|Bid||28.34 x 1000|
|Ask||28.39 x 900|
|Day's range||28.27 - 28.45|
|52-week range||25.35 - 28.96|
|Beta (3Y monthly)||0.12|
|PE ratio (TTM)||3.95|
|Forward dividend & yield||1.78 (6.18%)|
|1y target est||N/A|
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. The Swiss National Bank offered banks additional relief from its negative interest rates, a move that could give it some leeway to cut them further if needed.With the SNB’s policy rate at minus 0.75%, the finance industry has long complained about the impact on profitability. Officials led by Thomas Jordan responded on Thursday, saying they’ll exempt more of banks’ reserves from the effects of their monetary policy.Although the Swiss Bankers Association lambasted negative rates for causing massive structural damage, the SNB chief argued the adjustment wasn’t a capitulation to pressure. The measure comes a week after the European Central Bank cut its deposit rate and introduced a tiering system.“It’s not about making concessions for the banks, it’s much more that one must assume that this low-yield environment globally will be around for some time,” Jordan said on radio station SRF 4. “Therefore, it’s important that we adjust the system so as to maintain its effectiveness on the one hand, and to guarantee the central bank’s room to maneuver on the other.”The SNB won’t impose charges on amounts as much as 25 times minimum reserves from Nov. 1, up from 20 currently, and will review the level monthly. The move could help to prevent any further easing being passed on by banks to retail savers.While the SNB kept rates on hold, a deteriorating global outlook and no-deal Brexit could put upward pressure on the haven franc, forcing a policy response.“Despite not acting at this meeting, the SNB signaled strongly that further policy easing is on the way,” economists at Citigroup including Christian Schulz said in a note.The SNB also said the franc is highly valued and reiterated its intervention pledge. The currency touched a two-year high against the euro earlier this month.The franc was up 0.3% at 1.0965 per euro at 12:33 p.m. in Zurich.Citing downside global risks, the SNB also made huge downgrades to the outlook. It now sees growth as low as 0.5% this year, from around 1.5% previously. Inflation will almost stagnate in 2020 and be just 0.6% in 2021.The Swiss policy decision comes in a busy week for central banks. On Wednesday the Federal Reserve cut its key rate for the second time this year.The Bank of Japan left policy unchanged on Thursday but said it’ll take a closer review of the economy next month. Indonesia’s central bank cut its key interest rate for a third straight month. Norway bucked the global trend with a rate hike.(Updates with Jordan comments in fourth paragraph.)\--With assistance from Jana Randow, Jan Dahinten, Patrick Winters, Leonard Kehnscherper, Paul Gordon, Harumi Ichikura and Joel Rinneby.To contact the reporter on this story: Catherine Bosley in Zurich at firstname.lastname@example.orgTo contact the editors responsible for this story: Fergal O'Brien at email@example.com, Jana RandowFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- The Federal Reserve’s interest-rate decision on Wednesday was never going to be easy for Chair Jerome Powell.He and his colleagues had to reach consensus on how to weigh the U.S.-China trade war against a still-solid labor market and American consumer, not to mention signs of a pickup in inflation. They had to contend with whipsawing bond markets, which were pricing in almost three quarter-point rate cuts for 2019 at the start of September but expected fewer than two ahead of the Federal Open Market Committee’s meeting.Then came repo madness.Incredibly, and seemingly out of nowhere, the usually tranquil plumbing of the financial system went haywire. And that might be putting it mildly. The rate for general collateral repurchase agreements in the more than $2 trillion repo market reached a record 10% on Tuesday. The effective fed funds rate broke policy makers’ 2.25% cap on Wednesday. This isn’t supposed to happen.And yet, this week’s developments didn’t even merit a mention in the FOMC statement. Some analysts, like Matthew Hornbach at Morgan Stanley, said it was likely the Fed would announce permanent open market operations. Jeffrey Gundlach, chief investment officer of DoubleLine Capital, said in a webcast on Tuesday that the central bank might expand its balance sheet as a way of “baby stepping” to more quantitative easing.This doesn’t mean the Fed doesn’t care, or that it won’t ultimately adopt those measures. Most likely, it just didn’t have enough time to react in a big way. Policy makers did drop the interest rate on excess reserves, or IOER, by 30 basis points to regain control over short-term rates. The IOER rate had been set at the upper bound of the fed funds range until June 2018, when the Fed raised it by only 20 basis points. It’s now down to 1.8%, while the 25-basis-point cut to the fed funds rate sets the range at 1.75% to 2%. Basically, if stress in funding markets keeps pushing short-term rates higher, the sharper cut in IOER makes it somewhat less likely that the fed funds rate will breach the upper bound.Powell eventually addressed repo markets head-on, largely at the prodding of reporters: “Going forward, we’re going to be very closely monitoring market developments and assessing their implications for the appropriate level of reserves.And we’re going to be assessing the question of when it will be appropriate to resume the organic growth of our balance sheet. And I’m sure we’ll be revisiting that question during this inter-meeting period and certainly at our next meeting.We’ve always said that the level is uncertain. That’s something we’ve tried to be very clear about. We’ve invested lots of time talking to many of the large holders of reserves to assess what they say is their demand for reserves…But yes, there’s real uncertainty, and it is certainly possible that we’ll need to resume the organic growth of the balance sheet earlier than we thought. That’s always been a possibility.”The key word he seemed to stress was “organic.” That’s because any hint of expanding the balance sheet can be misconstrued as a resumption of post-crisis quantitative easing. However, it would be a mistake to consider it the same as QE. Hornbach explained it eloquently on Bloomberg TV before the Fed’s decision:“Quantitative easing, the purpose of that is to expand reserves in the system from the status quo of the reserves that are needed to keep liquidity and the fed funds target within that range. When you start losing control of the target rate, you need to increase reserves in the system, but that’s not necessarily quantitative easing as we know it in a traditional sense. They’re not trying to ease monetary policy, they’re trying to get better control over that short-term interest rate.”That’s the type of nuance that can get lost on investors if the Fed, and those who write about it, aren’t careful.In fact, Wednesday’s interest-rate decision could be seen as something of a “hawkish cut.” Policy makers’ “dot plot” signaled sharp divisions among policy makers, as Powell predicted, with the median estimates calling for no more rate cuts through 2020. It then shows one quarter-point hike in 2021 and another in 2022, albeit with many different estimates.Five of them appeared to indicate they didn’t agree with the decision to reduce rates on Wednesday. That almost certainly includes Esther George and Eric Rosengren, who openly dissented. James Bullard dissented as well, but because he favored a 50-basis-point cut. On any other Fed day, this squabble between the hawks and doves would take center stage. After all, it’s the first decision with three dissents since 2016 and the first with dissents in both directions since mid-2013. Citigroup Inc.’s Economic Surprise Index, for one, suggests those who opposed easing policy have a point: It’s at the highest level since April 2018. President Donald Trump, to no one’s surprise, sides with Bullard. He tweeted almost immediately after the Fed decision that Powell and the central bank have no “guts.”The real test of the Fed’s mettle will be if the short-term rate markets continue to exhibit stress. The New York Fed has been the subject of market ridicule for having to cancel its first overnight repo operation in a decade on Tuesday because of technical difficulties and for being late to do so in the first place. Powell said that funding markets “have no implications for the economy or the stance of monetary policy.” That’s true — but only until they do.To contact the author of this story: Brian Chappatta 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.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Singapore saw its lead over Hong Kong shrink to just a whisker in the battle to be Asia’s biggest foreign-exchange currency hub. To keep its advantage, the island state wants to attract more companies to set up electronic trading platforms.Average daily trading in Singapore jumped 22% to a record $633 billion in April from the same period in 2016, according to the latest survey by the Bank for International Settlements. That’s just ahead of Hong Kong’s $632 billion, as the Chinese city saw a 45% surge in daily transactions.Singapore has enticed UBS Group AG, Citigroup Inc, Standard Chartered Plc and JPMorgan Chase & Co. in the past year to set up FX pricing and trading engines so that investors can reduce the time lag from routing trades elsewhere. That’s helped it take market share from Japan, while competing against Hong Kong that’s at the forefront of the yuan market.The Southeast Asian nation will need another three to five major players to build electronic trading platforms to achieve “critical mass” over the next year, according to Benny Chey, assistant managing director of development and international at the Monetary Authority of Singapore.“We have confidence that we’ll get those players as we’re already in discussions with them,” Chey said in an interview, without disclosing their identities. “Growth of trading in Asian and other emerging-market currencies will be an increasingly important market driver for Singapore.”The latest data from BIS showing a neck-to-neck race between the two rival financial centers also reflected a surge in trading of the Hong Kong dollar that month as bears were squeezed when borrowing costs suddenly advanced.“The increases in FX turnover were mainly due to hedging and arbitrage trades of clients, as well as increased hedging and funding needs of financial institutions,” the Hong Kong Monetary Authority said in an emailed response to questions. “The 2019 BIS survey results reaffirmed Hong Kong’s status as a major international financial center.”Read: Hong Kong Dollar Jumps the Most This Year as Bears Face SqueezeBIS data showed that Japan’s share of global FX trading in April dropped to 4.5% from 6.1% in 2016. Sales desks from five locations -- the U.K., U.S., Singapore, Hong Kong and Japan -- intermediated 79% of the world’s total daily currency trading.The increase in FX trading in Singapore was broad based, with growth seen in Group-of-10 currencies and emerging-market ones such as the South African rand and Mexican peso. The U.S. dollar, yen, euro, and the Australian and Singapore dollars were the most-traded currencies in the island state, the data showed.Singapore has been offering tax incentives and government grants to boost trading. Family offices are also a focus for Singapore’s central bank, according to MAS’s Chey. “The wealth accumulation and need to transfer wealth from one generation to another will help growth,” he said.Family WealthThe number of Asian billionaires will rise by 27% to 1,003 between 2018 and 2023, making up more than a third of the world’s total billionaire population, according to a March report by Knight Frank LLP.“We just need another three big players -- say Goldman, Commerzbank and HSBC for example -- and the floodgates should open,” said Wong Joo Seng, chief executive officer of currency-platform provider Spark Systems Pte, which got financial support from MAS to set up in Singapore.The heart of the challenge for Singapore is latency -- the 10th of a second extra it takes to route an order through servers in Tokyo or London or New York, where most major banks have sited their trading engines. To capture big-volume players, the government needs to persuade companies to build those expensive systems and data centers in Singapore.Citigroup, the world’s joint biggest forex trading group by market share, will provide liquidity through its Singapore FX trading engine in October. It’s also investing in a second data center, said Mark Meredith, Citi’s London-based global head of electronic trading for FX and local markets.Singapore is the fourth FX trading hub for Citi, which also has systems set up in Tokyo, New York and London.“It’s an environment that supports an increasing amount of e-commerce activity,” Meredith said of Singapore. “There’s the growth of wealth in Asia and high-net-worth individuals situated there as well.”While Singapore and Hong Kong have seen increased trading, both cities still lag significantly behind the U.K. and U.S. where investors exchange $3.58 trillion and $1.37 trillion respectively each day, according to BIS data.“Hong Kong’s growth reflects still flourishing financial activities in the Hong Kong dollar market, including IPOs and debt financing over the past few years,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank Ltd. “Growing integration between Hong Kong and mainland China could also be a source of growth in HKD trading activities.”Standard Chartered Bank is looking to build an exact replica of its FX hubs found in Tokyo, New York and London in Singapore, supporting the trading of 130 currencies, according to Michele Wee, the head of financial markets for Singapore at the lender.“We have a lot of new entrants into the market who are having conversations with us on co-locations,” Wee said of Singapore’s development as an FX hub. “It’s a work in progress.”(Adds trading market share in eighth paragraph.)\--With assistance from Gregor Stuart Hunter.To contact the reporter on this story: Ruth Carson in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: Tan Hwee Ann at email@example.com, Brett MillerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- The main takeaway from the biggest-ever surge in oil prices after an attack wiped out about half of Saudi Arabia’s output capacity over the weekend is that it may not truly matter. The global stock market as measured by the MSCI All-Country World Index fell to its lowest — wait for it — since Wednesday. And while there was a flight to safety, the yield on the benchmark 10-year U.S. Treasury note only dropped to its lowest since Thursday.Those moves may seem less than proportionate to the attack, which resulted in the sudden loss of 5.7 million barrels of oil a day, more than the 4.3 million lost during the 1990 Gulf War or the 5.6 million during the 1979 Islamic Revolution. But losing such a large amount of production in an $84.8 trillion global economy isn’t the same as when the economy was just $37.9 trillion in 1990 or $27.4 trillion in 1979. The relatively muted moves also underscore how the global energy market has become more diversified, with the U.S. now a net exporter of crude oil and refined products. And while this may change if Saudi production doesn’t come back online as quickly as forecast or if geopolitical risks escalate as a result of the attack, West Texas Intermediate crude prices — at about $63 a barrel on Monday, up more than $8 on the day — are still less than the $66.60 they reached in April and less than last year’s high of $76.90 in October. Looked at another way, oil prices are up only 48% from last year’s low on Christmas Eve. That may sound like a big move, but DataTrek Research notes that every U.S. economic downturn since 1970 has been preceded by a doubling of oil prices in the previous 12 months. Based on that, the firm figures that oil wouldn’t be a problem for the economy until it reached $80 a barrel.LPL Senior Market Strategist Ryan Detrick points out that the last 10 times West Texas Intermediate crude futures surged more than 10%, the S&P 500 rose eight times. That fits the glass-half-full narrative, which is that with the U.S. a net exporter, higher oil prices might even spark investment in its energy-related industries. Even so, it’s not as if the world is desperate for oil. As my Bloomberg Opinion colleague Julian Lee pointed out, it was just a few days ago that OPEC and its allies were bemoaning the excessive inventories still sloshing around the world after more than two and a half years of supply restrictions.STAGFLATION AHEAD?The big surge in oil prices had the bond market sending a rare and unusual signal Monday. On the one hand, U.S. Treasury yields fell as investors sought haven assets in case the attack escalates into a broad geopolitical crisis that further weighs on economic growth. On the other, breakeven rates on five-year Treasuries, a measure of what traders expect the rate of inflation to be over the life of the securities, rose to the highest since July. Of course, it’s still early days, but so-called stagflation, in which economic growth slows to a stall and inflation accelerates, is a deadly combination for markets as seen in the 1970s. Federal Reserve Chairman Jerome Powell is sure to get questions on what the oil spike means at his press conference on Wednesday after the central bank’s policy meeting where it’s expected to cut interest rates for the second time since July. Even before the jump in oil prices, investors were becoming jittery about evidence of faster inflation. The Labor Department said last week that the core U.S. consumer price index rose 0.3 percent in August, the first time it has risen that much for three consecutive months since the 1990s. If the report signals that the slowdown in inflation earlier this year truly was “transitory,” as Powell has described it, it could call into question the need for further rate cuts as well as the historic low in bond yields.INDIA LOSES THE MOSTOne place where the surge in oil prices is likely to have a big impact is India. The rupee was the biggest loser in the currency market Monday, weakening as much as 1.06% and extending its decline over the past two months to 4.26%. The currency suffered a disproportionate hit not only because India is one of the world’s biggest importers of oil, but because it also suffers from a deficit in its current account, which is the broadest measure of trade because it includes investment. Economists estimate that every dollar increase in the price of oil adds about $2 billion to India’s costs to import crude. The timing is also not good, with the rupee already under pressure on concern that foreign funds may continue to head for the exits after economic growth slipped below trend of two consecutive months. Foreign funds pulled $2.3 billion from Indian shares in August, the biggest outflow since October. “If crude prices stay up, the Reserve Bank of India may not be able to deliver more than 25 basis points of cuts,” Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership in Mumbai, told Bloomberg News. As the “I” in the BRIC acronym that also includes Brazil, Russia and China, any lasting strength in Indian markets has the potential to lift emerging-market assets globally; the opposite can also happen.ONE LESS BEARIt didn’t receive a lot of attention, perhaps because the news broke late Friday after markets had closed and then the Saudi oil attacks happened, but one prominent bear on the stock market has capitulated. Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist, raised his year-end target for the S&P 500 Index to 3,050 from 2,850, going from the fourth-bearish among Wall Street prognosticators tracked by Bloomberg to one of the few who still see gains for the rest of 2019, according to Bloomberg News’s Lu Wang. The new target represents a 1.4% increase from Friday’s closing level of 3,007.39. Levkovich’s newfound optimism is built on a scenario in which a glut of supply has dwindled, setting the stage for a recovery in production. Industries such as semiconductors have suffered profit declines amid excessive inventory, and earnings among S&P 500 companies are expected to fall 3% in the third quarter before rebounding to a growth pace of 3.8% in the fourth, analyst estimates compiled by Bloomberg showed. “A required inventory correction is ending, with production likely to pick up modestly just to meet end-market demand,” Levkovich wrote in a note to clients. As a result, fourth-quarter “earnings estimates may not need additional trimming.” Wang notes how strategists have been forced to play catch up with a market that has risen about 20% this year. Based on the last Bloomberg survey in mid-August, all but six of 21 strategists have seen the benchmark exceed their year-end targets.MARKET PLUMBING GOES HAYWIREThe repurchase, or repo, market may be tremendously opaque, but few things are more important when it comes to making sure markets broadly are running smoothly. That’s why it’s often referred to as the market’s plumbing system. So when there’s a glitch in the repo market, it pays to take notice — like now. ICAP pricing shows that the rate on overnight repurchase agreements soared by 1.53 percentage points to 3.80%, the largest daily increase since December, according to Bloomberg News’s Alexandra Harris. The spike may be a sign that the Federal Reserve is having trouble controlling short-term interest rates. Market participants are watching to see how long these elevated levels persist, as any prolonged pressure could signal unruly funding markets at the end of the year, Harris reports. A combination of factors seem to be behind the move higher, including the settlement of the mid-month Treasury coupon auctions, which pushed more collateral into the repo market. At the same time, cash is leaving the funding space as corporations withdraw from banks and money-market funds to make their quarterly tax payments. The surge suggests the next few months could be volatile given the expected increase in Treasury borrowing, bloated dealer balance sheets, regulatory issues and a banking system where reserves are already scarce.TEA LEAVESData from the Treasury Department last week showed that the U.S. budget deficit surpassed $1 trillion in the first 11 months of the fiscal year through August. That means the U.S. needs to do a lot of borrowing to finance the shortfall. One big source of demand is foreign central banks and investors. They have piled into U.S. debt this year, increasing their holdings by $380 billion, or 6.08%, through June to $6.64 trillion, Treasury data show. Both the absolute and percentage increase is the most for any full year since 2012. The Treasury will give an update on foreign purchases on Tuesday, but with U.S. debt yielding so much more than the rest of the world on average, July should be another banner month. U.S. Treasuries on average yield about 1.83 percentage points more than government debt anywhere else. As recently as 2013, Treasuries yielded less than their peers on average.DON’T MISS Ultra-Low Rates Are No Panacea for Stocks: Robert Burgess Does the World Have Enough Oil to Cope With Attacks?: Julian Lee Blindsided Bond Traders Can’t Count on Fed Dots: Brian Chappatta An Oil Shock Was Just What We Needed in Fed Week: John Authers Companies Aren’t Putting Trump’s America First: Matthew WinklerTo 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.
(Bloomberg) -- Saudi Aramco officials are growing less optimistic that there will be a rapid recovery in oil production after the attack on the giant Abqaiq processing plant, a person with knowledge of the matter said.All eyes are on how fast the kingdom can recover from the weekend’s devastating strike, which knocked out roughly 5% of global supply and triggered a record surge in oil prices. Initially, it was said that significant volumes of crude could being to flow again within days, but it may now take longer than previously thought to resume operations at the plant, the person said, asking not be named before an official announcement. The company is scheduled to provide an update later today.The loss of Abqaiq, which handles 5.7 million barrels of oil a day, or about half of Saudi production, is the single worst sudden disruption to the oil market. Saudi Aramco is firing up idle offshore oil fields -- part of their cushion of spare capacity -- to replace some of the lost production, the person said. Aramco customers are being supplied using stockpiles, though some buyers are being asked to accept different grades of crude oil.In an extraordinary start to trading on Monday, London’s Brent futures leaped almost $12 in the seconds after the open, the most in dollar terms since their launch in 1988. Prices have since pulled back about half of that initial gain of almost 20%, trading at just over $67 a barrel in the U.S. morning , but are still heading for the biggest advance since 2008.In addition to the immediate loss of supply, the attack raised the specter of U.S. retaliation against Iran, which it blamed for the strike. While Iran-backed Houthi rebels in Yemen claimed responsibility for the assault, which they said was carried out by a swarm of 10 drones, several administration officials Sunday said they had substantial evidence Iran was directly responsible.President Donald Trump promised on Monday to help allies following attacks on major Saudi Arabian oil facilities, even though he said the U.S. is no longer directly reliant on Middle Eastern oil and gas and has few tankers there.A Saudi military official said Monday that preliminary findings show that Iranian weapons were used in the attacks but stopped short of directly blaming the Islamic Republic for the strikes.To see the photos that show how the attack crippled Saudi Arabia’ output, click here.Responsible for almost a 10th of global crude output, Saudi Arabia has been under siege this year -- targeted by air, sea and land -- as tensions with Iran flare. The Houthi rebels said on Monday that oil installations in the kingdom will remain among their targets. The Iranian-backed rebel group, cited by the Houthi’s television station, said its weapons can reach anywhere in the country.“No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure -- that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,” Citigroup Inc.’s Ed Morse wrote in a research note.Trump authorized the release of oil from the U.S. Strategic Petroleum Reserve, while the International Energy Agency, which helps coordinate industrialized countries’ emergency fuel stockpiles, said it was monitoring the situation.The Organization of Petroleum Exporting Countries is in regular contact with the Saudi authorities, who have risen to the challenge by keeping oil flowing, the group’s Secretary-General Mohammad Barkindo said in a Bloomberg TV interview. It’s premature to talk about reversing the oil-production cuts implemented by OPEC and its allies, he said.Even if OPEC+ did decide to roll back their cuts, they would only be able to add about 900,000 barrels a day to the market, just a fraction of the Saudi losses, according to Bloomberg calculations based on IEA data.(Updates with oil price in fourth paragraph.)\--With assistance from Christopher Sell.To contact the reporters on this story: Will Kennedy in London at firstname.lastname@example.org;Javier Blas in London at email@example.comTo contact the editors responsible for this story: Will Kennedy at firstname.lastname@example.org, James HerronFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China’s slowdown is deepening just as risks for the global economy mount, piling pressure on the authorities to do more to support growth.Industrial output rose 4.4% from a year earlier in August, the lowest for a single month since 2002, while retail sales came in below expectations. Fixed-asset investment slowed to 5.5% in the first eight months, with the private sector lagging state investment for the 6th month.The data add support to the argument that policy makers’ efforts to brake the slowing economy aren’t sufficient as the nation grapples with structural downward pressure at home, the risk of yet-higher tariffs on exports to the U.S. and now surging oil prices. Nomura International Ltd. said this all raises the likelihood that the People’s Bank of China will cut its medium-term lending rate on Tuesday.“In terms of policy room, we still think there’s quite a lot for both the Ministry of Finance and the PBOC, but now it’s a matter of whether they want to use it,” Helen Qiao, chief Greater China economist at Bank of America Merrill Lynch said on Bloomberg television. “What I worry about is that policy makers are hesitating at the moment because of the potential implications on the long term impact, so they’re really fallen behind the curve.”The Shanghai Composite swung between gains and losses before closing slightly lower. Futures contracts on China’s 10-year government bond regained losses after the data release to close at 0.07% higher on Monday.The slowdown in output was almost across the board, with food processing and general equipment manufacturing unchanged from last year. Car output rose after declining for four months. Growth in sales of consumer goods slowed to 7.2%, the lowest since April this year, but there was an increase in food sales. The unemployment rate fell to 5.2% from 5.3% in July, within the narrow band it has occupied all year even amid the slowdown.The record oil price surge after a strike on a Saudi Arabian oil facility couldn’t have come at a worse time for China and a world economy already in the grip of a deepening downturn. While the severity of the impact will depend on how long the oil price spike endures, it risks further eroding fragile business and consumer confidence amid the ongoing U.S.-China dispute and already slowing global demand.Saudi Arabia is the largest single source of China’s crude oil imports, which in turn supply about 70% of total demand.After China’s data release on Monday by the National Bureau of Statistics, Citigroup Inc. lowered its growth forecast for the world’s second-biggest economy to 6.2% for this year from 6.3% previously, and to 5.8% from 6% for 2020.“We don’t expect a growth rebound in the fourth quarter anymore, with the new forecast flat at 6.1% year on year,” wrote Yu Xiangrong, a Hong Kong-based economist with Citigroup, referring to the quarterly outlook. “In particular, we now hold a more cautious view on the recovery of infrastructure investment and retail sales.”The People’s Bank of China cut the amount of cash banks must hold as reserves this month to the lowest level since 2007, though it’s still holding off on cutting borrowing costs more broadly.Some 265 billion yuan ($37.5 billion) of 1-year loans from the PBOC to banks will mature on Tuesday. The central bank will likely roll-over at least some of these, giving it an opportunity to cut the rate it charges.Analysts are divided on whether the PBOC would actually take the chance to cut. Some see the need for more significant easing while the other argue the authorities would like to avoid announcing multiple stimulus at once, and they’ll watch the U.S. Federal Reserve before taking any actions themselves. The Fed is expected to cut rates this week.Morgan Stanley expects borrowing costs to be cut by 10-15 basis points as early as this week, likely in the form of an medium-term lending rate cut.What Bloomberg’s Economists Say..“We expect policy support to continue at a measured pace as Chinese authorities strive to put a floor under the slowing economy. Yet, officials are bracing for a long war, and are careful not to deplete their policy ammunition.”-- Chang Shu and David Qu, Bloomberg EconomicsFor the full note click hereIt’s getting more difficult to “safeguard 6%” expansion in the third quarter and growth will likely slow further from the pace in the second quarter, China International Capital Corp. economists led by Eva Yi wrote in a note. Not only is it necessary, but there is room to step up the intensity of counter-cyclical adjustment in a timely manner to make sure economic growth won’t slip below the targeted growth range of 6-6.5%, Yi said.There are likely to be more easing measures including cuts to banks’ reserve ratios and the PBOC’s mid-term lending rate, although that cut probably wouldn’t happen this week, said Peiqian Liu, China economist at Natwest Markets Plc in Singapore. The pace of economic slowdown is faster than expected and the impact of the trade war on Chinese manufacturers has been relatively big, she said.Goodwill TalksNegotiators from China and the U.S. plan to have two rounds of face-to-face negotiations in coming weeks. Both sides have taken steps to show goodwill, and U.S. officials are considering an interim deal to delay tariffs with China, people familiar with the matter told Bloomberg.However, even if those talks do go well and get the negotiations back on track, it may not be enough.“Even a reprieve on the trade front, with U.S. and Chinese negotiators back at the table, will not in itself cure China’s growth malaise,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. “There is a growing risk that keeping the reins too tight may push growth much lower.”(Updates with Morgan Stanley comments and markets reaction.)\--With assistance from Amanda Wang, Tian Chen, Yinan Zhao, Enda Curran, Dan Murtaugh and Claire Che.To contact Bloomberg News staff for this story: Miao Han in Beijing at email@example.com;Tomoko Sato in Tokyo at firstname.lastname@example.org;Kevin Hamlin in Beijing at email@example.comTo contact the editors responsible for this story: Jeffrey Black at firstname.lastname@example.org, James MaygerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- Heading into September, the $16 trillion U.S. Treasury market was signaling dark days ahead for America’s economy.On Aug. 28, 30-year yields dropped to an all-time low of 1.9%, a shocking figure that indicated no fear of inflation or sustained growth. By Sept. 3, bond traders were betting the Federal Reserve would slash its benchmark lending rate to below 1% before the November 2020 presidential election, from an effective rate of 2.13% now. Many measures of the U.S. yield curve remained inverted. Recession signals flashed just about anywhere investors looked.Now, just days before the Fed’s next interest-rate decision, the outlook is remarkably brighter. Last week, the core consumer price index data showed a 2.4% increase in August relative to a year earlier, the strongest pickup in inflation since 2008. Retail sales also beat expectations. Before that, average hourly earnings and the ISM non-manufacturing gauge topped estimates, helping to push Citigroup Inc.’s U.S. economic surprise index close to a 2019 high.Much like the economists caught unawares, bond traders were also shocked, to say the least. By Friday, two-year yields had climbed 37 basis points from their lows earlier this month, while yields on 10- and 30-year bonds rose by almost 50 basis points, including a sharp double-digit increase on Friday. The only two comparable moves in the past several years occurred during the so-called Taper Tantrum in 2013 and after the presidential election in November 2016.Effectively, traders’ thinking comes down to this: Fed Chair Jerome Powell said nothing in his speech before the central bank’s blackout period to dissuade them from pricing in an interest-rate reduction this Wednesday. But, what then? The logical place to turn, it would seem, is the central bank’s economic projections, and in particular its “dot plot,” which aggregates officials’ expectations for the future path of interest rates. It’s due for an update this week for the first time since the June meeting. At that time, the median dot called for zero cuts to the fed funds rate in 2019, and only one reduction in 2020. Obviously, things changed in a way policy makers didn’t see coming.And therein lies the problem with relying on the dot plot. The Fed, for better or worse, is flying as blind as any time in the past few years, due in no small part to the unpredictability of President Donald Trump’s continuing trade war with China. Powell diplomatically acknowledged as much during his Sept. 6 remarks: “Sometimes it’s easy to get unanimity on things when the path is clear,” he said. “Other times it’s murky out there and there’s a range of views. This is one of those times.”Of course, that won’t stop Wall Street from predicting what those views will look like come Wednesday at 2 p.m. New York time. Strategists at Bank of America Corp. see the median for 2019 dropping to 1.625%, effectively indicating central bankers will cut rates once more either in October or December; after that, they expect the Fed to signal no changes throughout 2020, with gradual increases to resume again in 2021 and 2022. TD Securities strategists also expect the Fed to signal another cut before year-end. John Herrmann at MUFG Securities Americas says he counts at least five of the 17 dot-plot participants who would dissent over another reduction in rates after September’s. Add a few more to the mix after strong readings on inflation and retail sales, and maybe the Fed will signal a pause for the rest of the year.Rather than take a stab at what the dot plot will look like, Jon Hill at BMO Capital Markets focused instead on the question of whether the dots should simply be ignored:“In the best of times, it would correspond to the FOMC's path-dependent baseline scenario, assuming their baseline economic forecasts play out. This was arguably the case for much of 2017 and 2018 and corresponded to a regular and predictable quarter-point hiking cadence.Alternatively, in moments like this — when uncertainty is elevated and even the axiom that 'cutting rates will help spur growth' is up for debate — it's hard to interpret the dot plot as more than a general inclination and bias regarding the outlook. This has enormous value in providing insight into the Fed's reaction function to macroeconomic developments. Given the number of moving pieces, Powell wants to maintain flexibility both with regards to the current stance but also forward guidance.”This advice – to not read too much into the precise levels of the dots – is probably bond traders’ best bet. Powell has made it abundantly clear that he and his colleagues are focused on doing what’s necessary to sustain the expansion. That means if economic data persistently weaken, they will ease policy. And if Trump ratchets up the trade-war rhetoric, as he did less than 24 hours after the Fed’s last meeting, they will also probably ease policy. It also has to be said that the Fed has shown time and again to take its cues from the bond market. Traders had priced in a quarter-point rate cut on July 31 way back in early June, and Powell opted not to push back even though he probably could have. If policy makers think the economy is strong, but market prices suggest the opposite, investors have history on their side to anticipate the central bank will ultimately capitulate.It’s hard to say whether that trend ought to be comforting or frightening for bond traders, given the swift correction in Treasuries this month. Because if the Fed is flying blind, then so, too, are economists and investors, to some extent. A Bloomberg survey of 57 analysts, released on Sept. 13, showed a median estimate of 1.7% for the 10-year U.S. yield at year-end. The highest forecast was for 2.58%, and the lowest was 1%. The difference of opinion only widens in 2020.Obviously, whether Treasuries soar to new records or keep unwinding their recent gains will have enormous implications for profits and losses among bond investors. Unfortunately for those looking for some direction, the Fed’s dot plot won’t be the guiding light to put them on the right side of the trade.To contact the author of this story: Brian Chappatta at email@example.comTo contact the editor responsible for this story: Beth Williams at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- All eyes are on how fast Saudi Arabia can restore production after this weekend’s devastating strike on key facilities, which knocked out roughly 5% of global supply and triggered a record surge in oil prices.Significant volumes could come back within days, people familiar with the matter said over the weekend, adding that it could still take weeks to restore full capacity. Industry consultant Energy Aspects estimated that the country will be able to restore almost half the lost production as early as Monday. Saudi Aramco said Saturday that it would provide an update in about 48 hours. It didn’t immediately respond to requests for comment Monday.“We need to know if it’s a 48-hour outage or if it’s a four-week outage,” Ashley Peterson, a senior oil market analyst at Stratas Advisors, said on Bloomberg TV. “That’s really what’s going to drive prices.”The estimated 5.7 million barrels a day of lost Saudi oil is the single biggest sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi supply in August 1990 and Iranian output in 1979 during the Islamic Revolution, according to data from the International Energy Agency.Here’s How Asian Governments Are Reacting to the Aramco AttackIn addition to the immediate loss of supply, the attack raised the specter of U.S. retaliation against Iran, which it blamed for the strike. While Iran-backed Houthi rebels in Yemen claimed responsibility for the strike, which they said was carried out by a swarm of 10 drones, several administration officials Sunday said they had substantial evidence Iran was directly responsible. President Donald Trump tweeted the U.S. is “locked and loaded depending on verification” that Iran was the real source.Brent oil, the global benchmark, jumped more than 19% when markets opened Monday. In dollar terms, the nearly $12 a barrel surge was the biggest intraday rise since trading began in 1988. Futures paired those gains to trade up $6.47, or 11%, at $66.69 a barrel as of 6:48 a.m. in London.“We expect oil to rise by more than 5% in the short term or more than 20% if impact is protracted,” analysts at Sanford C. Bernstein & Co. wrote in a note. “But much depends on what Aramco says around how quickly production can be restored.”The attack Saturday struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais, exposing a vulnerability at the heart of the global oil market.“No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure -- that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,” Citigroup Inc.’s Ed Morse wrote in a research note.Trump authorized the release of oil from the U.S. Strategic Petroleum Reserve, while the International Energy Agency, which helps coordinate industrialized countries’ emergency fuel stockpiles, said it was monitoring the situation.The attack is the most serious on Saudi Arabia’s oil infrastructure since Iraq’s Saddam Hussein fired Scud missiles into the kingdom during the first Gulf War.Saudi oil facilities as well as foreign tankers in and around the Persian Gulf have been the target of several attacks over the past year. The escalation coincided with the President Trump’s decision to pull the U.S. out of the 2015 nuclear agreement with Iran and re-imposed crippling economic sanctions against the Islamic Republic. The Houthis, who are fighting Saudi-backed forces in Yemen, have claimed responsibility for most of the strikes against Aramco installations.Aramco will be able to keep customers supplied for several weeks by drawing on a global storage network. The Saudis hold millions of barrels in tanks in the kingdom itself, plus three strategic locations around the world: Rotterdam in the Netherlands, Okinawa in Japan, and Sidi Kerir on the Mediterranean coast of Egypt.Before the attack, Saudi Arabia was pumping about 9.8 million barrels a day, almost 10% of global production. Aramco could consider declaring itself unable to fulfill contracts on some international shipments -- know as force majeure -- if the resumption of full capacity at Abqaiq takes weeks, people familiar with the matter said, asking not be identified before a public statement.Instead of supplying some customers with the usual crude oil grades of Arab Light or Arab Extra Light, the company may offer them Arab Heavy and Arab Medium as a replacement, according to a person familiar with the matter.A satellite picture from a NASA near real-time imaging system published early on Sunday, more than 24 hours after the attack, showed the huge smoke plume over Abqaiq had dissipated completely. But four additional plumes to the south-west, over the Ghawar oilfield, the world’s largest, were still clearly visible.While that field wasn’t attacked, its crude and gas is sent to Abqaiq for processing. The smoke most likely indicated flaring, the industry term for what happens when a facility stops suddenly and excess oil and natural gas is safely burned off.\--With assistance from Mahmoud Habboush, Verity Ratcliffe, Manus Cranny, Giovanni Prati and Anthony DiPaola.To contact the reporters on this story: Nayla Razzouk in Dubai at email@example.com;Javier Blas in London at firstname.lastname@example.org;James Thornhill in Sydney at email@example.comTo contact the editors responsible for this story: Nayla Razzouk at firstname.lastname@example.org, Ramsey Al-Rikabi, Ben SharplesFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- As bankers discussed Saudi Aramco’s initial public offering at the Ritz Carlton hotel in Dubai last week, a drone attack was being planned to hit the heart of its operations over the weekend. It caused Saudi Arabia to halve its oil output and may cut the valuation of Aramco’s milestone deal.The giant oil producer has accelerated preparations for a share sale that could happen as soon as November in Riyadh. Dozens of bankers from Citigroup Inc. to JPMorgan Chase & Co. met last week to work on the deal, with analyst presentations scheduled for Sept. 22, people familiar with the matter have said.“Crown Prince Mohammed bin Salman will push the company to demonstrate that it can effectively tackle terrorism or war challenges,” analysts led by Ayham Kamel, head of Middle East and North Africa research at the Eurasia Group, said in a report. “The attacks could complicate Aramco’s IPO plans.”In an attack blamed by the U.S. on Iran, a swarm of drones laden with explosives set the world’s biggest crude-processing plant ablaze. Floating a minority stake of the oil giant, officially known as Saudi Arabian Oil Co., is part of Prince Mohammed’s efforts to modernize and diversify the economy.The attacks underscored geopolitical tensions in the region. Iran denied responsibility, which was instead claimed by Iranian-backed Houthi rebels in Yemen.Oil prices surged by the most on record to more than $71 a barrel after the strike removed about 5% of global supplies. The main Saudi stock index Sunday fell as much as 3.1%, leading losses in the Gulf. Back in 2017, investors suspected that Saudi government-related funds swooped in to support the market after the imprisonment of local billionaires at the Ritz-Carlton in Riyadh. That also happened amid the international crisis following columnist Jamal Khashoggi’s murder at the Saudi consulate in Istanbul.Here’s more from analysts and investors:Eurasia“The latest attack on Aramco facilities will have only a limited impact on interest in Aramco shares as the first stage of the IPO will be local. The international component of the sale would be more sensitive to geopolitical risks”Current valuation estimates for Aramco and its assets might not fully account for geopolitical risksNOTE: Prince Mohammed, the architect of the IPO, has said he expects Aramco to be valued at over $2 trillion, but analysts see $1.5 trillion as more realisticAl Dhabi Capital, Mohammed Ali Yasin“I think this attack may delay the IPO even on the local exchange, and could affect the valuation negatively, as the investors have seen a live demonstration of the risk levels of the future revenues and business of the company. That was very low prior to this weekend attack”“Aramco has one main source of revenue, oil. That is its strength, but now it is becoming its biggest weakness if it gets disrupted”United Securities, Joice MathewThis “will force investors to go back to the drawing board and re-evaluate their risk models on Aramco”“Even though this is a rare event, which could be potentially categorized as 4 or 6 sigma levels, the geopolitical risk premium on Aramco’s valuation model would show a sharp increase”“As far as the pricing is concerned, my view is that there may not be much of an impact if the government is contemplating a 1% listing on the Tadawul. I think the government has the power and ability to influence the decisions of anchor investors there”Tellimer, Hasnain Malik“Ultimately the security risk is not so acute that it outweighs oil price, oil output and free float drivers of the valuation”This attack “also provides an opportunity for Aramco to demonstrate the redundancy and resilience of its supply chain by minimizing disruption to customers and thereby helping to mitigate the valuation impact of this risk”Qamar Energy, Robin Mills“It will be all but impossible to proceed with the IPO if there are ongoing attacks”“Valuing Aramco like Shell or ExxonMobil gets us to about $1.2-1.4 trillion. But that would drop significantly if we apply company-specific risk factors”Al Ramz Capital, Marwan Shurrab"The attacks could impact foreign sentiment for the IPO, but I don’t see a substantial hit to the valuation at this stage""Geopolitical risk has always been an important factor for valuations across the Middle East region. Aramco will have to demonstrate its financial resilience toward such incidences to gain investors confidence”\--With assistance from Mahmoud Habboush.To contact the reporters on this story: Shaji Mathew in Dubai at email@example.com;Filipe Pacheco in Dubai at firstname.lastname@example.org;Sarah Algethami in Riyadh at email@example.comTo contact the editors responsible for this story: Shaji Mathew at firstname.lastname@example.org, Paul Wallace, Claudia MaedlerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- It was the kind of transaction that would have been mundane just a few weeks ago in Argentina: a company owed a bond payment to foreign and local creditors. It was a large payment, over $130 million in principal alone, but the company, a real-estate firm called IRSA, had plenty of cash to cover it.When it turned over the money to the firm processing the payment, though, things got complicated. Under the new currency rules imposed by the government to try to staunch dollar outflows and stabilize the peso, the cash couldn’t be sent to creditors’ overseas accounts. As the payment was coming due Sept. 9, the firm, Clearstream, began releasing a series of statements confirming the money was, at least temporarily, frozen.All of which has added another layer of confusion and worry to markets in a country already paralyzed by a financial crisis that has the government on the cusp of default for the third time in the past 20 years. Among the most pressing questions traders and investors were grappling with Friday was whether this blocked payment was a technical glitch that the government would resolve soon or a more permanent feature of the controls that would imperil payments by other companies and the government itself in coming weeks.For the time being, most observers seemed willing to wait the situation out, expecting that Argentine officials will quickly tweak the rules so as to avoid corporate bond defaults.“Argentina doesn’t want an accidental default” and will fix the problem, said Siobhan Morden, the head of Latin America fixed income strategy at Amherst Pierpont Securities in New York.An IRSA spokesman declined to comment.Read More on Argentina’s History of DefaultsAt this stage, it appears this snag in the payment chain will affect dollar bonds governed by local laws rather than foreign-law bonds where payments are made directly abroad. Companies, provinces and the federal government often sell both types of notes -- those that are subject to New York law and those under domestic regulations.A central bank official, who asked not to be identified, said the capital controls announced this month do indeed limit these sorts of local transactions. Non-resident holders of local-law bonds need to be paid locally, and rules limiting overseas dollar transfers to $1,000 a month apply to them, the person said.Amos Poncini, who holds the IRSA bond as a fund manager at CBH Compagnie Bancaire Helvetique SA in Geneva, said he feels burned by the delayed payout and said it reflects poorly on Argentina as a whole.“Investors will fly away from there,” he wrote in an email.The money held up in Argentina owed to overseas IRSA creditors totals about $80 million, according to a person with direct knowledge of the matter. The remainder of IRSA’s payment was distributed to local bondholders.IRSA depositary receipts dropped 5.4% to $5.56 in New York trading Friday, while its $71 million of notes due in July 2020 were little changed at about 86.8 cents on the dollar. Securities from oil producer YPF due in 2021 fell 2.1 cents to 82.7 cents on the dollar, while the government’s century bonds due in 2117 fell 1.8 cents to 41.7 cents on the dollar.Of course the bond payment hiccup is only the latest in the list of recent disasters for Argentine investors. Assets have tumbled since an Aug. 11 primary vote showed the opposition was likely to unseat the business-friendly President Mauricio Macri in October elections. The peso has weakened almost 20% since the ballot, prices for the century bond fell by almost half and the Merval stock index lost 46% in dollar terms.Capital controls are blunt instruments and frequently need to be revised as authorities discover surprise implications and loopholes, according to Dirk Willer, an analyst at Citigroup Inc. Officials want to preserve the country’s foreign reserves, but likely want companies to be able to repay debts, he said.“This is likely an unintended consequence of the controls and will likely be revised,” Willer wrote in a note to clients.(Adds details of amount held up in Argentina in 11th paragraph. A previous version of this story was corrected to fix the size of the bond payment.)\--With assistance from Ignacio Olivera Doll, Patrick Gillespie and Aline Oyamada.To contact the reporters on this story: Carolina Millan in Buenos Aires at email@example.com;Pablo Gonzalez in in São Paulo at firstname.lastname@example.org;Ben Bartenstein in New York at email@example.comTo contact the editors responsible for this story: David Papadopoulos at firstname.lastname@example.org, ;Jeremy Herron at email@example.com, Brendan WalshFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China said it is encouraging companies to buy U.S. farm products including soybeans and pork, and will exclude those commodities from additional tariffs, in the latest move to ease tensions before the two sides resume trade talks.The Commerce Ministry’s announcement on Friday follows a move earlier this week to exempt a range of American goods from 25% extra tariffs put in place last year, as the government seeks to lessen the impact from the trade war. China didn’t specify the amount of purchases of pork and soybeans, which are key exports from agricultural states important for President Donald Trump’s 2020 reelection bid.Equity markets have rebounded in recent days as both Trump and Chinese leader Xi Jinping sought to lower tensions that are clouding the outlook for the world’s biggest economies. Adding to the pressure on Beijing, China is facing pork shortages that are pushing up prices during a holiday period, prompting officials to ration sales in some areas. Still, major differences on the substantive issues that sparked the trade war remain.“It is hoped the U.S. side can keep goodwill reciprocity with China through practical actions,” Global Times editor-in-chief Hu Xijin said in a tweet shortly before the move was announced.Trump administration officials have discussed offering a limited trade agreement to China that would delay and even roll back some U.S. tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases. Working-level teams from both countries are set to meet next week.“The ice is thawing,” said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte. in Singapore. “China’s reciprocity to Trump’s goodwill gesture will set the stage for more cooperative trade talks.”Soybean futures were little changed in Chicago after the Xinhua announcement. Prices had jumped 3.3% on Thursday and hog futures rose the most allowed by the exchange amid optimism that China will boost imports of American farm products. The U.S. government also cut its outlook for soybean stockpiles more than expected in a monthly crop report.The Shanghai Composite Index increased for a second consecutive week, and the S&P 500 Index was on course for its third straight week of advances.The Chinese government is growing increasingly concerned about soaring prices and its potentially to mar celebrations for the 70th anniversary of the People’s Republic of China’s founding on Oct. 1. China is hoping to import 2 million tons for the year, some of which would be added to state reserves, according to people with knowledge of the plans.China bought about a million tons of pork so far this year, of which about 87,771 tons were from the U.S., according to Chinese customs data. Even if purchases tripled, imports would only make up about 6.6% of domestic supply, Citigroup Inc. said in a report on Sept. 12. The world’s biggest consumer of pork accounted for about half of global demand last year, while it produced about 54 million tons, Citigroup said.More imports are only going to go part of the way to addressing shortages. The country is likely to see a 10 million ton pork deficit this year, more than the roughly 8 million tons in annual global trade, according to Vice Premier Hu Chunhua. That means the country will need to fill the gap by itself, he said.China’s Fight Against Pork Prices Could Include U.S. Imports China had halted U.S. farm-product imports in August after trade-deal negotiations deteriorated. Before that, Beijing had given the go-ahead for five companies to buy up to 3 million tons of U.S. soybeans free of retaliatory import tariffs, people familiar with the situation had said.The goods exempted from additional tariffs this week by China included pharmaceuticals, lubricant oil, alfalfa, fish meal and pesticides. The exemptions are effective from Sept. 17 to Sept. 16, 2020, and will cover 16 categories of products worth about $1.65 billion, according to Bloomberg calculations based on China’s 2018 trade data. Further rounds of Chinese exemptions will be announced in due course, the ministry said.Wednesday’s exemptions apply to the round of tariffs Beijing imposed on U.S. goods starting last July in retaliation for higher U.S. levies. China began accepting applications for tariff exemptions in May, but it is the first time they have stated which products will be excluded. The U.S. Trade Representative’s Office has announced six rounds of exclusions for the punitive tariffs on $34 billion in Chinese goods since December.“We can all see there is a likelihood of a mini-deal given China’s pork problems and to a lesser degree the 2020 election issue,” said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong. “Does this mean we get a ‘real deal’? Let’s just say that this is still highly unlikely.”\--With assistance from Karen Leigh, Anna Kitanaka, Enda Curran, Kevin Hamlin, Miao Han and Megan Durisin.To contact Bloomberg News staff for this story: Crystal Chui in Zurich at firstname.lastname@example.org;Lucille Liu in Beijing at email@example.comTo contact the editors responsible for this story: Jeffrey Black at firstname.lastname@example.org, ;Brendan Scott at email@example.com, Brendan MurrayFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. China wants to boost purchases of pork from overseas, including the U.S. and European Union, as the government grows increasingly concerned about soaring prices, according to people with knowledge of the plans.The need for more pork coincides with a potential move by Beijing to ease trade tensions with Washington by resuming imports of U.S. farm goods ahead of talks in coming weeks. Some of the pork would be added to state reserves, according to the people, who asked not to be identified because they’re not authorized to speak publicly. There’s no official target, though total imports of 2 million tons for the year would be considered ideal, one of them said.Beijing has become increasingly vocal about the need to boost the country’s pork supplies as herds are decimated by African swine fever. Leaders are fretting over how record prices of the staple food will impact economic stability and potentially mar celebrations for the 70th anniversary of the People’s Republic of China’s founding on Oct. 1. No fewer than six ministries, including the top state planning agency, announced measures on Wednesday to mitigate the impact on pork prices, which surged 47% last month.China bought about a million tons of pork so far this year, of which about 87,771 tons were from the U.S., according to Chinese customs data. Even if purchases tripled, imports would only make up about 6.6% of domestic supply, Citigroup Inc. said in a report on Sept. 12. The world’s biggest consumer of pork accounted for about half of global demand last year, while it produced about 54 million tons, Citigroup said.“When U.S.-China trade talks warm up, China should be ready to buy significantly more from the U.S.” Citigroup economists including Xiangrong Yu wrote. “However, an increase in Chinese demand may move up global pork prices given its scale.”More imports are only going to go part of the way to addressing shortages. The country is likely to see a 10 million ton pork deficit this year, more than the roughly 8 million tons in annual global trade, according to Vice Premier Hu Chunhua. That means the country will need to fill the gap by itself, he said.Just over a year has passed since the world’s biggest hog producer first reported an outbreak of African swine fever. The highly contagious disease quickly spread throughout the country despite efforts to control it. China, which had more than 400 million pigs before the outbreak, has seen herds tumble by about a third with farmers afraid to restock for fear of a second contagion.While the disease is now endemic in some parts of China and has spread to neighboring countries including Laos, Vietnam, Philippines and Mongolia, Chinese authorities have been calling on the nation’s farms to rebuild their herds with offers of subsidies.Vice Premier Hu recently called the situation “much grimmer than we have been informed,” and told officials to take immediate steps to increase supplies.After data on Tuesday showed a 20 percentage point gain in pork prices from the previous month, the government has been increasingly public about the need to address prices. The National Development & Reform Commission on Wednesday said efforts to ensure supplies and stabilize prices will include releasing frozen pork from reserves to cover upcoming holidays, including next month’s anniversary celebrations.Pork production in the European Union and Brazil, meanwhile, is expected to rise to record levels, with exports climbing to help fill the supply gap emanating from China, according to the U.S. Department of Agriculture.But one Chinese government researcher says the shortfall is too vast to be made up by imports and prices simply have to rise to cap demand.(Updates with Citi comment in fourth, fifth paragraphs.)To contact Bloomberg News staff for this story: Niu Shuping in Beijing at firstname.lastname@example.org;Steven Yang in Beijing at email@example.comTo contact the editors responsible for this story: Anna Kitanaka at firstname.lastname@example.org, Alexander Kwiatkowski, Jason RogersFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Shares of SmileDirectClub, Inc. Fell 28% on Their First Day of Trade By John Jannarone This is one record that’s nothing to smile about. Shares of SmileDirectClub, Inc., the much-hyped orthodontics disruptor, fell 28% Thursday after pricing at $23 each, above the indicative range of $19 and $22 per share. That is by far the […]
(Bloomberg) -- Citigroup Inc. expects revenue from its Middle East and Africa business to keep growing this year even as lower oil prices and political uncertainty weighs on the region.“We typically do much better than the economic growth rate, given our business model,” Atiq Rehman, chief executive officer of Citigroup’s new EMEA emerging markets cluster, said in an interview. “I am cautiously optimistic on emerging markets” and falling interest rates in the U.S. will be positive overall.The U.S. bank’s income in the region may rise by a high single-digit this year driven by its markets, cash management and investment banking businesses, Rehman said. Revenue growth may slow to a mid-single digit rate in 2020 after climbing at a compound annual rate of 10% in recent years.Economic growth in the Middle East and North Africa is expected to remain flat at 1.3% this year, according to International Monetary Fund forecasts. Weak oil prices are crimping the governments’ ability to spend and the prospects of a showdown between the U.S. and Iran has fueled concerns over growth in countries such as the United Arab Emirates and Saudi Arabia.Citigroup this week appointed Rehman head of its EMEA emerging markets cluster, which consists of three sub-clusters Middle East and North Africa; Sub-Saharan Africa; and Turkey, Russia, Ukraine and Kazakhstan. This group is expected to account for about 10% of the bank’s global profit, Rehman said.Citigroup this year has advised on some of the region’s biggest deals, including Saudi Aramco’s $69.1 billion acquisition of petrochemicals maker Saudi Basic Industries Corp. It’s also the top arranger of bond sales in Central and Eastern Europe, Middle East and Africa, according to data compiled by Bloomberg.To contact the reporters on this story: Arif Sharif in Dubai at email@example.com;Archana Narayanan in Dubai at firstname.lastname@example.orgTo contact the editors responsible for this story: Stefania Bianchi at email@example.com, Alaa ShahineFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- The audacious bid by Hong Kong’s stock exchange for its London rival is likely to fail – and that’s no bad thing.Hong Kong Exchanges & Clearing Ltd.’s unexpected $36.6 billion offer for London Stock Exchange Group Plc would create one of the world’s largest trading hubs. The cash-rich, equities-focused HKEX would gain an edge in fixed-income trading, but in a world where algos and bots handle much of the action, the bidder would do better to take a page from LSE’s playbook and look for bigger data sources. Hong Kong Exchanges calls its plan to create an Asian-European giant that’s open 18 hours a day a "vote of confidence in London and the United Kingdom’s future role as a global financial center” at a time that Brexit paralysis is clouding the outlook. The move also shows belief that, despite the recent protests, Hong Kong can still produce world-stage firms.The more than 300-year-old London exchange has a lot going for it, including fixed-income heft and the FTSE Russell portfolio of index benchmarks used by institutional investors. The offer values LSE shares at 8,361 pence (about $103), around 42 times 2019 earnings, according to Citigroup Inc. analysts, much higher than the London bourse’s historical average price-earnings multiple of 22 times. But Hong Kong Exchanges’ offer would scupper LSE’s own bid for data provider Refinitiv, a deal that LSE shareholders like as shown by its soaring share price. They, and politics, may stand in HKEX’s way. U.K. regulators will have a tough time accepting the takeover of a British institution by a Hong Kong company. Given the impact to global financial markets and the popularity among exchange-traded funds of the FTSE Russell indexes, U.S. regulators may also weigh in. HKEX Chief Executive Charles Li can argue that his firm is already a global company, having acquired the London Metal Exchange in 2012, but it remains a foundation stone of Hong Kong. The city’s government owns just 5.9% but appoints the majority of the directors. Exchange mergers are sensitive propositions anywhere. The LSE has been a frequent target and was in the sights of Germany’s Deutsche Boerse AG three years ago until Brussels blocked the deal. In the Asia-Pacific region, Singapore Exchange Ltd.’s 2011 bid for ASX Ltd. was rejected by Australian regulators on national-interest concerns.There are also questions over HKEX’s deal-making prowess. HKEX acquired the LME, the world’s biggest venue for trading base metals like aluminum, at the top of the commodities cycle. It promised LME members that it would have a warehouse in China from which to access the country’s massive metals market. Seven years later and it doesn’t, as Chinese authorities seek to protect homegrown commodities entities, including the Shanghai Futures Exchange and the Dalian Commodities Exchange.There is no doubt that HKEX needs to diversify. Volumes on the exchange have slumped and it has fallen off its perch as the world’s top IPO venue last year.Stock exchange businesses reliant on volatile volumes are increasingly passe in a world of computerized trading. With little overlap with LSE, Hong Kong Exchanges can’t count on simply cutting costs. The key to growth for exchanges is in the data that fixed-income, currency, and equities traders need and the analytical tools that deliver it to them. That’s why LSE has pursued Refinitiv. HKEX has depended on a strategy of being the gateway to China through its stock and bond trading links. The value of that role is diminishing as the country opens direct access to markets, removing quotas Tuesday on purchases by global funds. Wanting to go beyond Hong Kong to create a global powerhouse is understandable. Doing so with another market grappling with its own political crisis and uncertain future post-Brexit is less so. Li likened the Hong Kong exchange’s unsolicited takeover of LSE to a “corporate Romeo and Juliet.”He missed the point on how that story ended.To contact the author of this story: Nisha Gopalan at firstname.lastname@example.orgTo contact the editor responsible for this story: Patrick McDowell at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg Opinion) -- Financial markets at this point ignore just about any tweet from President Donald Trump about the Federal Reserve. Occasionally, one will merit a meme. But for the most part, the president’s tweets are dismissed either as evidence of frustration that he can’t simply fire Jerome Powell, his choice for Fed chair, or the search for a scapegoat if the U.S. economy falters and damages his re-election prospects.Then came this missive on Wednesday:The timing is obvious. It’s the day before the European Central Bank will presumably drop interest rates further below zero, and a week before the Fed’s own rate decision. A Washington Post-ABC News poll this week showed a majority of Americans fear the U.S. will enter a recession within a year. Stephen Moore, who withdrew his candidacy for the Fed board earlier this year, wrote a recent op-ed in the Wall Street Journal with the headline “Refinance U.S. Debt While Rates Are Low.”Put it all together, and you have Trump’s two-part tweet. Unfortunately, the self-proclaimed “king of debt” doesn’t appear to truly understand it. Let’s unpack the president’s comments piece by piece:The Federal Reserve should get our interest rates down to ZERO, or lessFirst, the Fed is already cutting its benchmark rate and is widely expected to drop it another 25 basis points on Sept. 18. A more significant reduction — and certainly to the extent the president wants — would probably just panic the markets. It could also severely damage banks, particularly if longer-term yields also tumble. Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. this week already reduced their annual net interest income targets.Second, the idea that Americans would willingly accept negative interest rates is very much an open question. After all, it’s not something they have ever had to deal with before. As Katherine Greifeld wrote for Bloomberg Businessweek, U.S.-based investors don’t just have the good fortune of buying Treasuries at above-zero interest rates. They can also easily turn the world’s $15 trillion pool of negative-yielding debt positive.and we should then start to refinance our debt.This is not something that the U.S. does in any significant way. The federal government is not like a company that issues bonds that can be bought back if borrowing costs fall. There’s no mechanism, for example, for the Treasury to get big investors to give back bonds issued in 1995 that mature in 2025 and pay 7.625% interest. In fact, these are likely among funds’ most-prized possessions because they boost both the credit quality and average payout of the overall portfolio.INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term.This is hardly a given. The Fed controls only short-term interest rates, not long-term yields. In 2010, when the fed funds rate was near zero, the 10-year Treasury yield was 4%. If central bankers slash interest rates when the economy is on solid footing, it could boost inflation, which would cause yields on longer-term obligations to climb. The reason long-term rates in Japan and Germany are at or below zero is because their economies are stagnant and inflation is largely nonexistent.As for “substantially lengthening the term,” the Treasury Department itself has found that there’s insufficient demand for ultra-long Treasuries that mature in 50 or 100 years. Yes, Treasury Secretary Steven Mnuchin is taking another look, but the bond-market group that advises him is likely to dismiss the idea again. Also, issuing ultra-long bonds would probably steepen the yield curve, again making the claim that “interest costs could be brought way down” dubious at best.We have the great currency, power, and balance sheetAnd yet, the president clearly wants a significantly weaker dollar, which, if done recklessly, could threaten its position as the reserve currency of the world. The USA should always be paying the lowest rate.It goes without saying to anyone who took Macroeconomics 101 that stronger economies pay higher interest rates. But setting that aside, why should the U.S. receive more favorable treatment than Germany? It has the same triple-A ratings from Moody’s Investors Service and Fitch Ratings, and Germany even has a top grade from S&P Global Ratings while the U.S. was dropped to AA+ in 2011.Plus, investors are begging Germany to borrow more, rather than stick to its rigid balanced budget. That’s of no concern whatsoever for the U.S. — its budget deficit grew to $866.8 billion in the first 10 months of the fiscal year, up 27% from the period a year earlier. The gap is now projected to reach $1 trillion by the 2020 fiscal year, two years earlier than previously estimated. Supply and demand isn’t everything in the Treasury market, but it is something. Obviously, the ECB has distorted the bond markets in its region. In Italy, which is barely rated investment-grade, 10-year debt yields less than 1%. But again, this is more a symptom of the lack of economic growth in the euro zone.No Inflation!Low inflation? Sure. But “no” inflation?On Wednesday, a Labor Department report showed underlying U.S. producer prices increased 2.3% in August from a year earlier, topping the median forecast in a Bloomberg survey. Producer prices excluding food, energy and trade services rose 0.4% from the prior month, the most since April.Those readings suggest Thursday’s consumer price index data could also meet or exceed expectations. Core CPI is already projected to rise to 2.3% year-over-year in August, which would be close to the fastest growth in the past decade. It’s fairly modest relative to the historical average, but it’s not nothing.It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.Is this the first tweet from President Trump with accent marks?It’s not naivete that is keeping the Fed from more drastic interest-rate cuts, but rather prudence and a focus on economic data. Fed officials saw some slight weakness earlier this year — business confidence was particularly rattled by the U.S.-China trade war — and provided a bit of accommodation to help ease concerns. Dropping interest rates to zero would serve little purpose except to most likely create a larger bubble in risky financial assets.The president seems to think that Europe and Japan want negative interest rates. I’m fairly confident that the ECB and Bank of Japan wish they were in a similar position as the Fed, which was finally able to move away from the zero-bound and now has some breathing room in the event of an economic downturn.A once in a lifetime opportunity that we are missing because of “Boneheads.”Readers can draw their own conclusions about who’s truly boneheaded. To contact the author of this story: Brian Chappatta 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.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Investing.com – Intel (NASDAQ:INTC) shares were rising strongly Wednesday, along with chip stocks generally, but a report from Citigroup has warned that the chipmaker faces a bumpy road in the second half of the end of the year, with rival Advanced Micro Devices (NASDAQ:AMD) hot on its tail.
(Bloomberg) -- Oil erased earlier losses after the release of bullish U.S. inventory data that showed a larger-than-expected drop in crude stockpiles.The industry-funded American Petroleum Institute reported that crude stockpiles fell 7.23 million barrels, while gasoline supplies declined 4.5 million barrels last week. If confirmed by the government, this would be the fourth weekly crude draw. The gasoline contraction would be largest since April. Analysts surveyed by Bloomberg estimate an almost 3 million barrel contraction in U.S. crude stocks.Prices fell earlier after U.S. President Donald Trump said that he had fired National Security Advisor John Bolton, one of his most hawkish aides. Bolton’s departure calmed concerns about any White House inclinations to use military might as a diplomatic tool amid escalating geopolitical tensions in the Middle East and Asia.In the hours preceding Trump’s announcement, crude advanced as much as 1.6% after an OPEC leader said the cartel’s demand estimates were “very conservative” and recession prospects were low. Some support also came from an announcement that Saudi Aramco had announced key banks for top roles in its planned initial public offering which has been pegged to higher oil prices.Crude is about 13% below its late-April peak as the protracted U.S.-China trade war saps the outlook for global energy demand. Later this week, traders will be closely watching a key OPEC committee meeting in Abu Dhabi for signs of shifts on supply policy. Also, investors are now looking forward to the government’s Energy Information Administration inventory report Wednesday.Separately, the U.S. lowered its global demand forecast for this year and reduced its forecast for doemstic production, according to the EIA’s monthly Short-Term Energy Outlook.West Texas Intermediate oil for October delivery rose 2 cents to $57.87 a barrel on the New York Mercantile Exchange at 5:15pm after settling at $57.40.Brent for November settlement rose 20 cents to $62.79 on the ICE Futures Europe Exchange after settling at $62.38. The global benchmark oil traded at a $5.02 premium to WTI for the same month.See also: Saudi Arabia’s New Prince of Oil Is Lifelong Energy InsiderTo contact the reporter on this story: Sheela Tobben in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: David Marino at email@example.com, Mike Jeffers, Joe CarrollFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Gold’s rally has grabbed a lot of investor attention, but other precious metals are making a strong bid to take the spotlight.Gold rose 19% this year through mid-August, the most among the main precious metals, on prospects for lower interest rates and demand for a refuge from slowing economic growth.Now, investors looking for cheaper entry into havens have helped widen the rally to silver and platinum, which surged the past few weeks to surpass gold’s 2019 gains. Palladium has also rebounded.“For the investors that have been nervous for a while and really loaded up on gold, it’s more of, ‘I’ve reached my max comfort level on gold, lets see what else I can add to it that might be more attractive from the value standpoint,’” Austin Pickle, investment strategy analyst at Wells Fargo Investment Institute, said by phone. “For investors looking for precious-metals exposure, we still prefer silver and platinum over gold.”The following charts examine the case for a sustained rally across precious metals.Portents in ProportionsWhile gold’s rally has stalled this month, banks including Citigroup Inc., JPMorgan Chase & Co. and BNP Paribas SA recently boosted their price forecasts. With gold prices still well above historical averages compared with silver and platinum, gains in gold could mean further increases for the other metals as well.Even with silver surging more than 4% since mid-August while gold slipped, an ounce of gold still buys about 82 ounces of silver, topping the average of 67 ounces over the past decade.It’s a similar story for platinum, where an ounce of the pricier metal buys 1.59 ounces, compared with a 10-year average of 1.11. Platinum, commonly used in auto-pollution controls, has jumped 12% since mid-August. It had struggled to get investors’ attention as diesel-vehicle sales decline and manufacturing slumps amid the U.S.-China trade war.“Gold in U.S. dollar terms is at six-year highs,” Wells Fargo’s Pickle said. “There’s so much more room for people to say this still looks attractive in absolute terms and it’s super attractive versus gold,” he said, referring to silver and platinum.Citigroup also sees platinum as a “cheaper” haven asset that investors capitalized on to play catch up with gold. While the metal is likely to continue consolidation in the near-term, analysts including Aakash Doshi said they remain bullish on platinum over the next 12 months on expectations of an improvement in automotive demand, according to a note Tuesday.Generating InterestBNP Paribas raised its gold-price forecast amid expectations that the Federal Reserve will cut U.S. interest rates four times by mid-2020. With global economies at risk of tipping into recession, the analysts expect central banks in both developed and emerging markets will leave rates low or cut them further. Silver and platinum would benefit from that as well: precious metals don’t offer a yield, so low rates make them more competitive against assets that offer interest.“What has happened over last year is rates have become more important as they became more of a focus for the market,” Chris Louney, vice president of commodity strategy at RBC Capital Markets, said by phone. Such low rates pushed negative-yielding debt to about $17 trillion globally at the end of August, brightening the appeal of precious metals.(Updates with comment from Citigroup in 10th paragraph.)To contact the reporter on this story: Justina Vasquez in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Luzi Ann Javier at email@example.com, Joe Richter, Steven FrankFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.