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(Bloomberg Opinion) -- Investors and strategists in the bond markets rarely, if ever, come out firmly against their own asset class. Rather, they opt to use language like “be selective,” “move up in credit quality” or “clean up portfolios.”This is what’s happening now in the once red-hot market for collateralized loan obligations. In October, while U.S. stocks soared to records and high-yield bonds posted their fifth consecutive monthly gain, the pools of leveraged loans quietly faced something of a reckoning. Prices on double-B CLOs tumbled to the lowest in more than three years, according to data from Palmer Square Capital Management. In the span of about six weeks, their yields shot higher by 110 basis points while those on double-B corporate bonds dropped by 43 basis points, creating the widest spread between the two similarly rated assets since March 2016. Double-B leveraged loans themselves barely budged.At first glance, this would seem to be an obvious buying opportunity. A double-B rating is below investment grade but doesn’t signal inevitable distress, after all. Of course, there’s a catch — and it’s a big one. The same capital structure that has long been cited as an appealing attribute of CLOs is now seen as a looming hazard for investors. The weakest leveraged loans are looking more vulnerable to default. If enough did so, that would threaten portions of the CLO debt stack, often starting with the double-B segment.“Loans, as a whole, absorbed much of the public market lending excesses in recent years,” Citigroup Inc. strategists led by Michael Anderson wrote in a Nov. 15 report. “Loans financed over the past few years during extremely loose lending standards are beginning to season and reveal fundamental cracks. We expect that trend to continue. Consequently, we recommend investors focus on clean portfolios from stronger managers.”Morgan Stanley, in a Nov. 19 report, drew a similar conclusion. “Our Leveraged Finance Strategy team is calling for leveraged loan defaults to double next year and for downgrade pressures to continue. Higher default rates will likely be accompanied by lower recoveries resulting from an increase in loan-only structures and weakening covenant quality.” In the bank’s base-case scenario for 2020, top-rated CLOs will outperform double-B rated debt. There’s still a ways to go before those who have long predicted doom for CLOs are proved right. In many ways, this is all just another side of the consensus story in credit markets. The lowest-rated corporate debt has stumbled in 2019 as investors increasingly fret that slowing global growth will spell trouble for teetering companies. If a larger number of weak leveraged loans fail to pay, that would first choke off payments to holders of CLO equity, followed by the single-B CLO tranche (if there is one), then the double-B tranche, and so on.The pressing question for CLO investors is the magnitude of any shakeout. By Morgan Stanley’s calculations, it would take a so-called constant default rate within the pool of 11.5% over the life of the deal for the double-B tranche to take a principal writedown. By contrast, it would take a whopping 80.8% default rate for top-rated CLOs to take a hit. That huge buffer is why they famously never defaulted, even during the financial crisis.I hesitate to draw parallels between weak leveraged loan covenants and poor underwriting standards for subprime mortgages in the mid-2000s because calling CLOs the next CDOs is too neat a comparison and unlikely to play out in reality. And CLOs are certainly nothing like the toxic “CDO-squared” structures, which created all sorts of now-obvious contagion risks. Plus, financial regulators are well aware of the boom in leveraged lending, and everyone from the Financial Stability Board to the International Monetary Fund to the Bank for International Settlements has said they’re monitoring the risks. If loan defaults start to pile up, few can feign ignorance.However, subprime mortgage default rates are a stark reminder of what a true worst-case scenario looks like. According to a 2010 report from the Federal Reserve Bank of Chicago, 23.4% of subprime mortgage loans originated in 2004 defaulted within the first 21 months. That figure jumped to 31.7% for 2005 and 43.8% for 2006 before coming down to 32.2% for 2007.Unless the U.S. falls into a deep and long-lasting recession, it seems highly unlikely that leveraged loans could even come close to reaching such lofty default figures. I buy the argument that the corporate debt is less concentrated in one specific area and therefore less prone to widespread collapse. And there’s obviously a difference between weaker loan covenants and some of the outright fraud perpetuated during the subprime crisis.And yet a low-double-digit default rate doesn’t feel impossible, which helps explain the sell-off in double-B CLOs. Fitch Ratings said in a note this month that loans on its troubled-loan watchlist made up 6.2% of the overall CLO portfolio at the end of the third quarter, up from less than 5% three months earlier. In at least some pockets of the leveraged-loan market, things are starting to become dicey. Morgan Stanley’s report makes clear what’s at stake for investors in the coming year. The bank’s base case calls for a modest 0.75% excess return in 2020 for double-B CLOs. However, its bullish case sees a 25.75% gain for the debt, while the bearish case would produce a 9.25% loss. That’s a wide range of outcomes. “If sentiment on corporate credit materially improves, we think high-beta CLO BBs offer more upside than any other investment in the securitized products space,” the strategists wrote.Is that a risk worth taking? Judging by last week, at least some investors are betting the sell-off went too far, with the yield on double-B CLOs falling by the most since May.But nothing has changed fundamentally as of late. Bond investors are still shying away from the riskiest credits, even with the widest spreads in 11 months. The economic outlook calls for slow, unspectacular growth, and news that “phase one” of a U.S.-China trade deal could be pushed off until next year doesn’t help matters. It’s not exactly a robust environment for shaky companies.So in that sense, it’s understandable why CLO investors are getting picky. It’s not time to bail on the structures entirely, but seeking higher ground might not be such a bad idea when the potential wave of defaults is just starting to form.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.
The AUD/USD and NZD/USD started to bounce back after Chinese Vice Premier Liu He told Bloomberg that he was “cautiously optimistic” in reaching a “phase one” deal, but added that he was “confused” about U.S. demands.
Investing.com - The U.S. dollar slipped on Thursday in Asia after the release of the Federal Reserve meeting minutes. Tensions between the U.S. and China rose following reports that U.S. President Donald Trump might sign a bill that supports Hong Kong protesters.
The HK Bill in support of the protestors is on its way to the Oval Office. Trump’s signature may well raise doubts over a phase 1 trade agreement.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.Federal Reserve officials stressed that risks to the U.S. economy remained elevated as they agreed to put interest rates on hold following their third cut this year.Many participants saw downside risks to the economic outlook as elevated, “further underscoring the case for a rate cut at this meeting,’’ according to minutes of the Oct. 29-30 Federal Open Market Committee session released Wednesday in Washington.Read More: Bloomberg’s TOPLive blog on the meeting minutes“In particular, risks to the outlook associated with global economic growth and international trade were still seen as significant,’’ the minutes said. “The risk that a global growth slowdown would further weigh on the domestic economy remained prominent.”The FOMC lowered rates by a quarter percentage point at its October gathering, the third such move in three months. At his press conference following the announcement, Chairman Jerome Powell said monetary policy was “in a good place,’’ signaling rates would stay on hold until officials saw a “material’’ change in their economic outlook.“There is not a critical mass of committee members willing to cut rates, at least at this point,’’ Wells Fargo & Co. economist Jay Bryson said. “They still have a bias to ease, but not any time soon. They continue to talk about downside risks and inflation being below their 2% target and inflation expectations being low.’’The 10-year benchmark yield edged slightly lower to 1.73% in afternoon New York trading following the release of the minutes, while the dollar was little changed. Traders added slightly to their positioning for a rate cut next year, with futures markets now fully priced for a quarter-point move by early in the third quarter.The minutes showed “most participants” judged policy would be well calibrated after the Oct. 30 cut and “likely would remain so as long as incoming information about the economy did not result in a material reassessment of the economic outlook.”“Some” officials, however, had preferred to leave rates steady at the meeting because their forecasts for the economy remained favorable. A “few” also said cutting rates would raise financial stability risks.At the gathering, a couple of participants said the committee should reinforce its statement with additional communications indicating that another rate reduction “was unlikely in the near term unless incoming information was consistent with a significant slowdown in the pace of economic activity,” the minutes showed.Kansas City Fed President Esther George and Boston’s Eric Rosengren voted against the rate cut, as they had in July and September, preferring to keep rates steady. In addition, the minutes showed a couple of participants who backed a cut said the decision was “a close call.”Negative RatesCentral bankers used part of their meeting to discuss an ongoing review of their policy strategy and tools, including an examination of negative interest rates which have been used in Japan and Europe but were shunned by the Fed during the financial crisis.Time has not improved their assessment of its benefits, indicating a high bar to deploying them in the U.S., though they took pains to not rule them out under any circumstances.“All participants judged that negative interest rates currently did not appear to be an attractive monetary policy tool in the United States,” the minutes said, adding a list of shortcomings with the strategy including the evidence being mixed on their benefits and potential adverse effects on U.S. financial stability.President Donald Trump, who’s relentlessly attacked the Fed claiming its policy is too tight, met with Powell on Monday and said he “protested” rates that he considers too high relative to other developed countries. Trump has previously said that the Fed’s failure to deploy negative rates was hurting the U.S.Standing RepoThe FOMC also wrestled with the option of introducing a permanent program aimed at providing liquidity to overnight funding markets, a so-called standing repo facility, though did not make a decision.After going over the pros and cons of creating a standing repo, many officials argued that there might be little need for once ample banks reserves had been restored, though it could potentially be a “useful backstop.”Officials also considered “modestly sized, relatively frequent repo operations designed to provide a high degree of readiness should the need for larger operations arise.”A sudden shortage of liquidity in mid-September caused overnight repurchase rates to spike and briefly pushed the benchmark federal funds rate out of the Fed’s target range. The central bank responded by injecting cash into the repo market to relieve strains and purchasing Treasury bills at an initial pace of $60 billion a month to ensure ample reserves.Fed policy makers reiterated at the last meeting that they would keep up Treasury bill purchases into the second quarter. The minutes showed that all participants supported the plan.The minutes also contained an account of an Oct. 4 videoconference on money markets, which was announced on Oct. 11. Most participants preferred not to wait until the Oct. 29-30 meeting to make a statement on the planned bill purchases and repo operations, the minutes showed, while highlighting an internal debate on the scale of the buying.“Many participants supported a relatively rapid pace to boost reserve levels quickly, while others supported a more moderate pace of purchases,” the minutes said.(Updates with analyst comment in fifth paragraph.)\--With assistance from Emily Barrett and Steve Matthews.To contact the reporter on this story: Christopher Condon in Washington at firstname.lastname@example.orgTo contact the editors responsible for this story: Alister Bull at email@example.com, ;Margaret Collins at firstname.lastname@example.org, Jeff Kearns, Scott LanmanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The Australian dollar fell a bit during the trading session on Wednesday but found support just below the 50 day EMA to rally again. At this point, the pair continues to be very sensitive the Chinese headlines, which of course came out overnight that the Chinese were very upset about Congress passing a resolution supporting Hong Kong protesters.
Rockwell Automation's (ROK) latest partnership with Accenture to assist clients in leveraging Industrial Internet of Things and provide customers with a single digital solutions provider.
PRA Health (PRAH) is gaining steadily from expansion in international markets, solid 2019 outlook and growing CRO industry. However, escalating direct costs remain a woe.
(Bloomberg) -- Wealthy people are making bigger donations to charities because of the U.S. political climate.That’s the finding of a Wells Fargo & Co. study of 525 people with annual household incomes of at least $240,000. Forty percent of respondents said they’re giving more than they did before because of politics, while 7% are giving less for the same reason. Of the donors who identify as Democrats, 54% said they’d increased their contributions in the past year, while 39% of independents and 18% of Republicans had done the same.“Philanthropy has often times been considered a guardian of values in our society,” Beth Renner, national director of philanthropic services for Wells Fargo Private Bank, said in a statement Wednesday.Economic factors, such as tax changes, have an impact on donations, and spurred about a quarter of recent giving, according to the results of the survey, conducted from Oct. 7 to 13. Respondents gave an average of $5,400 to non-faith-based organizations in the past year, with a median donation of $2,000.To contact the reporter on this story: Lananh Nguyen in New York at email@example.comTo contact the editors responsible for this story: Michael J. Moore at firstname.lastname@example.org, Daniel Taub, Vincent BielskiFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- The ultra-secret world of ultra-wealthy investors is becoming slightly more transparent.Addepar Inc., whose investors include billionaire Peter Thiel and Palantir Technologies co-founder Joe Lonsdale, is working with hundreds of money managers to give a better sense of where their clients invest. Assets linked to the firm’s technology are growing at an average of $10 billion a week and have reached $1.7 trillion, Addepar Chief Executive Officer Eric Poirier said.It doesn’t handle the money. Addepar helps manage data for firms like Morgan Stanley, Jefferies Financial Group Inc. and an array of registered investment advisers, poring over complex information that for many years had been hard to aggregate. That includes data for hard-to-value private assets like hedge funds, artwork and real estate held by wealthy clients.“We’ve effectively built industrial-strength plumbing” to securely allow investors to put all of their holdings online in one place, Poirier said in a phone interview.Mountain View, California-based Addepar now has more than 400 clients, including family offices, banks and registered investment advisers. Its growth comes as private equity and debt firms have been raising record sums of cash and investors seek yield away from more easily tracked public markets.Lonsdale started Addepar in 2009 upon leaving Palantir, and by 2012 the firm had just a couple dozen customers and was composed of mostly young, male engineers. Since then it has hired industry veterans including David Lessing -- a former executive at Morgan Stanley’s wealth manager. Ex-Blackstone Group Inc. executive Laurence Tosi joined the board.Tosi said he believes Addepar will grow faster as markets get tougher because more clients will want control over their assets in times of heightened volatility.“It’s quite cumbersome in crisis if you don’t have, what I call, eyes on the battlefield,” Tosi said. Given that most wealth managers have oversight for only a portion of clients’ total assets, he said Addepar’s “innovation curve has been faster.”Addepar isn’t alone in collecting data in the opaque world of private assets. Financial-technology firm iCapital Network has been working with banks and RIAs and has added $42.3 billion of assets to its platform since its 2013 founding, according to its website.To contact the reporter on this story: Sonali Basak in New York at email@example.comTo contact the editors responsible for this story: Michael J. Moore at firstname.lastname@example.org, Dan Reichl, Peter EichenbaumFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Investing.com - The U.S. dollar was flat on Wednesday ahead of the expected release of the Federal Reserve meeting minutes and as tensions between Washington and Beijing rose.
Based on the early price action and the current price at .6806, the direction of the AUD/USD the rest of the session on Wednesday is likely to be determined by trader reaction to the main 50% level at .6800.
The U.S. dollar is slightly higher on Wednesday. In the Asian session, the greenback posted gains against the Australian, New Zealand and Chinese currencies.
(Bloomberg) -- Saudi Aramco’s bankers are seeing sufficient early demand to pull off the state oil giant’s initial public offering just three days after launching the deal, people with knowledge of the matter said.The IPO arrangers are indicating in private discussions that they already have nearly enough orders to cover the institutional portion of the deal, the people said, asking not to be identified because the information is private. They still have more than two weeks to go, as fund managers can subscribe to the stock until Dec. 4, according to Aramco’s prospectus.Building early momentum is important in large equity offerings, as investors are encouraged to jump in when they see other institutions rushing to buy shares. The precise amount of real demand will only become clear later once underwriters compare the orders they’ve received, the people said.Saudi authorities have been pulling several levers to try and make the deal a success, pressuring the kingdom’s richest families to invest and loosening margin lending rules for banks. They’ve been negotiating commitments from the billionaire Olayan family, who own a major stake in Credit Suisse Group AG, and Saudi Prince Alwaleed Bin Talal, Bloomberg News reported earlier this month.Domestic PitchAramco representatives have also been seeking investments from the Almajdouie family, who distribute Hyundai Motor Co. vehicles in the kingdom, and members of the Al-Turki clan, people with knowledge of the matter have said. Saudi Arabia is seeking to sell about a 1.5% stake in Aramco at a valuation of as much as $1.71 trillion, with proceeds going to the country’s sovereign wealth fund. About a third of the offering has been set aside for retail investors. Aramco, officially known as Saudi Arabian Oil Co., declined to comment.The Wall Street banks working on the transaction are set to lose out on a highly anticipated fee windfall after the deal was pared back from a record global offering to a mainly domestic affair. The foreign underwriters will be compensated for costs but may not be paid enough to make a meaningful profit from the deal, people with knowledge of the matter said.Goldman Sachs Group Inc. and Morgan Stanley are among the banks that may miss out on the payday. Aramco was initially expected to pay $350 million to $450 million to the more than two dozen advisers on the deal, including banks, lawyers, marketing firms and advertising agencies, Bloomberg News reported in October.After senior bankers delivered pitches that Aramco would be able to the achieve Crown Prince Mohammed bin Salman’s $2 trillion target with a 5% sale, the Saudi government and Aramco management are frustrated Wall Street’s biggest names were unable to deliver on those ambitions.(Updates with chart.)To contact the reporters on this story: Archana Narayanan in Dubai at email@example.com;Matthew Martin in Dubai at firstname.lastname@example.org;Dinesh Nair in London at email@example.comTo contact the editors responsible for this story: Ben Scent at firstname.lastname@example.org, ;Stefania Bianchi at email@example.com, Matthew MonksFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Trade tensions, UK politics, the FOMC meeting minutes and inflation figures out of Canada will keep the markets busy throughout the day…
Investing.com - The U.S. dollar was near flat on Wednesday in Asia as traders remained cautious ahead of the release of minutes from the U.S. Federal Reserve's last policy meeting due later in the day.
The Australian dollar initially fell after the RBA meeting minutes were released, showing a bit more dovish thoughts than perhaps thought. That being the case though, the market has turned around completely and rallied rather significantly.
Earlier in the session, the AUD/USD was pressured after the Reserve Bank of Australia (RBA) minutes showed policymakers acknowledged there was a case to cut the cash rate to a new record low before leaving it unchanged at 0.75 percent at this month’s board meeting.
(Bloomberg Opinion) -- Interest rates are not only low but, adjusted for inflation, the yield on the benchmark 10-year Treasury note is zero. This has been the case for some years now, and will likely continue in a world of chronic excess capacity and surplus savings that has been generated by globalization.Yet individual investors and financial institutions are far from recognizing and adapting to this reality. Instead, they’re taking bigger risks in their search for yield. The result may be severe financial problems, especially if the recession I believe the economy is nearing unfolds. Examples of extreme risk taking and high financial leverage are legion. The Federal Reserve agrees; in a twice-yearly report meant to flag stability threats on the central bank’s radar, it said that continuing low interest rates could dent U.S. bank profits and push bankers into riskier behavior that might threaten the nation’s financial stability.State pension funds have cut their expected returns, but their 7.25% average forecast is likely to be proven a fantasy. Funds with more than $1 billion in assets had a median return of 6.8% in the year ending June 30, the lowest since 2016. They’ll need to do better. Large public funds had $4.4 trillion in assets as of June 30, or $4.2 trillion less than they need to pay promised future benefits, according to the Federal Reserve. And the situation is deteriorating, with liabilities up 64% since 2007 but assets gaining only 30%, according to the Pew Charitable Trust.If investments fall short, public pension funds have three unsavory choices. The first is to ask state legislatures for more money, but most of them are looking to cut, not add, expenses. The second is to curtail retiree benefits, which is next to impossible politically. Besides, many pension benefits are set by law.Third, they can move out on the risk curve to achieve higher returns, and that’s what they’ve done for the most part. Pension funds in the U.S., U.K., Japan, Australia, Canada, Switzerland and the Netherlands allocated 26% of their assets in 2018 to alternative and riskier investments, up from 19% in 2008, according to Willis Towers. These include real estate, venture capital, private equity and even greenhouses and bonds rated barely above junk.As long as the Fed keeps short-term rates above zero, the difference between what banks pay on deposits and other sources of funding and what they earn on longer-term loans will remain compressed and could well be reduced further. This, of course, is just another manifestation of a flat yield curve.Net interest income at three large banks—JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. —fell 2% in the third quarter from the second, and the average net interest margin shrank from 2.66% to 2.54%. And they didn’t make it up on volume. Total loans were essentially flat, which is not that surprising as large banks are shifting to portfolio investments, namely Treasuries, which rose 5.1% in the third quarter compared with a 0.9% increase in loans outstanding.With the persistent constriction on interest rate margins, banks will no doubt also emphasize fee income in the years ahead. Ironically, security brokers and advisors are moving in exactly the opposite direction, potentially to their peril. And with the race to zero brokerage commissions, firms such as Charles Schwab Corp, Fidelity Investments, Vanguard Group Inc. and Robinhood Markets Inc. are shifting from brokerage to banking. Schwab’s commission revenue has declined to 7% of annual revenue from 14% in 2014, while it’s 11% for E*Trade Financial Corp. and 15% for TD Ameritrade Holding Corp.Those three firms held a total of $6 trillion in client money at the end of the third quarter, compared with $2.9 trillion at Bank of America Corp.’s wealth-management business, and they profit from spread lending—investing low-cost, often free client money at higher interest rates. They are betting their customers will remain insensitive to returns on their money and that free commissions will induce investors to leave these excess funds with them. Still, average money-market yields are much higher at 1.8% and in the first half of this year, and Schwab clients moved $58 billion into money-market accounts and other higher-yield alternatives. Also, Robinhood Markets just announced a 2% return for uninvested customer cash through partner banks.Savers are slowly but reluctantly adapting to zero real interest rates, and one of the arguments in favor of stocks is that they offer better total returns. The average dividend yield on the S&P 500 Index is 1.9%, just above the interest rate on the 10-year Treasury note. This has kept stocks very inflated with the cyclically-adjusted price-to-earnings ratio about 50% above its long-term average. In Europe, negative interest rates are inducing depositors to put currency in vaults and to save even more for retirement rather than spend. In Switzerland, individuals are fleeing to real estate, stoking fears of overbuilding.With robust demand, global sales of new government and private sector debt obligations are soaring, notably junk bonds. Some $4.6 trillion was issued through August, up 12% from a year earlier, according to S&P Global Ratings. Net corporate debt in relation to cash flow soared from 1.2 times in 2010 to 1.7 times at the end of 2018.Today’s risk-taking in search of high returns is not as eye-catching as was the subprime mortgage bonanza, but it’s much more widespread and, therefore, ominous. My advice to individual and institutional investors: reduce your leverage and risk and adapt to an era of chronic flat real interest rates.To contact the author of this story: Gary Shilling at firstname.lastname@example.orgTo contact the editor responsible for this story: Robert Burgess at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.A. Gary Shilling is president of A. Gary Shilling & Co., a New Jersey consultancy, a Registered Investment Advisor and author of “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.” Some portfolios he manages invest in currencies and commodities. For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
It has been a quiet start on Tuesday, as the Australian, New Zealand and Chinese currencies were almost unchanged in the Asian session. I expect the lack of movement to continue throughout Tuesday.
(Bloomberg) -- Shares of Vodafone Idea Ltd. and rival Bharti Airtel Ltd. rallied after the wireless carriers said they planned to raise tariffs starting next month, the first increase since the entry of billionaire Mukesh Ambani into India’s telecommunications market in 2016 triggered a price war.Vodafone Idea surged as much as 30% in Mumbai on Tuesday, while Bharti Airtel rallied as much as 6.6%. Reliance Industries Ltd.’s shares rose more than 3% to a record on optimism Reliance Jio Infocomm Ltd. will also benefit from higher tariffs. “Mobile data charges in India are by far the cheapest in the world even as the demand for mobile data services continues to grow rapidly,” Vodafone Idea, formed by the merger of Vodafone Group Plc’s local unit with billionaire Kumar Mangalam Birla’s Idea Cellular Ltd., said in a statement late Monday. Higher rates will become effective Dec. 1, it said.Separately, a Vodafone Idea spokesman declined to disclose details about the possible tariff increase and plan details. The move comes after the wireless carrier reported the worst quarterly loss in Indian corporate history last week. The announcement of the increase was followed by Bharti Airtel, which also said it will raise phone rates from next month.Vodafone Idea last week took a one-time charge related to a $4 billion demand from the government, leading to a net loss of 509 billion rupees ($7.1 billion) in the September quarter. Saddled with about $14 billion of net debt, Vodafone Idea is fighting for survival after India’s top court last month ordered it and others including Bharti Airtel to pay fees that the government said were due from prior years.Indian telecom companies have been faced with high debt and low prices especially after the entry of Jio. That drove some to bankruptcy and led to the merger of others such as Vodafone with Idea. The acute stress in the sector has been acknowledged by all stakeholders and a high-level government panel is looking into providing appropriate relief, Vodafone Idea said Monday.“The key will be Jio’s response to the price hike. We think Jio could likely follow,” Jefferies analysts wrote in a note. Reliance has potential to gain from already above average valuation, thanks to the possibility of higher telecom tariffs and its debt reduction plans, Morgan Stanley analysts wrote.(Adds Reliance shares in second paragraph, analysts comments in last)To contact the reporters on this story: P R Sanjai in Mumbai at firstname.lastname@example.org;Swansy Afonso in Mumbai at email@example.comTo contact the editors responsible for this story: Sam Nagarajan at firstname.lastname@example.org, Abhay Singh, Ravil ShirodkarFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Chatter on trade remains the key driver, with negative updates from Beijing weighing on risk appetite early. The RBA added further pressure on the Aussie.
Investing.com - The U.S. dollar was little changed on Tuesday in Asia as traders await clarity on the Sino-U.S. trade developments.
The Australian dollar has done very little during the trading session on Monday to kick off the week, initially trying to rally but then found the area above the 50 day EMA as being a bit too expensive.
(Bloomberg) -- The eurodollar options market, where investors bet on U.S. interest rates, is typically quiet during Asian trading hours. The lack of liquidity hasn’t stopped the building of huge positions in recent weeks.A series of block trades, similar in size and structure, has led to speculation that at least one investor is betting big that the Federal Reserve will cut rates only once more, at most, in this cycle. The hedge for just one transaction last week was equivalent to more than four times the average daily volume for September contracts in the region.With Fed Chairman Jerome Powell sticking to his view Wednesday that rates are probably on hold after three straight reductions, investors have dialed back expectations. Futures show close to zero easing priced in for the remainder of this year, and a quarter-point cut in 2020.“The Fed shows no signs of hurrying to cut rates,” said Jun Kato, chief market analyst at Shinkin Asset Management in Tokyo. “With Powell repeating that the U.S. economy is in a good shape, speculation that there won’t be any more cuts is gaining momentum.”That view appears to underlie the eurodollar positions constructed during Asian hours over a period of three weeks, based on an analysis of the options purchased and sold and open interest changes.The trades started drawing attention from Oct. 24 after a series of large block transactions. From then, they have proceeded like clockwork every few days, with the latest showing a build up of 98.00 puts and 98.75 calls.For an illustration of how the trades work, take a look at a risk-reversal bet placed on Nov. 12 on the level of 3-month Libor in September 2020. The investor bought one put option with a target of 2%, and sold a call at 1.25%, a strategy that will make money if markets price out more than one Fed cut and incur losses if expectations for more easing increase.In total, there are are around 280,000 short positions in calls targeting a strike equivalent to 1.25% for the September 2020 and March 2021 eurodollars contracts. That means if markets start to price more than two Fed rate cuts by this time, someone holding that position would stand to suffer heavy losses.On the flip side, not all economists agree that the Fed will cut rates even once. Morgan Stanley predicts the central bank will remain on hold through 2020 in its global strategy outlook.The trades stand out not only for their size, but also their timing, during less liquid Asian hours.Less Liquid“Simply believing a Fed on hold in 2020 brings us closer” to the 98 strike, at least through the end of this year, said Albert Marquez, who covers interest rates at Chicago Capital Markets.Alternatively, the trade might be to take advantage of elevated call skew, he said. Executing during Asian hours is strange, though, as “the amount of edge given up at that time is exaggerated,” he said.Pricing has probably been expensive as dealers who take the other side of the bet need extra compensation for the risks of hedging positions in thin markets, according to traders in London and Chicago who asked not to be named as they aren’t authorized to speak publicly.For example, the risk-reversal trade on Nov. 12 was for 80,000 options. Market pricing at that time meant a dealer accepting it would have to sell around 32,000 equivalent Eurodollar futures to hedge it. So far this month, the average daily trading volume during Asia hours for September 2020 contracts is just a little over 7,000, according to data compiled by Bloomberg.A similar structure counting on minimal deviation in expectations for Fed policy was bought during the U.S. session Friday, and open-interest changes subsequently indicated it was for new risk.Eurodollar futures are the most-traded interest-rate derivatives. They are standardized, exchange-traded instruments that allow traders to bet on the direction of short-term interest rates and are priced off three-month Libor fixing at expiry.(Adds additional structure bought during U.S. hours Friday in 14th paragraph)\--With assistance from Chikako Mogi, Elizabeth Stanton and Edward Bolingbroke.To contact the reporter on this story: Stephen Spratt in Hong Kong at email@example.comTo contact the editors responsible for this story: Tan Hwee Ann at firstname.lastname@example.org, ;Benjamin Purvis at email@example.com, Cormac MullenFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.