,” said Takashi Shiono, economist at Credit Suisse Group AG. If the package turns out to be 4 trillion yen or more, that would likely prompt economists to revise up their forecasts for the economy, he added.Abe ordered the stimulus measures last week as Japan’s economy shows sign of losing momentum, hit by soft global demand amid the U.S.-China trade war, the tensions with Korea and natural disasters such as Typhoon Hagibis. Those factors put growth in a vulnerable spot, given concerns over a cooling of consumer spending after the tax hike.Japan’s Abe Calls for Extra Spending for Disaster Relief, GrowthWhile an influential member of Abe’s ruling party has said government spending of more than 6 trillion yen ($55 billion) is needed, the size and timing of the measures have yet to be announced.Fiscal measures will likely reduce the need for the Bank of Japan to add stimulus, barring a major deterioration of economic data or a slide in markets, though speculation rumbles on that the BOJ will lower its negative rate by January. The smaller jump in quarterly spending will also reassure the central bank, which has flagged the impact of the tax hike as a concern.The gain in private consumption was less than a quarter the size of the bump that came before the last sales tax hike in 2014. That suggests Japan’s economy will suffer less damage from the tax hike than five years ago, when a boom in consumption was followed by a bust that triggered a 7.3% economic contraction in the following quarter.Temporary PainFalling service exports was the dark spot on trade, outweighing a slight improvement in shipments of goods overseas. That reflected a sharp drop in spending by Korean tourists as they chose other destinations or stayed home amid the dispute with Japan, a point highlighted by economy minister Yasutoshi Nishimura. The spat between the two neighboring economies has its roots in a dispute over Japan’s colonial past.Still, economists said they didn’t expect the dispute with Korea to further depress growth in coming quarters given that exports of key items for Korea’s tech sector haven’t fallen in the way feared. That likely leaves tourist sentiment as a passing factor for Japan’s economy.“I think the slump in the number of Korean tourists is already bottoming out. This time, the figures showed the worst extent of the impact, but I don’t think things will get deteriorate from here,” said Atsushi Takeda, chief economist at Itochu Research Institute Inc.What Bloomberg’s Economists Say“The undershoot in 3Q GDP growth suggests the slump in 4Q due to the higher sales tax is likely to be less severe than expected. The slowdown was driven mainly by a drag from net exports as imports picked up on front-loaded demand.”\-- Yuki Masujima, senior economistClick here to read the report(Adds comments from economy minister, analyst.)\--With assistance from Tomoko Sato and Toru Fujioka.To contact the reporter on this story: Yoshiaki Nohara in Tokyo at email@example.comTo contact the editors responsible for this story: Malcolm Scott at firstname.lastname@example.org, Paul Jackson, Jason ClenfieldFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- The bond market isn’t ready to concede that the economy is on a sustained upturn that will allow it to skirt a severe slowdown or even a recession. U.S. Treasuries followed most of the rest of the global government debt market higher Wednesday, providing a welcome respite from a sell-off that’s looking more like an adjustment of overextended positions than a referendum on faster growth.Sure, some of the gains in the bond market may be related to doubts about the U.S. and China actually agreeing to the first phase of a trade deal after some downbeat comments by President Donald Trump on Tuesday and subsequent reports of a “snag” on Wednesday. But what hasn’t been discussed as much is evidence that the recent slump in bonds had much to do with the reversal of positions by general investors who bought government debt in August, September and early October as recession speculation peaked. That was borne out in the latest monthly survey of global fund managers by Bank of America released on Tuesday. It showed being long Treasuries is no longer the world’s “most crowded trade,” with 21% of respondents saying so, down from a massive 41% in October. The new “most crowded trade” is long U.S. technology and growth stocks at 39%. And with yields on benchmark 10-year Treasuries having risen from 1.43% in early September to 1.87% on Wednesday, there’s reason to believe that bonds are more fairly valued. In fact, the latest yield is higher than the 1.71% that economists expect it to be at the end of the year and the 1.78% they estimate at the end of the first quarter 2020, according to data compiled by Bloomberg.Although the data show that the economy both in the U.S and globally may not be getting any worse, that’s far different from showing it’s getting much better and causing central banks to turn hawkish again. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook,” Federal Reserve Chair Jerome Powell told the Congressional Joint Economic Committee on Wednesday in Washington. “However, noteworthy risks to this outlook remain.”STOCKS HIT A TRADE SNAGThanks in part to Powell’s dovish comments, everything was going swimmingly in the stock market until the Wall Street Journal reported that trade talks between the U.S. and China had hit a snag, briefly causing equities to erase their gains. Citing people familiar with the matter, the paper said China is leery of putting a numerical commitment on agriculture purchases in the text of a potential agreement. The development seems to explain why Trump only a day earlier sounded unusually cautious about a trade agreement, saying only that it “could happen soon” and adding that if it didn’t, then he would just increase tariffs on Chinese goods. This is no small matter for the stock market, which has rallied to new highs largely on the notion that a “phase one” deal would be reached, eliminating a significant drag on the global economy. “A couple of weeks ago, it looked like that phase one deal looked all but certain. I think the market started to price in a really positive outcome on the trade side,” Jeff Mills, chief investment officer at Bryn Mawr Trust, told Bloomberg News. “Although I do think that progress is moving in a positive direction, I think it would be foolish for us to assume that we’re going to move completely in a positive direction in trade without any type of intermittent setbacks.” Although equities recovered in late trading, buying stocks in the hopes of a trade deal is proving to be a perilous strategy.DEFICITS (SOMETIMES) DON’T MATTERThe Bloomberg Dollar Spot Index rose for the seventh time in eight days on Wednesday to its highest in a month even though the U.S. government said its budget deficit widened in October, the first month of the fiscal year, as government spending increased and receipts declined. The shortfall grew about $34 billion, or almost 34%, from the same month last year, to $134.5 billion. This comes after the budget deficit for fiscal 2019 clocked in at just shy of $1 trillion at $984.4 billion. One benefit to having the world’s primary reserve currency is that such deficits don’t exactly matter as much as they would in a place such as Greece. Still, an out-of-control deficit and borrowing could reduce demand for the greenback and U.S. debt at the margins. The upshot is it looks as if the U.S. may not borrow as much as previously estimated to finance the deficit, thanks to recent moves by the Fed to buy Treasury bills to ensure reserves remain abundant. As a result, the strategists at JPMorgan Chase wrote in a report this week that net debt issuance to the public by the U.S. Treasury will be just $720 billion, down from a projected $1.27 trillion in fiscal 2019. That should provide some support to the dollar and, by extension, the U.S. government.ITALY GETS BYPASSEDOne place where the bond rally failed to make an appearance was Italy. Demand slumped to the lowest in 14 months at an auction Wednesday of seven-year notes, even with yields near the highest in three months. That suggests investors prefer countries with slimmer returns but lower credit risk and comes after a recent rise in yields in markets such as Germany and France, weakening Italy’s relative appeal, according to Bloomberg News’s James Hirai. Investors have been cooling toward Italy after political uncertainty and a recent revival in the fortunes of euro-skeptic politician Matteo Salvini. “Peripheral spreads become more vulnerable the higher core yields go as investors switch demand to safer core, semi-core bonds,” Peter Chatwell, head of European rates strategy at Mizuho International, told Bloomberg News. “Higher yields, without a broad based and structural rise in nominal growth, will pose a sustainability risk to Italy’s debt.” With $2.26 trillion of government debt, Italy has more bonds outstanding than all but the U.S., China and Japan, data compiled by Bloomberg show. Italy also has one of the highest debt-to-gross domestic product ratios at 131.5%, compared with 82.3% in the U.S. So when Italy has a poor debt auction, it’s worth paying attention.HOT COCOAChocolate lovers may soon have to dig a little deeper in their pockets to afford their favorite indulgence. Cocoa prices have staged an impressive rally in recent months, approaching an almost 18-month high in New York on Wednesday. The gains come amid speculation that near-term supplies are getting tighter, according to Bloomberg News’s Agnieszka de Sousa. The clearest sign that traders expect tighter supplies can be seen in the prices of so-called nearby contracts, which have moved into a premium compared with later deliveries in a market structure known as backwardation and a sign of tightening supplies. “Traders are blaming the upsurge on concerns about a shortage in the short-term availability of cocoa beans,” Carsten Fritsch, an analyst at Commerzbank AG, said in a note. Still, it’s not clear why short-term supplies should be so tight as shipments in top grower Ivory Coast are still in full swing and higher than a year earlier, he said. There are also some concerns that a new $400-a-ton premium for supplies from West Africa, the world’s top producing region, may affect the way cocoa is traded on the exchanges. The new pricing system could mean that fewer supplies end up getting delivered to warehouses monitored by ICE Futures U.S., driving a rally in the market, according to NickJen Capital Management.TEA LEAVESThere is a good chance that talk of a global recession could heat up again as soon as Thursday. That’s when Germany — Europe’s largest economy — reports on GDP for the third quarter. The median estimate of economists surveyed by Bloomberg is for a contraction of 0.1%, which would mark a technical recession because the economy shrank by the same amount in the second quarter. But as Bloomberg Economics points out, whether the German economy records the shallowest of recessions or escapes one by the narrowest of margins isn’t important; what’s important is how long the dip will persist.DON’T MISS FOMO Doesn’t Cut It as a Buy Signal for Stocks: John Authers The World Is Being Inundated With Financial Capital: Noah Smith Jamie Dimon Is Wrong About Negative Rates: Ferdinando Giugliano The IEA’s New Energy Outlook Comforts No One: Liam Denning Trump’s Economy Complicates Democrats’ Message: Karl W. SmithTo contact the author of this story: Robert Burgess at email@example.comTo contact the editor responsible for this story: Daniel Niemi at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Morgan Stanley is one of the most bearish -- and bullish -- on Saudi Aramco’s valuation.In a presentation for investors, Morgan Stanley bankers ran through several valuation models that gave a spread of about $1 trillion between the most bearish and bullish scenarios.For example, based on a dividend discount model the spread ran from $1.06 trillion up to $2 trillion. The base case was $1.52 trillion, according to the presentation seen by Bloomberg. A spokesman for Morgan Stanley declined to comment.Morgan Stanley isn’t alone in struggling to pinpoint exactly how much Aramco is worth. Valuation has been a sticking point since the IPO was first touted in 2016. Aramco faces a delicate balance as it seeks to push its IPO valuation as close as possible to Crown Prince Mohammed Bin Salman’s $2 trillion -- a figure that’s been met with skepticism from many professional investors -- while making sure it’s attractive to potential Saudi buyers.Range of some of the banks with the IPO mandate:Another Morgan Stanley scenario shows a valuation of between $1 trillion and $2.2 trillion, according to the presentation. A third model shows a range of $1.07 trillion and $2.5 trillion.Among 16 banks that offered a valuation, the range in estimates ran from $1.1 trillion at the bottom right up to $2.5 trillion, a number that even the crown prince might find optimistic. The midpoint was $1.75 trillion, according to people who’ve reviewed all the research.This $1.4 trillion spread between the top and low end of valuations is more than the combined market capitalizations of Exxon Mobil Corp., Royal Dutch Shell Plc and Chevron Corp, the world’s three largest publicly listed energy companies.Ultimately, investors will decide. The price range for the IPO will be announced on Nov. 17 and bookbuilding for the offering will start the same day. Retail investors will have to bid at the top end of that range and the company will set the final price for all investors based on institutional investors’ book-building process that ends on Dec. 5.To contact the reporters on this story: Archana Narayanan in Dubai at email@example.com;Matthew Martin in Dubai at firstname.lastname@example.orgTo contact the editors responsible for this story: Stefania Bianchi at email@example.com, Shaji MathewFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- According to the Thundering Herd, the herd is thundering back into risk-taking. And the greatest spur leading it on has little to do with politics, or the economy, or the corporate sector. Instead, it is driven by that most basic human emotion: fear of missing out. President Donald Trump’s much-heralded New York speech on Tuesday provided almost nothing that was newsworthy, but it did give him an opportunity to gloat — quite accurately — about the state of the stock markets. They have been on a tear, with most of the key U.S. benchmarks breaking out of the ranges in which they have been stuck since early last year, to set new highs. They have done this even though, as the president never ceases to complain, the Federal Reserve raised rates repeatedly last year, before reversing much of that move over the last three months. The problem is to identify just why stock markets have suddenly strengthened. It isn’t because of an end to the trade war. Despite hopes, Trump failed to roll back any tariffs in his speech, or offer any promises on when a deal with China might be signed. His surprise announcement of new tariffs on Aug. 1 plainly forced the S&P 500 Index lower; nothing that has happened on the trade front since then would justify the 9% rally in stocks since markets troughed after that news hit.It is also hard to attribute the rally to the economy. When stocks took a dive late last year, they did so against a background of nasty surprises in the U.S. data, as measured by Bloomberg’s U.S. economic surprise index. In the summer, that data started to surprise much more positively — but stocks were becalmed during that period. The rally has only come since the economic surprise indexes stalled, in mid-September. The S&P’s rally also roughly coincided with the season of corporate earnings announcements for the third quarter, which came in 3.8% ahead of expectations, according to FactSet. But earnings almost always exceed expectations, thanks to the games played by corporate investor relations departments. Over the last five years, they have on average beaten forecasts by more — 4.9%. Further, third-quarter earnings were accompanied by such downbeat assessments of the future that the consensus estimate for earnings growth for the next 12 months has actually gone negative, according to SocGen Quantitative Research. And yet, despite all of this, there is no doubt that market sentiment has turned on a dime. In mid-summer, the U.S. yield curve inverted, a classic recession signal, and many braced for an economic downturn. That’s over. According to Bank of America Merrill Lynch’s latest global survey of fund managers, we have just witnessed the greatest month-on-month improvement in economic sentiment since the survey began in 1994. A month ago, a net 37% of fund managers expected the global economy to deteriorate over the next 12 months; now, a net 6% expect an improvement.What could possibly be behind this? The president may have at least nodded at the answer with his claim that that the U.S. indexes would be 25% higher now if the Fed had negative rates. This is a dubious assertion, as only disastrous economic conditions would prompt the U.S. central bank to take such desperate measures.But that sudden improvement in investors’ sentiment did indeed come as the Fed reversed its policy of five years, and started to expand its balance sheet again. It did this to restore liquidity to the repo market, where banks raise their short-term funding, and the Fed has protested repeatedly that this is not a return to “QE” asset purchases to boost the economy. For all these protestations, the market has treated it as a turning point. Added to this, as mentioned, there is the age-old fear of missing out. The end of the year is coming, when investment managers will be judged on their performance. Those who are behind have an incentive to clamber into the market now, while there is still time. And the rally has been unbalanced, with most gains going to a small group of large U.S. stocks. If the stars align for a broad recovery, there is ample potential for big rallies by smaller companies, and by stocks outside the U.S. The rest of the world has joined in this rally, but there is still a long way to go before they catch up — and nervous investment managers are conscious of this. It is tempting to fit a narrative of economic and trade optimism to the rebound in appetite for risk. But sadly, this looks a lot like a return to the pathology that has dominated throughout the post-crisis decade: markets await free money from central banks, and fear missing out when that money arrives.To contact the author of this story: John Authers at firstname.lastname@example.orgTo contact the editor responsible for this story: Beth Williams at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.John Authers is a senior editor for markets. Before Bloomberg, he spent 29 years with the Financial Times, where he was head of the Lex Column and chief markets commentator. He is the author of “The Fearful Rise of Markets” and other books.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Spreading social and political unrest is taking a toll on Latin American assets.The region’s dollar bonds have lost 3.5% since early August, when Alberto Fernandez’s surprise victory in Argentina’s primary vote put the leftist on course for the presidency. That’s the worst performance among emerging markets, according to JPMorgan Chase & Co.’s indexes.The slump has been exacerbated over the past month by violent demonstrations that led Chile to declare a state of emergency and protests in Ecuador that forced the government out of the capital. Bolivia’s Eurobonds tumbled on Tuesday after President Evo Morales resigned and fled to Mexico in the wake of a disputed election that triggered weeks of unrest.Video: The Idiosyncrasies of LatAm Unrest Of the 10 emerging markets with the worst-performing dollar debt in November, six are from Latin America.There’s little to suggest the strife will end soon. Fernandez hasn’t convinced investors he can fix Argentina’s finances once he’s sworn in next week. BNP Paribas Asset Management said Bolivia’s political transition will be rocky and doubts bond prices have fallen far enough to make them worth the risk. Bank of America Corp. lowered its economic-growth forecasts for Chile on Tuesday and said the opposition may try to force the government into deeper fiscal concessions than those it’s made so far.Regional currencies have begun to feel the heat. Chile’s peso has sunk more than 9% since Oct. 18, when rioters torched subway stations. The Colombian peso strengthened last month, but weakened more than 2% on Tuesday, when Mexico’s peso, Peru’s sol and Brazil’s real also fell.(Updates second paragraph with returns.)\--With assistance from George Lei.To contact the reporter on this story: Paul Wallace in Dubai at firstname.lastname@example.orgTo contact the editors responsible for this story: Alex Nicholson at email@example.com, Alec D.B. McCabe, Carolina WilsonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Investing.com - U.S. futures fell on Wednesday as U.S. President Donald Trump continued to keep markets guessing about when and if a trade deal with China will be reached, while testimony from Fed Chair Jerome Powell will be the highlight of the day.
(Bloomberg Opinion) -- Markets were widely anticipating that President Donald Trump would use his speech to the Economic Club of New York on Tuesday to trumpet progress on reaching the first phase of a trade deal with China. Instead, all he said was that an agreement “could happen soon.” That’s not exactly the language markets wanted to hear, which helps explain why equity markets spent much of the rest of the day erasing the bulk of their gains.The S&P 500 Index is now up 23.3% for the year, and whether the rally extends or not is largely dependent on the U.S. and China showing progress in trade talks. But astute market watchers such as Medley Global Macro Managing Director Ben Emons note that Trump’s language toward the talks has become more cautious of late. He’s gone from describing them as “going very well” to saying they are “moving along” to Tuesday’s “could happen soon.” As linguists know, “could” is one of the weaker verbs in the English language because theoretically anything “could” happen. It’s certainly no match for “may.” Emons pointed out in a research note that there was also a softening in Trump’s tone toward the trade talks in April, when the trade hawks gained his ear. The S&P 500 tumbled 6.58% the next month. Some would say this is just semantics, but the ebb and flow of the trade war is the primary driver of markets. The latest monthly survey of global fund managers by Bank of America released on Tuesday showed that 39% of respondents said it’s the biggest risk facing markets, followed by 16% who fear a bond bubble, 12% who cite monetary policy impotence and 11% who said a slowdown in China is the biggest worry.So, does Trump’s language suggest there will a repeat of the May episode for stocks? It’s impossible to know, but the stakes are higher. The Bank of America survey shows that allocations to global equities are higher and average cash holdings are lower, falling to the lowest since June 2013 at 4.2% of assets.NEGATIVE RATES? NO THANKSTrump also took a shot at the Federal Reserve, saying it was hurting the U.S. by not copying other central banks in deploying negative interest rates. On the face of it, getting paid to borrow seems appealing. But that ignores the fact that countries with negative rates have deep economic problems, and many central bankers are finding that they do more harm than good. One of those countries is Japan. Its central bank is actively trying to steepen its yield curve, pushing yields on long-term government bonds back above zero. But instead of worrying what this might do to Japan’s economy, the country’s stock market has been on a tear. The benchmark Topix index is up 15.7% since late August, outperforming the MSCI All-Country World Index, which is up just 8.06% in the same period. The biggest beneficiary of positive rates is the banking system, which is why the Topix bank index has done better, surging 19%. More economists say negative rates don’t really increase borrowing and certainly don’t promote lending. The International Monetary Fund forecast last month that Japan’s economy will expand just 0.9% this year, compared with 2.4% for the U.S. This change in sentiment toward negative rates by central banks is one reason the global government bond market has softened, with yields as measured by the Bloomberg Barclays Global Aggregate Treasuries Index having risen from a three-year low of 1.17% on average in early September to 1.48% as of Monday.COMPLACENCY IS IN THE EYE OF THE BEHOLDERAnother revelation from the Bank of America survey is that fears of a looming global recession have largely vanished. A net 6% of those polled expect a strong economy next year, an increase of 43 percentage points from the October survey and the biggest monthly jump on record. Combine that with the largest allocations toward equities in a year and the declining cash balances, and it’s logical to ask whether investors have become too complacent. The CBOE Volatility Index, commonly known as the VIX, is back down to some of its lowest levels of the year, which is to say it’s not far from its record lows. Nicknamed “the fear gauge,” the measure tracks implied volatility in the stock market. The lower it goes, the less “fear” there is perceived to be among investors. But those who say this is a sure sign of complacency fail to acknowledge the expanded role of central banks in markets. It’s no coincidence that the rally in equities that gathered steam in October came as the collective balance-sheet assets of the Fed, European Central Bank, Bank of Japan and Bank of England rose by 0.6 percentage point to 35.7% of their countries’ total gross domestic product in October, according to data compiled by Bloomberg. The increase from September was the most for any month since March 2017. At the same time, a custom index measuring M2 figures for 12 major economies including the U.S., China, euro zone and Japan shows their aggregate money supply surged by $846.1 billion in October, the most since June. Central banks clearly have put a floor under markets, which should reduce volatility. LATIN AMERICA IS DOWNLatin America is quickly turning into the sick man of emerging markets. The economic problems in Venezuela and Argentina were already well known when protests swept Chile last month. Now there’s strife in Bolivia, resulting in violence, military intervention and the resignation of President Evo Morales, who was granted asylum in Mexico. But that move has caused friction between the U.S. and Mexico, which reversed a pledge not to intervene in affairs of other countries. That may have been a big reason Mexico’s peso sank the most in three months Tuesday, along with a Fox Business report that the U.S. may impose tariffs on autos and auto parts from Mexico. The Bloomberg JPMorgan Latin America Currency Index is down 2.84% since Nov. 1, sliding much further than the 0.43% drop in the MSCI EM Currency Index. On top of that, dollar-denominated bonds issued by borrowers in Latin America have lost 3.25% of their value since early August, according to Bloomberg News’s Paul Wallace. That’s the worst performance among emerging markets, according to JPMorgan Chase & Co.’s indexes. Of 10 emerging markets with the worst-performing dollar debt in November, half are from Latin America. The IMF last month said it expected the region’s economy to rebound next year, expanding by 1.8% compared with 0.2% this year, but the latest developments rightly have investors questioning whether those forecasts need to be downgraded significantly.TOO LITTLE TOO LATEThe optimism in recent weeks that perhaps the U.S. and China were on the cusp of some trade detente has provided some support to the long-suffering agriculture market. One raw material that has done especially well is milk. Class III futures, which represent milk used to make cheddar cheese, are up about 45% in 2019 and heading for the best year since 2007. Prices are already the highest since 2014. Alas, the rally wasn’t enough to save top U.S. milk processor Dean Foods Co., which has filed for Chapter 11 bankruptcy protection. Dean says it’s the largest U.S. processor of fresh fluid milk and other dairy products, but the company has been squeezed by fierce competition and shrinking profit margins, according to Bloomberg News’s Lydia Mulvany and Katherine Doherty. This is potentially significant from a political standpoint. Dairy is especially important to Wisconsin, where Dean Foods has operations. It’s a state Trump narrowly won in the last election and one many political scientists say he needs to hold on to if he hopes to win a second term in 2020. But the struggles of such a high-profile agriculture company could have a large number of those voters questioning whether Trump’s trade strategy is the right one for their industry.TEA LEAVESNow on to Jerome Powell. The Federal Reserve chair begins two days of Congressional testimony on Wednesday, providing lawmakers with an update on where the central bank sees the economy going. It won’t be an easy discussion. Although the U.S. stock market continues to set records, the Federal Reserve Bank of Atlanta’s widely followed GDPNow index, which aims to track the economy in real time, suggests growth of just 1% this quarter. The markets and the economy have clearly diverged. And while there is always the chance for a surprise, Powell will most likely repeat what he said on Oct. 30 after the Fed cut interest rates for the third time since July, which is that monetary policy and the economy are in a good place and that it would require a “material reassessment” of the outlook to justify additional monetary easing.DON’T MISS Even the Fed's Own Research Shows Rates Are Too High: Tim Duy Low Returns Stoke Investor Appetite for Risk: Barry Ritholtz Nobel Winners Offer an Antidote to Donald Trump: Mark Whitehouse Millennials on Cusp of Middle Age Missed Their Boom: Noah Smith Matt Levine’s Money Stuff: If You Own Everything, Why Merge?To contact the author of this story: Robert Burgess at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Some half of all jobs worldwide - or 800 million total jobs - could be at risk of becoming obsolete by 2035 due to the rise of automation. That’s the assessment from a new report written by Bank of America Merrill Lynch analysts.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.Germany through the worst of its downturn, peace in the trade war and green shoots for the global economy next year.It’s what investors have long dreamed of. Now, they’re starting to believe it.Confidence in Germany’s economy has risen to a six-month high, while a Bank of America survey showed a record surge in optimism about the global outlook. Stocks have rallied and the U.S. 10-year yield is back up near 2%, after recession fears drove it well below that level this summer.Part of the uptick may reflect hopes that the U.S. and China are closer to a trade accord, while economic surveys are offering signs that the manufacturing-led slowdown has troughed. More recently, there’s been news that the Trump administration may delay a decision to slap tariffs on European cars -- a welcome development for Germany’s auto industry.The improvement in the ZEW -- which dropped to a near eight-year low over the summer -- comes just two days before data are expected to show Germany sank into a technical recession in the third quarter. But that’s effectively old news, and the improvement in forward-facing indicators means many are looking past it.Growth in Europe’s largest economy will probably resume this quarter, though remain at a very sluggish pace well into 2020.But the sense of hope is helping global equities, with the S&P 500 and Germany’s DAX among indexes near record highs. Benchmark Treasury yields have risen 25 basis points this month, setting them toward a break above 2%. Capturing the mood, the Bank of America survey also said investors sold more defensive stocks, such as utilities and staples, while turning to assets sensitive to the economic cycle, like value shares, financials and equities in the euro area.“Of course, it is early days. The hard data is still bad,” said Florian Hense, an economist at Berenberg. “But if genuine economic data start to confirm the message from markets and financial analysts, we can usually be reasonably confident that better times are ahead again.”The outlook is murky in parts. Not least because of the U.K. election next month and the ongoing, though reduced, risk of a no-deal Brexit. U.S. President Donald Trump, who speaks in New York later, could also derail the optimism if he pushes back on hopes about the chance of a U.S.-China trade deal.Any near-term relief on auto tariffs don’t necessarily mean a change the broad trend of trade tensions that will continue to weigh on global growth, according to HSBC global chief economist Janet Henry. HSBC sees the U.S. expansion slowing to 1.7% in 2020, below the 1.8% Bloomberg consensus.“We are operating in a different world of ongoing de-globalization trends,” she said on Bloomberg TV on Tuesday. “The bigger picture is going to be with us in the coming years.”To contact the reporter on this story: Fergal O'Brien in Zurich at firstname.lastname@example.orgTo contact the editors responsible for this story: Craig Stirling at email@example.com, Michael Hunter, Sid VermaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.