Category Archives: Markets

(JN) Facebook suspende estreia da Libra até ter aprovação regulatória

(JN) O responsável pela empresa que vai gerir a Libra, a moeda virtual criada pelo Facebook em conjunto com dezenas de entidades, declarou que o lançamento da divisa só irá ocorrer após todas as questões regulatórias estarem asseguradas.

O Facebook deverá suspender o lançamento da criptomoeda Libra, um projeto que tem em parceria com dezenas de empresas, pois pretende, primeiro, solucionar as questões regulatórias que se impõem e obter o aval das entidades competentes.

“Sabemos que precisamos de levar algum tempo para que (o lançamento) se concretize com sucesso. E quero ser claro: o Facebook não irá oferecer a divisa digital Libra até ter solucionado por completo as dúvidas regulatórias e ter recebido as aprovações adequadas”, declarará o presidente da Calibra, David Marcus, num discurso ao Senado que é antecipado pela Bloomberg. A Calibra é a empresa responsável pela gestão da criptomoeda.

O objetivo da empresa liderada por Mark Zuckerberg é estrear a Libra em 2020, não sendo claro se a intenção de clarificar os aspetos regulatórios deverá afetar, ou não, os prazos.

Desde que os planos de Zuckerberg foram anunciados, já a Reserva Federal norte-americana se declarou preocupada com os efeitos que esta moeda poderá ter no mercado. No mesmo discurso, Marcus afirma que a nova moeda não pretende competir com as divisas nacionais ou com a política monetária das instituições centrais.

Também Trump mostrou resistência quanto aos planos de criação desta moeda virtual. O presidente dos Estados Unidos considera que as empresas que criam e gerem moedas como a Bitcoin ou a Libra deveriam estar sujeitas a regulaçãobancária, “tal como os outros bancos”. Criticas feitas através da respetiva conta Twitter. “Não sou fã da Bitcoin e de outras criptomoedas, que não são dinheiro e cujo valor é altamente volátil e baseado em [critérios arbitrários]”, começou por escrever Trump. E continuou: “As criptomoedas sem regulação podem facilitar comportamentos ilegais, incluindo tráfico de droga e outras atividades ilegais”.

Até ao momento, os detalhes conhecidos apontam para que a Libra seja lançada apoiada na tecnologia Blockchain e seja regulada pelas autoridades financeiras na Suíça.

(Reuters) Wall Street finds blockchain hard to tame after early euphoria

(Reuters)

NEW YORK (Reuters) – Two years ago Nasdaq Inc (NDAQ.O) and Citigroup Inc (C.N) announced a new blockchain system they said would make payments of private securities transactions more efficient. Nasdaq Chief Executive Adena Friedman called it “a milestone in the global financial sector.”A Wall St. street sign is seen near the New York Stock Exchange (NYSE) in New York City, U.S., March 7, 2019. REUTERS/Brendan McDermid

But the companies did not move forward with the project, a person familiar with it said, because while it worked in testing, the cost to fully adopt it outweighed the benefits.

Blockchain, the person added, “is a shiny mirage” and its wide-scale adoption may still “take a while.”

In a joint statement, the companies said the pilot was successful and they were “happy to partner” on other initiatives. Both companies are also working on other projects.

Companies, including banks, large retailers and technology vendors, are investing billions of dollars to find uses for blockchain, a digital ledger used by cryptocurrencies like bitcoin. Just last month, Facebook Inc (FB.O) revealed plans for a virtual currency and a blockchain-based payment system.

But a review of 33 projects involving large companies announced over the past four years and interviews with more than a dozen executives involved with them show the technology has yet to deliver on its promise.

At least a dozen of these projects, which involve major banks, exchanges and technology firms, have not gone beyond the testing phase, the review shows. Those that have made it past that stage are yet to see extensive usage.

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Regulatory hurdles have often slowed down implementation, some executives said. Scrutiny is likely to only increase after Facebook’s plans drew global backlash from regulators and politicians. (For a sample of these projects, click on)

The euphoria that surrounded the early days of Wall Street’s interest in blockchain is giving way to pragmatism, as companies realize that it will likely take years before it takes off in a substantial way.

“This is a transformation of the market. It isn’t a big bang,” said Hyder Jaffrey, head of strategic investments for UBS AG’s (UBSG.S) investment bank.

It could take three-to-seven years before major projects have significant impact, he said.

One UBS-backed project, a digital cash system for financial transactions called Utility Settlement Coin, is expected to be commercialized next year after more than five years of work, said Rhomaios Ram, head of a separate entity created for the project.

But Ram said that for the system to be transformational, it will require other market processes to move to blockchain-based systems as well.

“There is a recognition now that it is a journey, rather than something with a short time frame,” Ram said.

BLOCKCHAIN’S PROMISE

Blockchain was created about a decade ago as a way to keep track of bitcoin transactions. As cryptocurrencies became more mainstream following a 2013 rally and crash in bitcoin’s price, consultants, analysts and other proponents said their underlying technology could be transformational, especially for the financial industry.

It could help trades settle instantly, accelerate international payments and remove the need for costly intermediaries, potentially saving the industry tens of billions of dollars, they said.

Investment followed. Last year the capital markets and banking sectors allocated $1.7 billion on blockchain initiatives, up 70% from 2016, according to estimates by research and advisory firm Greenwich Associates.

By 2022, blockchain investment across industries is expected to reach $12.4 billion, according to research firm IDC. 

Some big companies have rushed in. International Business Machines Corp (IBM.N) has around 1,500 people working on the new technology for use in several different sectors. In an ad released during the Academy Awards this year it called for the use of blockchain “to help reduce poverty”.

A system IBM was developing along with the London Stock Exchange Group Plc (LSE.L) to issue private shares did not move beyond testing, the companies said. But a trade finance platform developed by numerous banks along with IBM has been commercialized.

“I certainly think there has been a share of hype associated with blockchain,” said Marie Wieck, a general manager at IBM.

BUSINESS BENEFITS

But Wieck and other industry executives said they remain bullish about the prospect of the technology and their companies continue to invest in it. “To me the business benefits of blockchain are clear,” Wieck said.

John Whelan, Banco Santander SA’s (SAN.MC) head of digital investment banking, said blockchain projects need to work on three areas at the same time: technology, demand and compliance.

“Those of us who were involved in blockchain early on maybe did not appreciate the extent to which the three parts have to move together,” Whelan said. Santander is involved in numerous blockchain projects, including the Utility Settlement Coin.

Around the time the project with Citi was announced in 2017, Nasdaq also started testing a proxy voting system in Estonia that automates a manual and lengthy process.

Lars Ottersgard, Nasdaq’s head of market technology, said demand has been limited for the product.

“To be honest, the value differentiation using blockchain from using traditional technology has not been obvious,” he said.

A Nasdaq spokesman said the exchange operator has since developed the system further with South Africa’s central securities depository, which plans to launch it later this year.

(CNBC) Dow rallies 200 points to close above 27,000 for the first time ever

(CNBC)

The Dow Jones Industrial Average rallied to a record high on Thursday, led by UnitedHealth shares, after testimony by Federal Reserve Chair Jerome Powell this week that signaled easier monetary policy could be implemented later this month.

The 30-stock average broke above 27,000 for the first time in its history, rising 227.88 points, or 0.9% to 27,088.08. The Dow first closed above 26,000 in January of 2018, so it’s been a little more than a year-and-half trek between 1,000 point moves. The gains were largely driven by expectations the Fed will cut rates, insulating the market from a slowing economy and a trade battle with China.

Microsoft has been the best-performing Dow stock since the index’s first close above 26,000, surging around 50% in that time. Visa, Cisco Systems and Nike are also up sharply since then.

“This week solidified the fact that the market doesn’t need, it doesn’t want, it’s demanding a rate cut from Powell,” said Jeff Kilburg, CEO of KKM Financial. “I do have a little bit of caution going into the earnings season because we have some forward-guidance uncertainty with the trade tensions, but the wind in the sails continues to be that dovish stance from Powell.”

The S&P 500 also posted a record close, rising 0.2% to 2,999.91. The S&P 500 made its own milestone on Wednesday when it traded above 3,000 for the first time ever. The  Nasdaq Composite slipped 0.1% to 8,196.04.

UnitedHealth shares surged more than 5% after the White House dropped a proposal to eliminate drug rebates. CVS Health and Cigna also jumped on the news, gaining 4.7% and 9.2%, respectively.

Delta Air Lines rose 1.1% on better-than-expected earnings.

In testimony to the House Financial Services Committee on Wednesday, Powell said business investments across the U.S. have slowed “notably” recently as uncertainties over the economic outlook linger. As a result, expectations of an upcoming rate cut grew.

RT: NYSE trader happy 151215

Traders work on the floor of the New York Stock Exchange.Brendan McDermid | Reuters

“Crosscurrents have reemerged,” Powell said. “Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened. Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”

Powell reiterated that testimony on Thursday. Market expectations for a rate cut later this month are at 100%, according to the CME Group’s FedWatch tool.

Thursday’s milestone was only the latest in the longest bull market in history. The bull run started in March of 2009 after the financial crisis. Back then, the Dow was trading around 6,600 points while the S&P 500 hovered below 1,000 points.

“Sure, 27,000 is just a number and in the whole scope of things isn’t meaningful,” said Ryan Detrick, senior market strategist at LPL Financial. “What it is though, is a reminder for all investors that this bull market has ignored all the scary headlines for years and the dual benefit of fiscal and monetary policy could mean it has a lot longer to go than most expect.”

In economic news, the U.S. consumer price index — a widely followed measure of inflation — rose more than expected last month, with the core CPI posting its biggest gain in 1½ years. But that failed to dent investors’ expectations that the Fed will deliver a rate cut.

(ZH) Trump Says US Should Join “Great Currency Manipulation Game” By Devaluing Dollar

(ZH)

President Trump has never been a fan of the strong dollar. And after beating around the bush for months by demanding a 50 bp rate cut and more QE from the Fed, it seems the president is now explicitly calling on the US to artificially weaken the greenback by any means necessary.

In a tweet, Trump blasted China and Europe for playing a ‘big currency manipulation game’ and recommended that the US “MATCH” or risk being “the dummies who sit back and politely watch as other countries continue to play their games.”

Donald J. Trump@realDonaldTrump

China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!61.3K3:21 PM – Jul 3, 2019Twitter Ads info and privacy23.2K people are talking about this

Notably, the tweet calling for even more easing followed Trump’s latest tweet celebrating new market highs.

Donald J. Trump@realDonaldTrump

S&P 500 hits new record high. Up 19% for the year. Congratulations!67.2K3:12 PM – Jul 3, 2019Twitter Ads info and privacy18.8K people are talking about this

Trump’s warning also comes less than two weeks after Bank of America warned that direct intervention to weaken the dollar would be possible by a few avenues, some directly involving Trump (jawboning), some involving the Treasury and the Fed (direct intervention by the NY Fed’s New York markets desk).

Whatever the administration decides, it’s becoming increasingly clear that the dollar is unsustainably overvalued compared with its long-term real effective exchange rate value. BofA’s analyst calculated that the dollar is 13% above its long-term average.

Currency

According to tradition, the dollar and its value have long been the exclusive purview of the Treasury Department. But Trump has never been one to unquestioningly adhere to precedent. And back in May, the Treasury Department declined to name any country to its list of currency manipulators, though it added some to a ‘watch list’.

Although the Fed and most central banks insist that they don’t explicitly target the exchange rate, most observers know this isn’t exactly true.

John Kemp@JKempEnergy

CURRENCY MANIPULATION is what Bertrand Russell called an “emotive conjugation” and Bernard Woolley called an “irregular verb”:
* I am cutting interest rates
* You are trying to achieve a competitive devaluation
* He/she/it is manipulating their currency to obtain unfair advantage133:43 PM – Jul 3, 2019Twitter Ads info and privacySee John Kemp’s other Tweets

John Kemp@JKempEnergyReplying to @JKempEnergy

Major central banks (Fed, ECB, BOE, BOJ) usually pretend the exchange rate is not part of their strategy. But exchange rates enter their thinking in two ways:
* Competitiveness of exporting and import-competing firms
* Import prices and pass through to inflation53:48 PM – Jul 3, 2019Twitter Ads info and privacySee John Kemp’s other Tweets

And for everybody who bought the dip in gold the other day…well done.

Kevin C. Smith, CFA@crescatkevin

Insanely bullish for gold.$XAU $GLD $GC $GDX https://twitter.com/realDonaldTrump/status/1146423819906748416 …Donald J. Trump@realDonaldTrumpChina and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!1163:52 PM – Jul 3, 2019Twitter Ads info and privacy38 people are talking about this

(Reuters) China pledges to scrap financial sector ownership limits in 2020, one year early

(Reuters)

DALIAN, China (Reuters) – China will end ownership limits for foreign investors in its financial sector in 2020, a year earlier than scheduled, to show the world it will keep opening up its markets, Premier Li Keqiang said on Tuesday.FILE PHOTO: China’s Premier Li Keqiang speaks to Netherlands’ Prime Minister Mark Rutte and Former U.N. Secretary General Ban Ki-moon during the Global Commission on Adaptation ceremony, at the Great Hall of the People in Beijing, China June 27, 2019. Fred Dufour/Pool via REUTERS

China will also further open its manufacturing sector, including the auto industry, while reducing its negative investment list that restricts foreign investment in some areas, Li told the World Economic Forum in the northeastern Chinese port city of Dalian.

Beijing’s signal that it is quickening the pace of opening up came after the presidents of China and the United States agreed over the weekend to restart trade talks in another attempt to strike a deal and end a bruising tariff war.

But analysts doubt the ceasefire will lead to a sustained easing of tensions, and warn lingering uncertainty could dampen corporate spending and global growth.

“We will achieve the goal of abolishing ownership limits in securities, futures, life insurance for foreign investors by 2020, a year earlier than the original schedule of 2021,” Li said.

Foreign investment banks such as Morgan Stanley (MS.N) are looking to join HSBC Holdings PLC (HSBA.L), JPMorgan Chase & Co (JPM.N), Nomura Holdings Inc (8604.T) and UBS Group AG (UBSG.S) in owning controlling stakes in onshore securities joint ventures in China under liberalized rules announced in 2017.

RELATED COVERAGE

“JPMorgan welcomes any decision made by the Chinese government that looks to liberalize its financial sector further,” said JPMorgan China CEO Mark Leung.

Citigroup (C.N), which is in the process of setting up a majority-owned securities joint venture in China, also applauded the news.

“Citi welcomes any move that leads to the further opening up of the Chinese financial system,” said a Hong Kong-based spokesman.

The United States and other countries in the West have long complained that Beijing is blocking foreign access to its fast-growing financial markets and not allowing a level playing field when multinational companies are allowed in.

But in recent months, China has allowed many foreign financial firms to either set up new businesses onshore or expand their presence through majority ownership in domestic joint ventures across mutual funds, insurance and brokerage businesses.

Sources with direct knowledge of the matter previously told Reuters that Morgan Stanley is likely to get regulatory approval for owning a majority stake in the second half of this year.

Li also said the government will reduce restrictions next year on market access for foreign investors in the value-added telecoms services and transport sectors.

On Sunday, China cut the number of sectors subject to foreign investment restrictions, a widely expected move, to 40 from 48 in the previous version, published in June last year.

GLOBAL RISKS

On Saturday, leaders of the Group of 20 major economies warned of growing risks to the global economy but stopped short of denouncing protectionism, calling instead for a free and fair trade environment after talks some members described as difficult.

Echoing the sentiment, Li said protectionism is rising, but did not make references to specific economies.

“In the face of pressure from a slowing global economy, I believe people are all in the same boat. We should promote the spirit of partnership, carry out equal consultations, seek common ground while reserving differences and manage and control disputes,” Li said.

The U.S.-China trade war has hit business confidence worldwide, disrupted supply chains and shaken financial markets, adding to worries about a global economic slowdown.

Fallout from the dispute is spreading. Business surveys this week showed factory activity shrank in China and much of the rest of Asia in June, as well as in Europe, while manufacturing growth cooled in the United States, keeping pressure on policymakers to shore up growth.

Rising worries over global growth have compelled some central banks, such as those in Australia, New Zealand, India and Russia to cut interest rates.

“Currently, global economic risks are rising somewhat, international investment and trade growth is slowing, protectionism is rising and unstable and uncertain factors are increasing,” Li said.

“We should actively cope with this. Some countries have taken measures including cutting interest rates, or sent clear signals on quantitative easing.”

But China will not resort to competitive currency devaluation, Li said, and will keep the yuan exchange rate CNY=CFXS basically stable at a reasonable and balanced level.

China is likely to hit its economic growth target of 6%-6.5% this year provided the trade dispute with the United States does not worsen, and hence will not need “very big” stimulus measures to prop up growth, a central bank adviser said on Monday.

The People’s Bank of China (PBOC) has already slashed the amount of cash banks must hold as reserve six times since early 2018 to help turn around soft credit growth, and more cuts in banks’ reserve requirement ratios (RRRs) are widely expected in coming months.

China has also injected large amounts of liquidity into the financial system and guided short-term interest rates lower, while ramping up infrastructure spending and cutting taxes.

“The strength of the tax cuts on the fiscal side is unprecedented, and this measure is the most fair, direct and effective,” Li said in a meeting with business executives in Dalian. “As for monetary policy, we will make appropriate fine-tuning while keeping it prudent.”

“We can say that money supply is reasonably ample, but the question is how to make SMEs and private firms feel a significant drop in real interest rates by the end of this year through effective transmission measures.”

(Economist) Can the City survive Brexit?


(Economist) The world’s biggest international financial centre faces its toughest test

The world has a handful of great commercial hubs. Silicon Valley dominates technology. For electronics, head to Shenzhen. The home of luxury is Paris and the capital of outsourcing is Bangalore, in India. One of the mightiest clusters of all is London, which hosts the globe’s largest international financial centre. Within a square mile on the Thames, a multinational firm can sell $5bn of shares in 20 minutes, or a European startup can raise seed finance from Asian pensioners. You can insure container ships or a pop star’s vocal cords. Companies can hedge the risk that a factory anywhere on the planet will face a volatile currency or hurricanes and a rising sea level a decade from now.

This metropolis of money, known as the City, generates £120bn ($152bn) of output a year—as much as Germany’s car industry. Because it allocates capital and distributes risk at a vast scale, its influence is global. But now, with a “no-deal” conclusion looking increasingly likely after a change of leader of the Conservative Party (see article), Brexit threatens to rupture Britain’s financial links with the European Union. If Labour wins the next election under Jeremy Corbyn, Britain will also end up with its most left-wing government since 1945, one that is deeply hostile to capital and markets. Either outcome would make the eu poorer and damage London’s position. Together, they could change the workings of the global financial system.Get our daily newsletter

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London’s prowess is something to behold. It hosts 37% of the world’s currency dealing and 18% of cross-border lending. It is a hub for derivatives, asset management, insurance and investment banks. Relations with Europe are particularly intimate. The City generates a quarter of its income from the continent, and Europe gets a quarter of its financial services from London, often the most sophisticated ones. French or Italian firms go to London to meet investors or organise a takeover. When the European Central Bank buys bonds as part of its monetary policy, the sellers are very often asset managers and banks domiciled in Britain. Some 90% of European interest-rate swaps are cleared through the City’s plumbing.

The City’s history is long but serpentine. In 1873 Walter Bagehot, The Economist’s then-editor, wrote of its “natural pre-eminence”. In fact decades of decline lay ahead. A revival began in the 1960s when the offshore market for dollar lending boomed. Another lift came with the stockmarket deregulation of Big Bang in 1986 and again after 2000 when London became a centre for trading the euro and emerging markets. Even the financial crisis of 2008 did not do much damage to the City’s standing abroad. Today the magic formula has many parts: openness to people and capital, the time zone, proximity to subsea data cables, and posh schools. But, above all, it relies on stable politics and regulation, close ties to America and seamless ones to Europe. Brexit and Mr Corbyn threaten this formula in three ways.

The first is by ripping up the legal framework, as the eu cancels the “passports” that let City firms operate across the continent. Activity may move in search of certainty. The second is by the remaining 27 eu members adopting an industrial policy that uses regulation to compel financial firms to move to the euro zone. As Amsterdam, Frankfurt and Paris jostle for business, this fight is turning ugly. And the last is from within Britain—if a Corbyn government takes the country back decades, with nationalisation at below-market prices, a financial-transactions tax, a tough line on mergers and acquisitions and possibly even capital controls. If a Labour government also attacks private schools and second homes, London’s giant pools of capital will disappear faster than a trader’s cocktail.

Given the sums at stake—London hosts $20trn of bank assets and securities—you might expect a grand bargain between the eu and its financial hub. Some chance (see article). Britain has spurned the option of staying in the single market. A bespoke deal for financial services is not on the table because the eu is loth to grant special favours to a departing country. It is as if New York and Wall Street were divorcing America without any agreement. Thanks to temporary licences, the risk of a financial crisis on Brexit day is slim. But these arrangements will not last long—the deal over derivatives, say, expires next year.

Behind the stand-off is a deep divide. The City could keep free access to the eu if it agreed to be regulated by it. But Britain rightly fears handing control of its largest industry to the bloc, particularly if the eu’s unspoken goal is to shrink London. Europe’s motives blend principle and greed. It wants to supervise its own financial system, but also to grab jobs and tax revenues from London. In the long run the most likely set-up is “equivalence”, in which firms receive recognition from Europe. The catch is that, as Switzerland is discovering, this can be withdrawn at any time, leading to a state of permanent instability. That threat will lead to a drift of activity and people into the euro zone as eu authorities win full sovereignty over the euro zone’s capital markets.

This sounds good for the eu, but it is likely to be a pyrrhic victory. The continent’s financial system is balkanised and dominated by sluggish banks. New business will be spread across several cities, fragmenting activity further. Europe’s heavy-handed regulation may prompt non-eu business to stay away. Ultimately the costs of a less efficient financial system are likely to outweigh the extra income from capturing business from London. The annual bill for every 0.1 percentage-point increase in euro-zone firms’ cost of funding amounts to €32bn, or 0.3% of gdp.

And what of the City? It has a chance of prospering. Its links with America remain tight. It will have to try to keep Europe close, too, while increasing its non-eu international business from today’s share of 25-30%, and developing new strengths in fintech and green finance. The biggest danger is that it has lost the battle of ideas at home. Many Britons, not just Mr Corbyn, resent the City’s post-crisis bail-out—no matter that British banks have since tripled their capital buffers, and thus pose little threat to taxpayers. Even Margaret Thatcher, who oversaw Big Bang in the 1980s, disliked flash bankers. But Britons cannot ignore the £65bn, or 3% of gdp, of annual tax that the City pays towards hospitals and schools. For a country that is losing friends fast, having a global, sophisticated industry is a blessing, not a curse.

(Reuters) Refinitiv blocks Reuters stories on Tiananmen from its Eikon platform

(Reuters)

BEIJING (Reuters) – Under pressure from China’s government, financial information provider Refinitiv has removed from its Eikon terminal Reuters news stories related to the 30th anniversary of the bloody suppression of pro-democracy demonstrations in Beijing’s Tiananmen Square.FILE PHOTO: An armoured personnel carrier crushes one of the tents set up on Tiananmen Square by pro-democracy protesters early Sunday morning in Beijing, China, June 4, 1989. REUTERS/Stringer/File Photo

Refinitiv took the action to block the stories last week after the Cyberspace Administration of China (CAC), which controls online speech, threatened to suspend the company’s service in China if it did not comply, three people with knowledge of the decision said.

Refinitiv’s intention was to block the distribution of the stories only in China, two people familiar with the matter said. However, many users outside of China said they could not see the stories. It was not clear why.

Earlier versions of this story were removed from Eikon’s scrolling news feeds in China soon after publication early on Tuesday morning.

Other recent Reuters stories with “Tiananmen” in the headline were also not available. Four Eikon clients in Asia outside China said the Tiananmen stories were visible on their feeds on Tuesday.

RELATED COVERAGE

Refinitiv was formed last year when Reuters News’ parent company Thomson Reuters Corp sold a 55% stake in its Financial & Risk (F&R) unit to a group led by private equity firm Blackstone Group LP.

“Refinitiv is a financial markets news and data provider in China. We are proud of the role we play in the world to facilitate transparent and efficient financial markets,” the company said in an emailed statement to Reuters.

“As a global business, we comply with all our local regulatory obligations, including the requirements of our license to operate in China.”

Refinitiv has a license to provide financial information in China. A person familiar with the matter said the terms have not changed since the company was established, but enforcement has become more stringent.

In an internal memo to staff, Reuters President Michael Friedenberg and Editor-in-Chief Steve Adler said the news organization had spoken to Refinitiv and expressed its concern. They urged staff to “continue reporting as you always would: to pursue the truth, without fear or favor.”

Reuters News spokesman David Crundwell said in a statement that Reuters “reports around the world in a fair, unbiased and independent manner, in keeping with the Thomson Reuters Trust Principles, and we stand by our China coverage.”

“We continue to provide Refinitiv with the same scope of content that we always have, including stories relating to China, and Refinitiv’s decisions will not affect the breadth or quality of our coverage. We remain committed to telling the stories that matter.”

The CAC did not respond to a faxed request for comment.

TABOO TOPIC

Reuters News, a unit of Thomson Reuters, supplies news to Refinitiv under a 30-year agreement that pays Reuters a minimum of $325 million per year, making Refinitiv the news organization’s largest customer. Reuters also provides news for media and digital clients.

The transmission of Reuters stories on Tiananmen to other media organizations and to the Reuters website was not affected by the Refinitiv action.

Reuters website has been blocked in China since 2015. The sites of many foreign news outlets are also off-limits in China, as are major U.S. digital media platforms such as Google, Facebook and Twitter.

This is a sensitive year for the Chinese leadership, with the Tiananmen anniversary on Tuesday and the 70th anniversary of the founding of the People’s Republic of China in October.

The Tiananmen crackdown remains a taboo subject in China, three decades after the government sent troops and tanks to quell student-led protests calling for democratic reforms. Beijing has never released a death toll but estimates from human rights groups and witnesses range from several hundred to the thousands.

The blocked Reuters stories on Eikon included one based on remarks made by China’s defense minister on Sunday at a forum in Singapore defending the Tiananmen crackdown, and another on Taiwan’s call on Monday for China to “repent” for Tiananmen.

There was no customer notice to subscribers posted on Eikon.

Censorship of the internet in China has been intensifying under President Xi Jinping, and businesses have come under growing pressure to block content that Beijing sees as sensitive.

Last November, the CAC introduced new rules aimed at quashing dissent online in China, where “falsifying the history of the Communist Party” is a punishable offence for both platforms and individuals.

In the past two months, some popular services, including a Netease Inc news app and Tencent Holding Ltd’s news app TianTian have all been hit with suspension orders ranging from days to weeks, according to the CAC.

Despite the blockage, Reuters stories removed from Eikon’s scrolling news feed could still be found if users deployed certain search functions.

Refinitiv competitor Bloomberg declined to comment on whether it had blocked or limited distribution of news stories deemed to be sensitive by China on its financial terminals in China.

(EP) Portugal, primer país de la zona euro que emite deuda en moneda china

(EP) El objetivo es entrar en un mercado con gran liquidez

El primer ministro luso, Carlos Costa, con el presidente chino, Xi Jinping.
El primer ministro luso, Carlos Costa, con el presidente chino, Xi Jinping. LUSA

Portugal será el primer país de la Zona euro en emitir deuda en moneda china tras recibir la autorización de aquel país, según ha confirmado el secretario de Estado de Finanzas, Ricardo Mourinho.

Portugal -que ya emite deuda en euros y dólares- realizará una emisión a tres años de 2.000 millones de renminbi, equivalente a 260 millones de euros. La emisión comenzará la próxima semana y a un coste aún sin cerrar, aunque se prevé que sea algo superior a lo que se paga en las emisiones en euros (en torno a -0,222%).

Aunque el importe es bajo, la autorización permite realizar en el futuro otras de mayor alcance. “El objetivo es estar en un mercado de gran dimensión y de mucha liquidez y así ampliar la base de inversores”, ha declarado Mourinho al diario Eco.

China es el primer inversor extra comunitario en Portugal, con participaciones clave en sectores como la electricidad, el agua, los bancos, los seguros o la sanidad. Recientemente, vio frustrada la opa para hacerse con el 100% de EDP, la principal eléctrica portuguesa, en donde posee una participación del 25%.

En la última visita del presidente chino a Portugal, en diciembre del pasado año, firmó con António Costa, primer ministro portugués un acuerdo para participar en la nueva ‘ruta de la seda’, la red de transporte desde China a Europa, con la participación del puerto marítimo de Sines.

(ZH) Why Investors Aren’t Panicking (Yet): Here Are The Four Possible Scenarios For Friday

(ZH)

Investors are worrying, but not too much yet

  • Risk is being sold but from a very low level of risk aversion
  • Investors likely expect that Friday tariff deadline will be stretched
  • Expected outcome is still a deal, so there is a lot to sell on no deal
  • Near-term we see CAD as highly vulnerable to bad news and a general underpricing of volatility

No real fear of aggravated trade war yet

Discussions with market participants indicate an almost unanimous view that investors are not pricing in enough risk of a major trade war escalation. Relative to Sunday, when President Trump first tweeted, and most of Monday, more investors see a possibility that the US will follow through on tariffs in response to the Administration’s perception that China is backing off on already agreed parts of the deal. Initially the tweets were seen largely as posturing and an attempt to get a last-minute negotiating advantage, but this view has shifted.

As of early afternoon on 7 May, EDT, US equity futures had broken through the post-tweet lows on 6 May, while the CNH had broken 6.80 again. 1M and 2M 10-delta risk reversals on AUD-JPY, which should be sensitive to trade tensions, are at the low end of the past year, pointing to concern that AUD-JPY might fall sharply on a risk-off event. However, these risk reversals are not at their lows and nowhere near where they have gone when there was a real scare in Asia and global asset markets in prior years (Figure 1). The same can be said for USD-JPY risk reversals – interestingly, these have jumped modestly on a 1- to 2-week horizon and much less so on a 2- to 3-month horizon, suggesting that markets expect tensions to subside relatively quickly.

Investors still may be underpricing both upside and downside risk.

A two-week USD-JPY ATM straddle costs less than 100pips indicatively. The USD-JPY down-move over the past three days is bigger than this premium and USD-JPY could easily move much lower if no deal is in sight. Commodity currencies have moved modestly downwards since 3 May. For example, the CAD is down 0.45 since Friday’s close and the growth fears and commodity price risk leave it vulnerable, in our view. We still expect a deal will happen but the timing and the path are much more uncertain.

So far, Friday options pricing does not look very aggressive despite the threat. Options markets do not look to be pricing in too much additional premium between Thursday and Friday, so the Friday deadline is not being taken too seriously. Note that the tariffs are scheduled to be imposed just after midnight EDT in the US, in the middle of the scheduled visit of Vice-Premier Liu.

Our subjective judgements on the outcomes for markets are:

1) Rabbit out of a hat deal (25%) – Given the recent history of trade negotiations, it is hard to discount the risk that the mutual threats are choreography to show domestic hardliners that nothing is being given away. Possibly China is trumping Trump by shifting the goalposts at the end of negotiations on the view that they can always accept last week’s deal. It is even possible that the Administration sees this as a way of accepting last week’s deal and making it seem like a win. However damaging to credibility such a deal would be, it could be positive for asset markets, which could regain and maybe even exceed previous highs on the view that the deal is finally done. FX moves have been relatively muted so the upside is more limited. In G10, AUD-JPY or AUD-CHF might be the biggest winners. The USD would probably weaken most versus Asia currencies, then against commodity exporters and least against remaining G10. The JPY would likely lose some of its gains. Commodity prices have dropped as well so commodity-linked currencies would likely also see support. US 10Y Treasury yields would probably rebound back over 2.5% and possibly above 3 May’s 2.5250 close.

2) Delay of tariff imposition because talks are making ‘progress’ (50%) – This is neutral to somewhat positive for asset markets. A delay would be read as the US blinking, which would be good for asset prices by and large, setting aside the likely perception that the US may settle for far less than advertised. On this basis, US asset prices may bounce less than foreign, and the USD would weaken almost as much as in the first scenario above.

3) Limited tariff impositionfor example, going from 10% to 15% tariff rates on already tariffed goods (10%) – this is neutral to somewhat negative for asset markets. Raising tariffs in the middle of negotiations is an invitation for your counterpart to walk. This is true even if the tariff increases look largely symbolic. The investor takeaway would likely be that a major frontier had been breached, and there would be uncertainty about retaliation and counter-retaliation. The immediate focus would be whether China’s delegation left or kept negotiating, but higher tariffs even in miniature would breach a major frontier. Much closer to neutral would be a small increase that would be implemented in a few weeks if no progress is made. This has less implications of ‘caving,’ shows a good negotiating attitude from a market viewpoint and does not put the onus on China to respond. The neutral effect would be time-dependent; a short-term delay would be hard to repeat.

4) Full tariff imposition and breakdown of talks (15%) – this is the big risk event. The question would be whose economy and asset markets were stronger and who could withstand the pain that would ensue. Given the limited price action, it is hard to believe that this is more than 20% priced in and 15% looks more realistic. It is probably the case that a bad deal (based on current negotiating positions) is better than a ‘good’ trade war outcome for both economies and their asset markets. The drop in US breakevens over the past few days suggests that investors see more risk to growth than inflation out of these events, but the Fed might respond more quickly given below-target inflation.

The JPY would likely be the big winner, but other Asia and risk-correlated currencies could take a significantly bigger hit than anything we have seen so far. Safe-haven flows to US bonds would likely be the other big trade.

(GUA) Markets tumble after Trump threatens to dramatically increase China tariffs

(GUA) Wall Street set for a fall after president says trade talks are going ‘too slowly’ and threatens to more than double tariffs

An investor watches stock prices in Beijing on Monday. The main Shanghai index was down more than 6% at one point.
 An investor watches stock prices in Beijing on Monday. The main Shanghai index was down more than 6% at one point. Photograph: Roman Pilipey/EPA

Global financial markets have been sent into a tailspin after Donald Trump risked jeopardising delicate trade talks with China by unexpectedly saying he would raise tariffs further on Chinese goods this week.

Stocks in China closed down 5.5% on Monday as investors in Asia Pacific were caught off guard by the US president’s tweets and reports indicating the government in Beijing might pull out of this week’s scheduled talks.

China’s ministry of foreign affairs said on Monday that Beijing was still preparing to send a delegation to Washington but did not say whether the country’s chief negotiator, Liu He, would be attending the meetings in Washington.

“As a matter of urgency, we still hope that the US and China will work together to move toward each other… to reach a mutually beneficial and win-win agreement,” Geng Shuang, a spokesman for the ministry, said at a regular news briefing Monday afternoon.

Although markets are closed in Japan and London on Monday, the Dax in Germany was down 1.6%. Futures trading indicated that Wall Street would fall 2% when trading opens later on Monday. Oil prices – a benchmark for global trade – also plunged and the Chinese yuan tumbled.

Traders feared that Trump’s threat to raise tariffs on $200bn of Chinese goods to 25% on Friday from 10% and then target a further $325bn of Chinese goods could destabilise global financial markets that had been boosted by what appeared to be encouraging progress in the negotiations.

Donald J. Trump(@realDonaldTrump)

….of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!May 5, 2019

“I think this has got the potential to be a real game-changer,” said Nick Twidale, Sydney-based analyst at Rakuten Securities Australia.

“There is still a question of whether this is one of the famous Trump negotiation tactic, or are we really going to see some drastic increase in tariffs. If it’s the latter we’ll see massive downside pressure across all markets,” he said.

Trump’s remarks contradicted weeks of optimism about the talks, frequently expressed by the president himself.

The Wall Street Journal reported on Monday that China was considering cancelling trade talks scheduled for this week following Trump’s threats. The South China Morning Post reported that it was possible Liu would still travel but that his trip could be delayed by three days, citing an unnamed source.

In China, state media remained conspicuously silent on Trump’s announcement, with no major media reporting on the tariff threat. Hu Xijin, the editor of the state-run paper Global Times, said he believed Liu was now unlikely to go to Washington for the scheduled talks.

“I think [Liu] will very unlikely go to the US this week. Let Trump raise tariffs. Let’s see when trade talks can resume,” Hu posted on Twitter.

Chris Weston of Pepperstone in Melbourne said Trump’s intervention was completely unexpected and shad shocked the markets.

He said the focus of investors was now on whether Liu went ahead with his US visit.

“If the visit if formally cancelled, then Trump simply has to hike tariffs on the $200bn of goods to 25%,” he said, a move that would exacerbate tightening of global financial conditions. He believed the move would unwind “much of the goodwill seen in markets of late and [traders will] ask what now for the global economy?”.

The huge drop in Chinese shares follows a three-day national holiday and came despite a move on Monday by China’s central bank to cut reserve requirements for smaller banks to help boost lending to small and private firms.

In Sydney the benchmark ASX200 was off 0.8% while the Australian dollar – a proxy trade for the Chinese economy and commodities – fell 0.5%, dropping below the the key US70c mark to US69.88c. In Hong Kong, the Hang Seng index closed down 2.9%.

Japanese financial markets remain closed until Tuesday for a national holiday, but Nikkei 225 futures dropped 2.4% to 21,955. In London, which is also closed for a bank holiday on Monday, futures were down 1%.

Eleanor Creagh(@Eleanor_Creagh)

🇨🇳#Yuan stability/depreciation has been a proxy for #trade deal. With the tariff man back in action and optimism on trade deal fading watch yuan as a proxy for #China‘s intentions #USDCNH #USDCNYpic.twitter.com/WMTNIjfa2IMay 6, 2019

The yuan also took a hiding, shedding more than 1.3% at one point against the US dollar, its heaviest fall in more than three years. The currency had been sitting around 10-month highs on the back of optimism the two sides would sign off on a trade pact.

“Investors will remain bearish on the yuan, as they reprice in trade war risks because the new developments are a reversal of previous positive progress,” Ken Cheung, senior foreign-exchange strategist at Mizuho Bank. “The news was unexpected.”

Oil was down sharply. US crude tumbled 2.9% at $60.17 a barrel and Brent crude fell 2.6% to $69.01 per barrel. 

(ZH) Deutsche Bank: “Have We Reached The End?”

(ZH)

In recent years there has been a distinct change in the market as it relates to the “reaction function” of traders vis-a-vis volatility: whereas in the past (i.e. prior to the 2008 financial crisis) sliding volatility was a clear signal for both risk appreciation and broad market participation, ever since central banks took over both bond and equity markets over the past decade, collapsing vol has been increasingly seen as a warning sign that something is just not right, that central banks as part of their vol suppression strategy are artificially reducing the market’s perception of risk, and as such, high risk prices are artificial.

One need look no further than market action in 2019 where despite fresh record highs in the S&P – mostly the product of the Fed’s sudden tightening bias reversal and subsequent easing by both the US central bank and its global peers – equity outflows have hit an unprecedented pace, with continued stock upside attributable almost exclusively to stock buybacks, forced short squeezes and delta and gamma-imbalanced dealer books, where the higher equities rise, the greater the “forced chase” by dealer to keep bidding stocks even higher. Meanwhile, both institutional and retail investors have continued to flee global equities as the chart below from EPFR  summarizing broad asset flows shows.

Another confirmation that low vol is no longer seen as a broad participatory signal are market volumes, which continue to shrink the higher markets rise; an indirect validation of the lack of faith in record asset prices.

While not addressing this topic explicitly, in his latest note, everyone’s favorite credit derivatives post modernist, Deutsche Bank’s Aleksandar Kocic who with every subsequent analysis transforms himself ever closer to the linguistic equivalent of a financial Slavoj Zizek, look at the perception of volatility in recent years, particularly through its circular interplay with broader market leverage, and writes that in the post-central bank era, the “leverage-volatility cycle has been disrupted and its amplitudes attenuated – there are no more booms and busts, just mellow undulations around slower growth and benign inflation.

Taking a somewhat different approach than our assessment, Kocic writes that in the past, low volatility was a signal of build-up of latent risk due to vol-leverage dynamics, as “low volatility leads to excessive risk taking and misallocation of capital, which ultimately results in forced deleveraging”, and after several cycles the markets learned that these dynamics are an inherent aspect of market functioning. As a result, the vol-leverage trajectory has become “an outward spiral” and “in each subsequent  sweep, leverage is higher and risk premia compression more extreme than in the previous episode, leading, naturally, to a deeper crisis and a need for an even more extreme policy response.” Then, resorting to every Austrian’s favorite Schumpeterian “creative destruction” analogy, Kocic writes that if stability is indeed destabilizing, then the main challenge lies not in how to avoid the mistakes, but instead in how to control their costs, and answers that “post-2008, this has been addressed by regulations, and policy adjustments.” In short, central banks step in every time the cycle of vol-leverage dynamics threatens to spiral out of control.

Perhaps as a result of this now constant “Fed put”, which emerged so vividly in late December 2018, Kocic writes that while “in the past, fear has had bad reputation — it stood as a sign of incompleteness, something one needs to outgrow”, the “post-2008 period can be seen effectively as an exoneration of fear”: 

Fear has become a sign of wisdom, elevated to a new heuristic or cognitive principle. On the back of this shift in attitude, the resulting excessive caution by both investors and policy makers led to generally lower risk tolerance and has been the leading cause of gradual collapse of market volatility.

While this does not directly address our fundamental thesis, namely that the prevailing sentiment toward low vol has been turned upside down due to central bank intervention, and is no longer a sign of “all clear, the water is warm” by investors but is rather a symbol of foreboding – confirmation that central banks are worried and are therefore artificially suppressing vol – Kocic next looks at just how the leverage-vol cycle broke down within the financial sector, where despite the collapse in vol, leverage never managed to recover.

As such, Kocic believes that the “financial sector was the center of leverage transmission pre-2008”  and was essential for converting low volatility into high leverage, which was seen as one of the main engines of growth. This is shown in the chart below, which shows the history of financial subsector of the S&P index overlaid with the levels of volatility on the inverted axis. Periods of low volatility were most profitable for financial institutions as they provided the main engine for conversion of credit into liquidity risk.

And while prior to the 2008 crisis, the “prosperity of financial sector and low volatility show high degree of coordination”, the subsequent departure is a consequence of the changes in the regulatory environment and redistribution of leverage away from the financial into corporate sector, something which Kocic shows in the next chart.

This transition of leverage away from the financial to other sectors had singificant consequences for all aspect of risk prices, and naturally, for volatility. As Kocic explains the “rationale of this maneuver” when it comes to credit risk, “corporate sector is more transparent than the combination of households and financial sectors together. By resyphoning leverage from financials and households to corporates and government, risk has been made less systemic and the margin of error in assessing and monitoring the aggregate credit risk and its misrepresentations in the markets have been reduced.”

Superficially, this is good news, because as a result of the decline in financial sector leverage, “there are no longer casualties of big “collisions”, only parking accidents” as Kocic puts it:

This redistribution of leverage has put the speed limit on possible future encounters with forced deleveraging associated with booms and busts. There are no longer casualties of big “collisions”, only parking accidents.

And yet, going back to the Schumpeter analogy above, if the system is preemptively absolved from the risk of crashes, it also remove the potential for substantial real growth, or as the DB strategist puts it, “reducing and constraining the leverage of financial sector also confines its propagation into the economy. Although stabilizing, in the existing paradigm, this appears to stifle growth — by preventing bad behavior, in the economy which is dependent on financialization, the system is deprived of one of the main engines of growth.”

How do interest rates fit into this?

While the above discussion explains the drift in the traditional relationship between leverage and volatility, there is another distinct historical correlation between the yield curve (which in recent months has gotten abnormal focus due to its inversion) and volatility surface which recently have “topologically converged to each other”, or as Kocic explains, “the curve is on the verge of inversion and the surface on the verge of disinversion” and elaborates as follows: “While Inverted curve appears ominous (at least, in the eyes of the market), disinverted vol surface is soothing — it predicts persistent and uninterrupted calm”, even though we would disagree with this simplistic assessment of the vol surface which, as most traders will admit, reflect nothing more than central bank vol suppression, and therefore the more “normal” the vol surface appears, paradoxically the greater the level of underlying angst.

In fact, we are disappointed that Kocic seems to agree with the far more simplistic explanation, on which absolves the yield curve inversion of any ominous signaling, while suggesting that the disinverted vol surface should be taken at face value, and that any lingering concerns about low vol, or the “residual (consensus) discomfort before ominously low vol” is merely a “consequence of the aftertaste of previous crises when the current regulations were absent.”

Perhaps Kocic was listening to the latest Zizek audiobook when central banks injected their $20th trillion of liquidity in the artificial “markets” or when now chair Powell was making the stunning admission in 2012 that the Fed has a “short volatility position” to appreciate just how naive such an argument is, especially when other traders see right the farce of low vol and also right through the superficial sophistry of anyone who tries to underscore just how credible low volatility is… but we digress.

What is more interesting is not Kocic’s philosophical beliefs in what vol may or may not be telling us, but his quantification of the correlation between the vol surface and the yield curve… and how this has changed over time.

As the DB strategist writes, while the shape of curve and volatility term structure have a logical connection, “their relationship has undergone structural shifts as a consequence of significant changes in the market structure and conditions.” To wit, Kocic highlights three distinct regimes between these two key market vairables.

This is shown in the next chart which highlights the interplay between inversion of the vol surface and the 10s/30s slope of the curve. When seen in this context, Kocic claims that the current flattening of the yield curve is consistent with the surface if taken for what it really is, i.e. as a result of compression of risk premia, rather than a forecast of recession.

Looking at the three temporal regimes defined by Kocic, we start with…

Pre-2008: here, in this pre-central bank time, vol and curve were unified by carry. Kocic explains: “While logically the two are related, the transmission that reinforced that bond was mortgage convexity hedging. As both recession and mortgage prepayment are low rates phenomena, bid for rates volatility was reinforced in recessionary markets as mortgage hedgers became more active. Curve moved in bull steepening and bear flattening mode. Volatile bull steepening and calm bear flatteners associated with rate hikes were the stylized facts of that period.”

Post-2008: To the DB strategist, this period marks “the period of nationalization of negative mortgage convexity and severance of the traditional transmission mechanisms as well as the structural shift between the curve and vol interaction.” The front end of the curve was anchored and the referendum on effectiveness of the monetary policy was expressed by the back end. Bull flatteners marked volatile risk-off episodes while bear steepeners, being a positive verdict on QE, were calming, risk-on modes.

Describing the post-2008 phase in other words, the post-QE period “marks a gradual and systematic curve flattening while vol remained low and surface disinverted” amid the collapse of risk premia. To make his point that the yield curve is no longer signal but merely noise, i.e., it chases vol, Kocic claims that “the curve has converged to where volatility surface has already settled. The flattening pressure was a function of the tight fiscal policy, regulations, and supply shocks in oil.” As such the post-2014 sub-period marks “a systematic compression of risk premia across the board with markets continuing to align with slower growth, lack of excitement across extended horizons and a likely shift towards more aggressive savings.”

Going back to his analogy that we no live in a period where “there are no longer casualties of big “collisions”, only parking accidents”, Kocic next argues that this mode of curve repricing is consistent with the expectations of mild shocks and their persistent effect, and that the vol market “has captured this through low mean reversion, with lower vol and surface inversion remaining in a tight range, while other risk premia collapsed (Figure).”

Assuming this take is accurate, what does it imply for the future of volatility?

In the context of the reflexive relationship between vol and yield, at this point, volatility would appear to be a prisoner of the curve. Regressing to an analogy he has repeatedly used in the past, Kocic argues that the spread between short and long rate – “the playground that defines the range of what can possibly happen” – is now so tight that it does not allow any substantial range in rates, and therefore no meaningful rise in volatility.

The logical next question is what could prompt a spike in the spread in rates, to which the “derivative(s) Zizek” writes that “outside of tail risk, the first step in creating conditions for bear steepeners is a move towards tolerating higher inflation. This could be achieved by a change of inflation targeting policy. Additional disorder could follow the relaxing of the regulatory constraints, which would free bank balance sheets and boost the credit impulse that could possibly stimulate investment and in turn lead to higher productivity growth.”

However, a problem emerges, as the demand-side has to be addressed at the same time. Indeed, the new technologies that would attract investment now destroy more jobs than they create as “the old paradigm does not seem to be capable of achieving these goals; it has failed to deliver desired results, while the new one is politically difficult to pass.” This, then brings us to the above core argument, namely that any effort in this direction is a source of further political volatility and dissipation of consensus which further stifles change. Paradoxically, one event that could restore some vol is an easier Fed, or as Kocic explains:

Adjustment of monetary policy through rate cuts would free some room for rates to move by opening the policy gap, the spread between long rate and near-term Fed expectations, from below. This is a temporary rise in realized volatility but without steepening of the long end of the curve.

Which brings us to the conclusion: barring the abovementioned “fat tail”, Kocic asks “have we reached the end” of the post-2008 phase of collapsing vol and flattening yield curve, and parallel to that “what could create conditions for volatility return?” 

The answer here is that while there are two directions of curve-vol reshaping, Kocic argues that the main boost for volatility “is to liberate the right side of the (rates) distribution” which would mean “that higher rates and steeper curve have to be allowed.”  In this mode, gamma would lead the way followed by the disinversion of the long-dated sector. The chart below shows two directions of change, i.e. curve first needs to steepen before realized volatility can rise.

This is also the “vol shift mode that could take us closer to the tail risk as concentrated risks in the corporates.” Incidentally, this takes us back full circle to what so many analysts believe will be the source of the next crisis: the wholesale prolapse of the BBB-rated investment grade space, a tsunami of “fallen angels” that would obliterate the junk bond market as it more than doubles in size overnight from $1.1 trillion, and catalyzes the next financial crash. Or, as Kocic puts it, “the global hunt for yield has encouraged investors to move down the credit spectrum to enhance returns. Within the IG universe, BBB issuance has grown significantly.” This is shown in the chart below, which shows that more than 50% of the entire IG index is now BBB-rated.

To Kocic, this is also the most negatively convex sector which is sensitive to spread wideners in steepening sell off. In other words, a possible wholesale downgrade to BB or lower would result in disorderly unwind of positions of the IG money managers which would be capable of raising volatility significantly. From there it would promptly spread to the rest of the market, and global economy, and lead to the next financial crisis. What happens to vol then should be clear to anyone.

The good news is that, at least in the near term, it appears that not much can go wrong as “there seems to be an embedded mechanism that dampens the volatility away from the upper left corner.” In fact, and ironically, at this moment it appears that the Fed seems to be the only source of shocks with their effects localized at the front end of the curve and the upper left corner of the volatility surface. For long tenor vol (gamma or vega alike) to revive, we need bear steepening of the curve.

That said, to Kocic the worst case scenario, as note above, is a bear-steepener, which “is seen as tail risk that would cause the most violent repricing in credit.” Which incidentally is precisely what we said one month ago, if with far fewer words in “Curve Inversion Is Bad, But It’s The Steepening After That Kills.”

(ECO) Eleições em Espanha deixam Governo em aberto e castigam bolsas lisboeta e madrilena

(ECO)

No rescaldo das legislativas espanholas, as ações de Portugal e Espanha recuam. No PSI-20, o destaque é a Galp, que apresentou resultados esta manhã antes da abertura do mercado.

As eleições legislativas em Espanha deixaram o Governo em aberto e as ações na Península Ibérica reagiram em baixa à incerteza política. O lisboeta PSI-20 abriu a perder 0,16% para 5.411,43 pontos (com nove das 18 cotadas no vermelho), enquanto o madrileno IBEX 35 perde 0,7%.

O PSOE de Pedro Sanchéz conseguiu 28,7%, o que lhe dará 123 deputados. Já o Podemos de Pablo Iglesias atinge 14,3% dos votos e 42 deputados. Ou seja, neste cenário, os socialistas ainda precisariam de se aliar aos independentistas para conseguirem governar. O PP de Pablo Casado é o grande derrotado da noite, tendo conseguido apenas 16,7% dos votos. O Cidadãos de Alberto Rivera teve 15,8% dos votos e os ultranacionalistas do Vox garantem a entrada no Parlamento espanhol nacional com 10,3%.

“A visão geral da DBRS é que esta eleição não irá resultar numa grande mudança política”, afirmou a agência de rating canadiana, numa reação esta segunda-feira, em que refere esperar que demore ainda algum tempo até que seja formado Governo.

“Apesar de se manter alguma incerteza política, a DBRS considera que várias características da política espanhola irão restringir resultados mais radicais. Estas incluem: forte apoio de partidos centristas, ausência de partidos significativamente eurocéticos e empenho pelo quadro orçamental europeu”, acrescentou.

Galp cai após resultados e Jerónimo Martins corrige

Além da incerteza vinda do país vizinho, Lisboa está a ser penalizada pela época de resultados. A Galp, cujos lucros caíram 24% para 103 milhões de euros no primeiro trimestre, segue a cair 1,3% para 14,79 euros por ação. Apesar do aumento da produção e das vendas na Europa, a unitização do campo de Lula no Brasil e a queda na margem de refinação penalizaram as contas.

Igualmente, também a Jerónimo Martins corrige dos fortes ganhos da última sessão e perde 1,5% para 14,56 euros por ação. Ainda no vermelho negoceiam a EDP Renováveis (-1,35%), a EDP (-0,53%) e os CTT (-0,44%), que irão também apresentar contas esta segunda-feira, após o fecho do mercado. A travar as quedas no índice, está o BCE, que avança 0,52% para 0,2497 euros por ação.

As bolsas da Península Ibérica contrariam, assim, a tendência europeia, que estende os ganhos das bolsas asiáticas. Em particular, Itália segue em alta depois de ter afastado a possibilidade de um corte no rating da dívida. Na passada sexta-feira, a Standard and Poor’s não fez alterações e a bolsa italiana abriu a ganhar 0,16%, enquanto o índice de bancos italianos sobe mais de 1%.

Os juros da dívida italiana recuam 3,4 pontos para 2,55%. Em Espanha, a yield sobe ligeiramente (0,6 pontos) para 1,03% e em Portugal mantém-se praticamente inalterada em 1,133%. O euro aprecia-se 0,11% contra a par norte-americana, para 1,116 dólares.