Category Archives: Markets

(Yahoo) London Stock Exchange rejects £32bn Hong Kong takeover bid


Signage is seen outside the entrance of the London Stock Exchange in London, Britain. Aug 23, 2018. REUTERS/Peter Nicholls
London Stock Exchange said there were ‘fundamental flaws’ in HKEX bid. Photo: Peter Nicholls/Reuters

The London Stock Exchange Group (LSE.L) has unanimously rejected a takeover bid from Hong Kong Exchanges and Clearing (HKEX) (0388.HK).

LSE said in a statement on Friday lunchtime that the board had “considered the unsolicited, preliminary, and highly conditional proposal” and concluded it has “fundamental flaws.”

“The Board has fundamental concerns about the key aspects of the Conditional Proposal: strategy, deliverability, form of consideration, and value,” the company said in a statement.

LSE said it would not engage further with HKEX and would instead focus on its acquisition of data business Refinitiv.

HKEX surprised the market on Wednesday with a £32bn bid for LSE. It said a merger of the two businesses would “connect East and West” and “offer customers greater innovation, risk management, and trading opportunities.”

READ MORE: Twitter’s UK profit jumps — but tax bill falls

Analysts said the deal looked unlikely from the start.

“There are only few instances of cross-continental exchange mergers that have been completed successfully, as nationalistic concerns often arise,” UBS analysts Michael Werner and Federico Braga said in a note to clients on Friday.

“Given the recent business disruptions in Hong Kong, we would argue that this adds to the potential perceived risk of a proposed LSE/HKEX merger.”

Analyst Benjamin Goy at Deutsche Bank said the deal would be “strategically and politically challenging.”

Shares in HKEX fell sharply on Thursday in Hong Kong as investors guessed the deal would be rejected. The stock price fall wiped about $1bn off the company’s value.

READ MORE: More pain for Neil Woodford investors with £42m write-down

LSE shares jumped by 10% on Wednesday when the deal was first announced but the rally quickly faded.

Shortly after the rejection of the takeover proposal on Friday, LSE shares were trading up 1.1% on the day. The stock had been trading as much as 1.8% higher prior to the announcement.

LSE has been the target of several takeover bids over the years, most recently a proposed merger with Deutsche Borse in 2016. That deal was blocked by EU regulators on competition grounds.


(BBC) London Stock Exchange gets £32bn Hong Kong bid


London Stock Exchange

The company that owns Hong Kong’s main stock exchange has made a £32bn bid to buy its rival in London.

Shares in the London Stock Exchange Group jumped by more than 15% on news of the offer, but fell back later.

Hong Kong Exchanges and Clearing said in a statement that combining the two exchanges would bring together “the largest and most significant financial centres in Asia and Europe”.

But it wants the LSE to scrap its plans to buy data firm, Refinitiv.

The deal would “redefine global capital markets for decades to come”, said Charles Li, chief executive of the Hong Kong company.

“Together, we will connect East and West, be more diversified and we will be able to offer customers greater innovation, risk management and trading opportunities,” he added.

The LSE confirmed it had received an “unsolicited, preliminary and highly conditional” offer from its Hong Kong rival and said it would make an announcement in “due course”.

‘Strategic asset’

But analyst Neil Wilson, from, described the proposed deal as a “non-starter”. He pointed to the LSE’s share price after the announcement – just more than £71 and well below the £83.61 offer price – a sign that investors don’t expect the deal to get over the line.

He said political considerations would be “front and centre”.

“The UK government may not wish to see such a vital symbol of UK financial services strength, and indeed a strategic asset, to be owned by foreigners,” he said. “Effectively it would hand it over to the Chinese through the Hong Kong back door.”

One of the conditions of the offer from Hong Kong is that the LSE scraps its proposed £22bn deal to buy data firm Refinitiv from its current owners, which include Thomson Reuters and private equity house Blackstone.

But in its statement, the LSE said it “remains committed to and continues to make good progress” with the deal.

In 2017, EU regulators blocked a proposed £21bn merger between the LSE and Germany’s Deutsche Boerse.

The European Commission said the deal would have created a “de facto monopoly” for certain financial services.

(ZH) Blackrock CIO: The Endgame Is Coming And Central Banks Will Debase Everything To Spark Inflation

(ZH) Blackrock’s Chief Investment Officer, Rick Rieder, best known perhaps for recently suggesting that the ECB should monetize stocks, writes in the Blackrock blog today and highlights the economic policy state-of-play today, and where it may lead to should economic growth falter, productivity not materialize, and populism continue to thrive.

* * *

The major global central banks continue to draw bigger guns in their battle against deflation, yet in some places, it appears to be of no avail. The fact is that the share of sovereign yields that are in negative territory keeps increasing and the average level of these interest rates becomes ever more negative. Further, quantitative easing (QE) purchases of sovereign debt have transitioned to purchases of corporate debt, and in some places equities; with inflation still elusive and improved growth prospects in question. That all leads one to wonder where (and how) these policies end? What is today’s monetary policy endgame?

Turn to economic history for perspective

Central Banks Must Get Inflation Right, AllianzGI’s Utermann Says

In order to envision the monetary policy endgame several years (or a decade) from now, let’s start by stepping back and examining two of the foundational tenets that have driven the global economy and financial markets since the 1970s. The first principle is that the major central banks embraced a roughly 2% inflation target (implicit for the Federal Reserve since, at least, 1995 and explicitly stated since 2012), and the second factor is the end of the Bretton Woods monetary system; marking the shift away from the gold standard and into a world of fiat currency fluctuation. The commitment to the 2% inflation target is extremely important for understanding our current monetary policy challenges, because that target was premised around structural forces that no longer exist (given this era of demographic aging and rapid technological development, which both hold down broad-based inflation). Still, the switch to fiat currency about two decades before the 2% inflation target was set, ironically paves the way for the inflation target to be met – eventually. The question that remains, then, is just “how” this will be the case?

However, before we answer that we must examine why inflation peaked in 1979 and why it has been in a downtrend since then? In other words, what are the structural forces creating disinflation? There are four major forces that created inflation prior to 1979 and resulted in disinflation afterward. First, the population growth rate following the post war Baby Boom peaked around 1979/1980 and subsequently slowed. Second, the growth rate of female participants in the labor force also peaked around 1979/1980 and subsequently slowed. Third, the U.S. and China opened diplomatic and trade relations in 1979, as a result of Deng Xiaoping’s reforms, arguably marking the beginning of the latest stage of globalization. Finally, the oil shocks of the 1970s, ending with the 1979 Iranian Revolution and a surge in oil-driven inflation were a critical factor in the price rises of that time.

This latter event was followed by the subsequent commitment from a then relatively newly formed OPEC that it would act as an oil supplier of last resort, helping to keep oil prices from becoming too volatile (a role it has largely maintained until today). Fascinatingly, in recent years technological innovations have taken hold that form an important new disinflationary force. Specifically, we’ve seen price transparency and information symmetry, which are driven by the proliferation of smartphones, the Internet and the Information Age, more broadly. These forces are flattening supply curves across a huge variety of products, making traditional aggregate demand stimulus less effective in creating inflation. Demand expands, but prices don’t rise as they did in the past, because everyone is aware of exactly what the marginal good should cost and will not pay a cent more than can be (instantly) found at the cheapest online supplier.

Thus, some huge inflationary forces pre-1979 have since abated, and some tremendous disinflationary forces have entered the picture post-1979, but at the end of the day these are all significant, secular, factors that are not likely to be reversible (with the possible exception of globalization, but even then, only to a modest degree). The fact is that central banks’ actions, so far, have simply been too modest to matter against the backdrop of these tectonic changes. Moreover, we would argue that central banks have already achieved meaningful price stability (for instance, the volatility of CPI is near its lowest levels in history), but the natural rate of inflation is simply not 2%, but rather is something lower. So, despite the seemingly large size of monetary policy stimulus by historic standards, central banks have still only brought “a knife to a gun fight,” to paraphrase a film from the late-1980s, at least as far as creating sustained 2% inflation is concerned.

What ammunition central banks have yet to deploy

While the point is debatable, we do not think the arsenal of central bank tools is near exhausted, which brings us to the endgame and the concept of fiat currency. There are two ways inflation is created: one is to actually raise the prices of goods and services organically, but the other is to debase the currency in which those goods and services are sold (think helicopter money). Because the former method relies on traditional aggregate demand stimulus (lower interest rates), which has not been working, since the natural rate of aggregate demand growth is now so low (and in some places is contracting) and the supply curve is so flat; the endgame may well be monetary debasement. Under the gold standard this would not have been possible, as every new dollar would have to be backed by physical gold mined from the earth (a very slow and expensive process, and likely without the requisite volumes), but today money is created by printing presses, or even a few computer keystrokes.

In order to debase a currency, money needs to be created at a faster pace than goods and services are (essentially, liquidity growth needs to exceed world GDP growth). What does this mean for investors? Real rates will definitionally need to be negative – and in fact more negative than the real rates of competitors (think competitive devaluation). The U.S. is not quite there yet, but we will see as soon as next month how much closer the ECB gets to monetary debasement (we think they’re still some ways away, as they haven’t fully exhausted their negative interest rate path, it seems). Ironically, the beggar-thy-neighbor implications of competitive devaluations will almost certainly incite a response from countries who may not originally even have needed to resort to currency debasement in the first place, raising the potential for full blown currency war.

Investment implications

How should one position for such an endgame? As is probably evident, any nominal instrument will be devalued in real terms, so the solution is to hold an asset that maintains its real value – an asset that cannot be printed. We would include stocks (dividend yields are set on payout ratios, companies have some degree of pricing power, and shares outstanding are limited in number), real estate (it is difficult and expensive to expand the stock of real estate), and even commodity currencies, like gold (again, limited supply and expensive to extract). By definition, the worst asset to hold would be a sovereign bond with a negative yield, closely followed by paper money at zero yield, both with a theoretically infinite supply.

Unfortunately, such extreme devaluations in currencies could not only inflate the prices of real assets but could also push Gini coefficients to historically wide levels (a measure of the rich/poor divide) and may well fuel a continued rise in populist politics. Ultimately, this could have a real influence on central banking as we know it today, and/or the value of fiat currency. All of this is very difficult to anticipate in terms of the breadth and influence of these types of actions and ultimate reactions in terms of how prices, markets, investors, and central banks consequently adjust.

Coming back from these extreme policies is very difficult, particularly as the aging demographic and concurrent potential growth trends embedded in the system provide a ceiling on above-trend growth, which otherwise could aid the economy in soft-landing from these policies. And, potentially more importantly, extremely low rates can and will encourage fiscal actors to add more, and potentially dramatically more, debt to an already historically-levered set of economies (e.g. the increased discussion of MMT). Hence, all of this leads one today to consider assets that can participate in an inherent devaluation of the local currency, which is to say: equities, real estate, and even hard assets that have historic value-relevance, such as gold.

(ZH) Emerging Market Central Banks Panic With Most Rate Cuts Since Financial Crisis

(ZH) The global growth outlook is the lowest since the last financial crisis, and central banks, especially ones in emerging markets, have already started to cut interest rates to make sure growth doesn’t collapse.

Manufacturing across large parts of South America, Europe, Asia, and the Middle East are reeling from a global structural slowdown, amplified by the US and China trade war, have triggered emerging central banks to cut rates by the most in a decadereported Reuters.

Emerging central banks took notice when major central banks including the US Federal Reserve and the European Central Bank started to cut interest rates this summer, all in an attempt to lessen the impact of a global synchronized slowdown.

Sri Lanka Central Bank Governor on Interest Rate Cut, Inflation, Tourism

Central banks across 37 emerging market economies recorded a net fourteen rate cuts in August, the most since policymakers dropped rates to zero after the global financial crash in 2008/09.

August marked the seventh straight month of net rate cuts followed by a tightening cycle that ended in early 2019. July recorded a net eight rate cuts. Cuts by Mexico and Thailand in August took markets by surprise.

After nine straight months of rate hikes in 2018, emerging central banks battled the fallout from a firm dollar, increasing inflation, and weaker local currencies.

Here’s a complete list of the recent emerging market central bank policy decessions:

  • PARAGUAY – The central bank cut its policy rate by 25 basis points to 4.25% on Aug. 21.
  • INDONESIA – The central bank, hoping it can spur faster growth at home despite a global slowdown, surprisingly cut its key interest rate for a second time in two months on Aug. 22.
  • MEXICO – Policymakers cut on Aug. 15 the key lending rate by 25 basis points to 8.00%- the first reduction since June 2014, citing slowing inflation and increasing slack in the economy, and fuelling expectations that further monetary policy easing could be on the way.
  • EGYPT – Egypt’s central bank cut the overnight deposit rate by 150 basis points to 14.25% on Aug. 22, its first cut since February, after July inflation figures came in significantly below expectations
  • MOZAMBIQUE – The central bank cut its benchmark interest rate by 50 basis points on Aug. 14 to 12.75%.
  • JAMAICA – Jamaica’s central bank cut its interest rate by 25 basis points to 0.50% on Aug. 28.
  • NAMIBIA – Policymakers reduced the lending rate by 25 basis points to 6.5% on Aug. 14.
  • MAURITIUS – The central bank on Aug. 9 cut the repo rate by 0.15 basis points to 3.35%.
  • PERU – The central bank cut the benchmark interest rate to 2.5% on Aug. 9 amid growing expectations for an economic slowdown in the world’s No.2 copper producer, but stressed its decision did not necessarily mean the start of an easing cycle.
  • SERBIA – The Serbian central bank surprised markets by cutting its benchmark interest rate another 25 basis points to 2.5% on Aug. 8, the second cut in as many months, to further bolster lending and growth.
  • THE PHILIPPINES – The central bank cut its benchmark interest rate on Aug. 8 and kept the door open for further easing to buttress the economy after growth slipped to its weakest in 17 quarters, hurt by tepid government spending and private sector investment.
  • BOTSWANA – The central bank cut the lending rate by 25 basis points to 4.75% on Aug. 29.
  • INDIA – The Reserve Bank of India (RBI) lowered its benchmark interest rates for a fourth straight meeting on Aug. 7 with a slightly bigger than expected cut, underscoring its worries about India’s near-five year low pace of economic growth.
  • BELARUS – The central bank said on Aug. 7 it was cutting its main interest rate to 9.5% from 10% with effect from Aug. 14 and that the intensity of inflationary processes had slowed in the second quarter.
  • THAILAND – Policymakers unexpectedly cut the benchmark rate on Aug. 7, expressing worry about strength of the baht and aiming to help support faltering growth.
  • JORDAN – The central bank of Jordan reduced its main rate in early August by 25 basis points to 4.5%.
  • HONG KONG – The Hong Kong Monetary Authority (HKMA) cut its base rate charged through the overnight discount window by 25 basis points to 2.5% on Aug. 1, its first cut since late 2008, in line with the U.S. Federal Reserve’s move. Hong Kong’s monetary policy moves in lock-step with the Fed as its dollar is pegged at a tight range of 7.75-7.85 per dollar.
  • MOLDOVA – The central bank raised its main interest rate to 7.5% from 7% on July 31 to fight rising inflation caused by wage increases and higher food prices.
  • SAUDI ARABIA / BAHRAIN / UNITED ARAB EMIRATES – Central banks of Saudi Arabia, Bahrain and the United Arab Emirates – whose currencies are all pegged to the U.S. dollar – cut key interest rates to preserve monetary stability on July 31 after the Federal Reserve lowered U.S. interest rates for the first time in over a decade.
  • BRAZIL – In its first rate cut since March 2018, the central bank cut its benchmark interest rate to a new low of 6.00% on July 31, an aggressive first move in a widely anticipated easing cycle to inject life into a moribund economy and prevent inflation from slipping too far below target.
  • AZERBAIJAN – The central bank said on July 26 it had cut its refinancing rate to 8.25% from 8.50%.
  • RUSSIA – Policymakers cut the key interest rate on July 26 and flagged that one or two more cuts were possible later this year as Russia faces sluggish economic growth and slowing inflation.
  • TURKEY – The central bank slashed its key interest rate by a bigger-than-expected 425 basis points to 19.75% on July 25 to spur a recession-hit economy, its first step away from the emergency stance adopted during last year’s currency crisis.
  • SOUTH AFRICA – The central bank cut its main lending rate as expected on July 18, but struck a cautious tone that suggested future cuts in borrowing costs were not a foregone conclusion despite benign inflation.
  • UKRAINE – Policymakers cut the main interest rate by half a percentage point to 17% on July 18, citing a downward inflation trend which is expected to continue in coming months and could pave the way for further monetary easing.
  • SOUTH KOREA – The central bank delivered a surprise interest rate cut on July 18, and shaved this year’s growth forecast to the lowest in a decade, as a brewing dispute with Japan piled more pressure on the trade-dependent economy.
  • PAKISTAN – Policymakers hiked the main interest rate by 100 basis points on July 16 to 13.25%, citing increased inflationary pressures and a likely near-term rise in prices from higher utility costs.
  • DOMINICAN REPUBLIC – Policymakers cut interest rates by 50 basis points to 5% on June 30.
  • COSTA RICA – The central bank cut the key policy rate to 4.50% from 4.75% from June 20.
  • CHILE – Chile’s central bank unexpectedly cut the benchmark interest rate by 50 basis points to 2.5% on June 7 as it braced for a sharper economic slowdown because of the U.S.-China trade dispute.
  • SRI LANKA – The central bank cut its key interest rates by 50 basis points on May 31, as widely expected, to support its faltering economy as overall business and consumer confidence slumped following deadly bomb attacks.
  • TAJIKISTAN – The central bank reduced the refinancing rate to 13.25% from 14.75% on May 31.
  • KYRGYZSTAN – Policymakers in the Central Asian nation cut the benchmark rate to 4.25% from 4.50% on May 28, citing slowing inflation.
  • ANGOLA – Angola’s central bank cut its benchmark lending rate by 25 basis points to 15.5% on May 24.
  • ZAMBIA – The central bank in Lusaka raised the benchmark lending rate to 10.25% from 9.75% on May 22 to counter inflationary pressure and support macroeconomic stability.
  • MALAYSIA – The central bank on May 7 became the first in Southeast Asia to cut its key interest rate this year, by 25 basis points to 3.0%, moving to support its economy at a time of concern about global growth.
  • RWANDA – Rwanda’s central bank cut its key repo rate by 50 basis points on May 6 to 5.0%.
  • MALAWI – Malawi’s central bank cut its benchmark lending rate by 100 basis points on May 3 to 3.5%.
  • CZECH REPUBLIC – The Czech National Bank raised interest rates on May 2, using a window of opportunity created by easing economic risks abroad to stem rising domestic inflation by fine-tuning a tightening cycle it had paused at the end of 2018.
  • KAZAKHSTAN – Policymakers cut the policy rate by 25 basis points to 9.00% on April 15 in an expected move taken after President Kassym-Jomart Tokayev ordered them to make credit more affordable.
  • NIGERIA – In a surprise move, the central bank cut its benchmark interest rate to 13.5% from 14% on March 26 as part of an attempt to stimulate growth in Africa’s biggest economy and signal a “new direction”.
  • GEORGIA – The central bank cut its refinancing rate to 6.5% from 6.75% on March 13, citing forecasts suggesting that annual inflation would stay close to its 3% target this year.
  • TUNISIA – Policymakers in Tunisia raised the key interest rate to 7.75% from 6.75% on Feb. 19 to combat high inflation – the third such hike in the past 12 months.

The reason emerging market central banks were delivering the most cuts in a decade last month is that the world is likely in a trade recession that could significantly worsen into 1H20.

Many emerging market countries have export-driven economies to the developed world, and when demand slows down, their economies suffer the most.

Rate cuts from August will take at least one year to filter into emerging markets, which means economic data from the 37 regions will likely stay depressed for some time.

(BBG) Here’s Where Capital Flight From Hong Kong Will Show Up First


  •  Financial hub is one of the world’s most open economies
  •  Risk of outflows is growing as protests weigh on the economy

It’s one of the biggest questions hanging over Hong Kong as anti-government protests head into a 13th week: Will investors pull their money out?

So far, there are few signs of a mass exodus. But the risk of capital outflows is undoubtedly rising as Hong Kong’s summer of unrest pushes the economy toward a recession, weighs on asset prices and fuels doubt about the city’s future as a financial hub.

The stakes are high for Hong Kong, which is one of the world’s most open economies, with bank assets equal to about 8.5 times of its GDP and offshore traders accountingfor about 40% of volume on the city’s stock market. That means a significant withdrawal of deposits and investors would land a heavy blow to its economy and markets.

Hong Kong Braces For the 12th Weekend of Protests In Tsuen Wan and Kwai Tsing
Demonstrators march during a protest in Hong Kong, Aug. 25.Photographer: Paul Yeung/Bloomberg

While the city has periodically experienced sustained bouts of outflows — notably during the global financial crisis and the SARS epidemic — there’s no single indicator that shows how money is moving in and out of the territory. The trends in those periods were evident in stock market and real estate slumps, along with a variety of metrics that, taken together, help tell the whole story.

Changes in the aggregate balance of interbank liquidity — bank funds held with the Hong Kong Monetary Authority — are among the most visible indicators of fund-flow pressures. The balance recently dropped to HK$54 billion ($6.9 billion) from about HK$180 billion after HKMA used funds to defend the currency peg — a move that Kevin Lai, chief economist for Asia excluding Japan at Daiwa Capital Markets Ltd., said may have had more to do with the period when the U.S. Federal Reserve was raising interest rates.

Further outflows could wipe out this balance

Foreign Currency Assets

Changes in the level of foreign currency assets held by Hong Kong’s banks are another proxy for capital flows. The city has already seen a decline of more than $45 billion since mid-2017 as the Fed tightened monetary policy, according to Daiwa’s Lai. He estimates Hong Kong has a buffer of nearly $140 billion before it runs into a liquidity crisis that would trigger a surge in banks’ borrowing costs.

Steady Decline

Interbank Rates

Another closely watched measure is the local lending rate between Hong Kong’s banks, known as Hibor. If it’s higher than borrowing costs in U.S. dollars for a sustained period (say, more than a month) that would hint at outflows, said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. As money exits the financial system, liquidity gets tighter and interest rates rise.

Hong Kong dollar interest rates have mostly been lower than U.S. borrowing costs, though they were briefly higher in late June and early July due to seasonal factors.

Traders can find trace of outflows in the spread between HKD Hibor and USD Libor


A meaningful decrease in Hong Kong dollar deposits would suggest investors are switching their local assets into other currencies. Bank customers in Hong Kong held HK$13.6 trillion in deposits as of June, HKMA data show, a slight decrease from earlier in the year but still near a record high.

“The risk is contained at the moment,” said Carie Li, an economist at OCBC Wing Hang Bank Ltd. in Hong Kong. “But ongoing protests, the yuan and the trade war are causing concern.”

Hong Kong has seen stable deposit growth

Hong Kong’s stock-exchange links with mainland China provide a daily look at cross-border capital flows. For now, mainland investors are hunting for bargains as Hong Kong stocks fall: They added a net $8.4 billion to their holdings in the 28 trading sessions through Tuesday.

Mainland stock investors are buying in Hong Kong, for now

Hong Kong Dollar

For many economies, a falling currency can be a sign of investors heading for the exits — think of the British pound’s decline amid Brexit uncertainties. Weakness in the Hong Kong dollar can also reflect capital outflows, but the currency’s usefulness as an indicator is limited because it has been pegged to the U.S. dollar since 1983.

The city’s de-facto central bank says it’s committed to keeping the currency in a tight trading range between HK$7.75 to HK$7.85 against the greenback. If the rate neared the bottom end, expectations of HKMA intervention would likely lead to a spike in borrowing costs, a move that would force traders to quit their short positions and trigger a spike in the exchange rate.

Hong Kong dollar may drop in case of outflows until it hits end of trading band

Share Prices

Hong Kong has the world’s fourth-biggest stock market by value, according to data compiled by Bloomberg. Share prices in the city have dipped during previous crises as investors have fled, though the city’s bourse was a fraction of its current size.

Hong Kong stocks have fallen during times of crisis

Though the data don’t show signs of significant outflows, Hong Kong’s political and business leaders have warned of lasting economic damage to the city. That could also mean fleeing money, according to economists at Natixis SA.

“If the negative sentiment continues, the rapidly decelerating economic environment could entice capital outflows,” they wrote in a note published Wednesday.

(ZH) The Man Who Predicted The Collapse In Bond Yields Reveals What Happens Next: “There Is A Lot More To Come”

(ZH) Earlier this week we wrote that after decades of waiting, for Albert Edwards vindication was finally here – if only outside the US for now – because as per BofA calculations, average non-USD sovereign yields on $19 trillion in global debt had, as of Monday, turned negative for the first time ever at -3bps.

So now that virtually every rates strategist is rushing to out-“Ice Age” the SocGen strategist (who called the current move in rates years if not decades ago) by forecasting even lower yields (forgetting conveniently that just a year ago consensus called for the 10Y to rise well above 3% by… well, some time now), what does the man who correctly called the unprecedented move in global yields – which has sent $17 trillion in sovereign debt negative – think?

In a word: “There is a lot more to come.

As the SocGen strategist – who is certainly not at all confused by the move in rates – writes, “investors are perplexed. How can government bond yields have fallen so low in such a short space of time?” 

Although the tsunami of negative yields sweeping the eurozone has attracted most attention, yields have also plunged in the US with 30y yields falling to an all-time low just below 2%. For many this represents a bubble of epic proportions, driven by QE and ripe for bursting.

Here Edwards makes it clear that he disagrees , and cautions “that there is a lot more to come.”

What does he mean?

As Albert explains, “when you see the creeping advance of negative bond yields throughout the investment universe, you really start to doubt your sanity. For me it is not so much that 10y+ government bond yields are increasingly negative, but when European junk bonds go negative I really start to scratch my head.” And as we wrote in “Redefining “High” Yield: There Are Now 14 Junk Bonds With Negative Yields“, there certainly is a lot of scratching to do.

One thing Edwards isn’t scratching his head over is whether this is a bond bubble: as he explains, his “own view is that this government bond rally is not a bubble but an appropriate reaction to the market discounting the next recession hitting the global economy from all overleveraged corners of the world (including China), with close to zero core inflation and precious few working tools left at policymakers’ disposal.”

This means that “the bubbles are not in the government bond market in my view. They are in corporate equities and corporate bonds.

If Edwards is correct about the locus of the next mega-bubble, it is very bad news for risk assets as the “global deflationary bust will wreak havoc with financial markets”, prompting Edwards to ask a rhetorical question:

Does anyone seriously believe that in the next global recession equity markets will not collapse? Do market participants really believe fiscal stimulus and helicopter money will save us from a gutwrenching global bust that will make 2008 look like a picnic? Has the longest US economic cycle in history beguiled investors into soporific complacency? I hope not.

He may hope not, but that’s precisely what has happened in a world where for over a decade, even a modest market correction has lead to central banks immediately jawboning stocks higher and/or cutting rates and launching QE.

So to validate his point that the rates market is not a bubble, Edwards goes on to show that “US and even eurozone government bond yields are not in fact overextended – certainly not on a technical level – but also that fundamentals should carry government bond yields still lower.”

In his note, Edwards launches into an extended analysis of the declining workweek for both manufacturing and total workers, and explains why sharply higher recession odds (which we recently discussed here), are far higher than consensus expected.

But what we found most notable was his technical analysis of the ongoing collapse in 10Y Bund yields. As Edwards writes, “looking at the chart for German 10y yields (monthly plot) their decline to close to minus 0.7% does not seem so extraordinary – merely the continuation of a downtrend within very clearly defined upper and lower bounds (see chart below).”

As Edwards explains referring to the chart above, “the bund yield has remained in the lower half of that band since 2011, but there is good reason for that as the ECB has struggled with a moribund eurozone economy and core inflation consistently undershooting its 2% target.”

Still, even Edwards admits that the pace of the recent decline in bund 10y yields is indeed unusually rapid (with a 14-month RSI of 26, middle panel).

And although this suggests a pause in the decline in yields is technically warranted, the MACD (bottom panel) doesn’t look at all stretched. After a pause (data allowing), 10y bunds could easily fall to the bottom of the lower trendline (ie below -1.5%) without any great technical excess being incurred.

His conclusion: “This market certainly doesn’t look like a bubble to me.”

Shifting attention from Germany to the US, Edwards writes that unlike the 10y German bund yield, “the US 10y has mostly occupied the top half of its wide downtrend band since 2013.”

That is fairly unsurprising given the stronger US economy together with Fed rate hikes. Technically the RSI is much less extended to the downside than the bund, but like Germany the MACD could still have a long way to fall. The bottom of the lower downtrend is around minus 0.5% by the end of 2020.

It is Edwards’ opinion that “we are on autopilot until we get” to 0.5%.

But wait, there’s more, because in referring to the charting of Pictet’s Julien Bittle (shown below), Edwards points out the right-hand panel which demonstrates how far US 10y yields might fall over various time periods after hitting a cyclical peak. “He shows that on average we should expect a decline of 1-1½ pp from the trendline, which takes us pretty much to zero (see slide).” Personally, Edwards says, he is even “more bullish than that!”

Edwards then points us to the work of Gaurav Saroliya, Director of Macro Strategy at Oxford Economics who “certainly doesn’t think that QE is depressing bond yields.” In this particular case, Saroliya uses a simple model which fits US 10y bond yields with trend growth and inflation reasonably accurately (see left hand chart below). As Edwards notes, “given the demographic situation, inflation is likely to remain subdued.”

In conclusion Edwards presents one final and classic Ice Age chart to finish off.

As the bearish – or is that bullish… for bonds – strategist notes, “the last few cycles have seen a sequence of lower lows and highs for nominal quantities (along with bond yield and Fed Funds). I have used a 4-year moving average and have added where I think we may be heading in the next downturn and rebound – and more importantly where I think the market is now thinking where we are heading.”

Referring to the implied upcoming plunge in nominal GDP, Edwards explains that “that is why this is not a bond bubble. It is the next phase of The Ice Age. And it is here.”

One last note: is it possible that Edwards’ apocalyptic view is wrong? As he admits, “of course” he could be wrong: “And given my dystopian vision for the global economy, equity and corporate bond investors, I sincerely hope I am.”

(MenaFM) Wall St push to clean up swap trades gets poor reviews from watchdogs


(MENAFN – Gulf Times) Wall Street’s push to clean up a $10tn corner of the derivatives market is getting poor reviews from an important audience: Global financial regulators.

Behind closed doors, watchdogs from Washington to London have made clear that a fix the industry came up with this year to crack down on shady deals falls short of what’s needed, said people familiar with the matter. 
The focus of the scrutiny is credit default swaps instruments tainted by the 2008 financial crisis that traders use to cash in when companies miss bond payments.

The pushback hasn’t been subtle. Staff members at the Commodity Futures Trading Commission, the US’s main derivatives regulator, prepared an internal analysis in recent weeks that concluded hedge funds can still profit from CDS in numerous ways by engineering questionable corporate actions, three people said. The agency has shared its findings with other regulators.
In June, the US Securities and Exchange Commission and the UK’s Financial Conduct Authority joined the CFTC in issuing a rare public statement in which the watchdogs pledged to work together to combat ‘opportunistic strategies involving CDS. 

And the CFTC took the extraordinary step of hosting a July podcast for agency officials to discuss red flags they’re seeing in the market, and how deals are proliferating with seven occurring in the past six months.
The change the industry proposed in March addressed situations where hedge funds have enticed stressed companies to miss bond payments they could otherwise make.

But other trades continue to pop up, including instances of funds persuading Corps to alter debt terms to impact CDS prices.
For someone on the other side of a trade, such strategies can feel like manipulation that costs them a lot of money. That’s because even minimal changes to companies’ credit profiles can lead to substantial earnings in the CDS market, where valuations are based on the perceived likelihood of businesses defaulting or going bankrupt. The heightened scrutiny notable at a time when authorities are dialling back financial rules during the Trump administration shows regulators are losing patience and might take action to force the industry to change its ways. 

At the core of their frustration: Wall Street seems to be resorting to increasingly creative ways once again to profit from CDS, instead of using the derivatives primarily for what they were initially created for hedging bond investments against the risk of companies and governments defaulting.

‘The SEC is working closely with the CFTC and the FCA to examine the various issues raised by the pursuit of manufactured credit events and other potentially manipulative strategies, the SEC said in a statement released by chairman Jay Clayton’s office. ‘SEC staff welcomes continued engagement with market participants on these matters. 

Michael Short, a spokesman for CFTC chairman Heath Tarbert, said that in certain circumstances, CDS trades can raise ‘critical questions of whether there is market manipulation, and we are looking very closely at it. The FCA declined to comment.

Representatives for Wall Street firms say they get it that regulators are concerned. But some tied to the industry want authorities to explain precisely what they don’t like and what should be changed.
‘If regulators want to improve the market and I applaud their efforts I would really encourage them to share their specific concerns, including concrete examples of transactions they see as potentially harmful to the markets, so we can roll up our sleeves and get to work together, said John Williams, a law partner at Milbank who represents clients who are active in the swaps market.

CDS have long had a bad reputation. In 2008, they had a starring role in the meltdown because American International Group Inc, which sold billions of dollars of CDS tied to mortgages, received a massive taxpayer bailout when the housing market collapsed. Now, the questionable practices are in the corporate arena.

One of the most controversial recent deals emerged in late 2017 after a Blackstone Group Inc unit agreed to extend sweetheart financing to Hovnanian Enterprises Inc with an unusual catch: the struggling homebuilder had to default on a small slice of its debt. 

Blackstone stood to benefit from the transaction because it had purchased CDS on Hovnanian. The transaction was ultimately scuttled amid opposition from the CFTC.

More than a year later, representatives from firms including Goldman Sachs Group Inc, JPMorgan Chase & Co, Apollo Global Management and Ares Capital Corp agreed to a plan intended to ensure that defaults are tied to legitimate financial stress, not traders’ derivatives bets.

The International Swaps and Derivatives Association, the industry’s main lobbying group, unveiled the changes in March. They were approved last month, and will probably take effect in 2020.

But as regulators continued to examine CDS trading, they concluded the changes didn’t address enough of the practices that they believe are undermining market confidence, said the people who asked not to be named in discussing internal deliberations.

ISDA CEO Scott O’Malia said the industry’s fix targeted a subset of transactions and firms are receptive to regulators’ concerns. He added that derivative traders are already subject to laws prohibiting fraud and manipulation.

‘We welcome the focus by regulators on this market, and will work closely with them in response to specific issues that are identified, O’Malia said in a statement.

In the past year, multiple trades have raised eyebrows among market participants. Examples include hedge funds pushing Neiman Marcus Group Inc to tweak terms of a debt swap in a way that could boost CDS payouts if the retailer later defaults.

Funds also persuaded bankrupt Sears Holdings Corp to auction off what would normally be a worthless chunk of debt to boost their earnings from swaps.

Still, it’s unclear how far regulators can go or are willing to go to regulate the CDS market. One issue is that it’s questionable whether any of the deals that have gotten attention actually violate the law. Thus far, none have triggered enforcement actions.

Plus, former CFTC chairman J Christopher Giancarlo, one of the most vocal critics of trades designed to trigger CDS windfalls, left the US government last month. Going forward, instituting any reforms will probably fall on the SEC and FCA.

That’s because many of the controversial strategies involve CDS contracts that insure against default by a single company, which the CFTC doesn’t regulate.

Regardless, watchdogs may not be able to keep up with Wall Street’s craftiness. ‘There will be creative people who can come up with ways of circumventing even this, Julia Lu, a law partner at Richards Kibbe & Orbe whose specialties include derivatives, said of ISDA’s changes. ‘There is no good way to regulate it.

(ECO) E vão quatro. Toyota Caetano Portugal de saída da Bolsa de Lisboa

(ECO) Há mais uma empresa de saída da praça bolsista nacional. Desta vez é a Toyota Caetano Portugal. O maior acionista diz que já não se justifica a presença desta empresa na Bolsa de Lisboa.

A Salvador Caetano Auto quer tirar a Toyota Caetano Portugal do mercado bolsista nacional. Em comunicado enviado à Comissão do Mercado de Valores Mobiliários (CMVM), a empresa explica que a Bolsa de Lisboa já não “constitui um mecanismo de financiamento dos capitais próprios”.

Esta é já a quarta cotada que anuncia, este ano a saída da bolsa de Lisboa. Após a Transinsular, que saiu logo no início de 2019, a SAG abandonou o índice PSI Geral em julho. Além destas também a Compta está em lista de espera para sair, o que irá levar o total de cotadas para apenas 52.Toyota Caetano sobe lucros. Propõe dividendo de 20 cêntimos Ler Mais

Na convocatória da Salvador Caetano Auto conhecida esta manhã, a empresa propõe que a Assembleia Geral Extraordinária da Toyota Caetano Portugal “delibere a perda de qualidade de sociedade aberta”da empresa que produz e comercializa veículos da marca japonesa em questão, na reunião que está marcada para 30 de agosto.

A Salvador Caetano Auto sublinha que “o mercado bolsista não constitui já um mecanismo de financiamento dos capitais próprios da Toyota Caetano Portugal, pelo que a perda da qualidade de sociedade aberta pela Toyota Caetano Portugal não afeta o normal desenvolvimento da sua atividade”.

Além disso, a empresa explica que assumirá o papel de acionista que adquirirá as ações da Toyota Caetano Portugal aos acionistas que não votem favoravelmente a declaração de perda da qualidade de sociedade aberta. A empresa propõe a pagar todos esses títulos por 2,80 euros por ação.

A Salvador Caetano Auto é dona de mais de 68% do capital social da Toyota Caetano Portugal. Para além desta acionista, a Toyota Motor Europe detém 27% do capital social da empresa portuguesa em causa.

(Reuters) Rush into U.S. bonds curbs global stock markets; gold touches six-year high


NEW YORK (Reuters) – Investors rushed into the safety of U.S. government bonds on Wednesday, muting a broad stocks rally as fears of a global recession grew.

Yields on the benchmark 10-year Treasury note US10YT=RR fell to their lowest levels since October 2016, and gold soared to a six-year high, while riskier assets like stocks and oil slid.

On Wall Street, the Dow Jones Industrial Average .DJI opened more than 500 points lower, helping erase gains in European shares, before ending the day close to where it started.

MSCI’s gauge of stocks across the globe .MIWD00000PUS gained 0.16%.

“Bonds are being bought in a panic mode,” said Andrew Brenner, managing director at National Alliance Capital Markets.

The Dow Jones Industrial Average .DJI fell 22.45 points, or 0.09%, to 26,007.07, the S&P 500 .SPX gained 2.21 points, or 0.08%, to 2,883.98 and the Nasdaq Composite .IXIC added 29.56 points, or 0.38%, to 7,862.83. [.N]

The pan-European STOXX 600 index rose 0.24%. [.EU]

There were few clear reasons for the afternoon rebound in U.S. stocks from their earlier lows.

“It’s become a matter of buyers remaining interested in continuing to buy stocks that they feel have been oversold and a lack of sellers’ supply,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

U.S. shares had gained overnight after President Donald Trump downplayed worries of a lengthy trade war and senior adviser Larry Kudlow said Trump’s administration was planning to host a Chinese delegation for talks in September. Wall Street futures gauges also rose.

The U.S. administration’s remarks marked a shift in tone from recent days, when Beijing warned that Washington’s labelling China as a currency manipulator would have severe consequences for the global financial order. The U.S. move rattled financial markets and dimmed hopes the trade war was ending.

Since then, China’s state banks have been active in the onshore yuan forwards market, tightening dollar supply and supporting the Chinese currency, sources told Reuters.

Despite that support, the yuan still dropped 0.2% to 7.0708 in offshore markets CNH=EBS, with currency markets still on edge after the People’s Bank of China (PBOC) set its official reference rate at an 11-year low..

The skittish mood was underlined by continuing demand for currencies and commodities considered safe havens.

Gold touched a six-year high of $1,489.76 per ounce XAU=. The Japanese yen rose 0.2% to 106.26 JPY=EBS, although that was still some way from levels on Monday, when the trade war’s escalation panicked investors.

The rush to the yen was also fuelled by a 2% slump in the New Zealand dollar after its central bank made an aggressive interest rate cut and said negative rates were possible, promoting bets on further policy easing around the world.Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., August 6, 2019. REUTERS/Brendan McDermid

Central banks, looking to rev up growth and fight low inflation rates, have turned increasingly dovish in recent months.

Benchmark 10-year notes US10YT=RR last rose 7/32 in price to yield 1.7156%, from 1.739% late on Tuesday, after touching earlier lows. Wednesday’s trough marked their lowest yield since 2016, as investors bet on another Federal Reserve rate cut in September.

Germany’s 10-year bond yield fell to record lows deep in negative territory as the bigger-than-expected Kiwi interest rate cut and weak German economic data fuelled the rally in bond markets.

In commodity markets, oil prices slipped to near seven-month lows, with the potential for damage to the global economy and dampened demand from the Sino-U.S. trade dispute casting a shadow over the market.

International benchmark Brent crude futures LCOc1 fell 2.5% to $57.44 a barrel, while U.S. crude dropped 2.5% to $52.31.

(EN) Pound sinks as Boris Johnson pushes UK closer to no-deal Brexit


Boris Johnson and Defence Secretary Ben Wallace meet crew members in the mess hall as they visit HMS Victorious at HM Naval Base Clyde in  Scotland, Britain July 29, 2019

Boris Johnson and Defence Secretary Ben Wallace meet crew members in the mess hall as they visit HMS Victorious at HM Naval Base Clyde in Scotland, Britain July 29, 2019 -CopyrightJeff J Mitchell/Pool via REUTERS

British Prime Minister Boris Johnson pushed Britain closer to a no-deal exit from the European Union on Monday, insisting he will not hold Brexit talks with EU leaders unless the bloc lifts its refusal to reopen the existing divorce deal – notably the Irish backstop.

Amid tough rhetoric from government ministers on Brexit, the pound sank to a two-year low against the euro as investors became nervous at the prospect of the UK leaving the EU at the end of October without an agreement on the terms of its departure.

Sterling fell by more than 1 percent to €1.10 and $1.22 – its lowest level against the dollar for 28 months.

On a visit to Scotland, Johnson repeated the message he has uttered many times since becoming prime minister last week. “The Withdrawal Agreement is dead, it’s got to go,” he said.

But once again he also sounded an optimistic note. “My assumption is that we can get a new deal, we are aiming for a new deal,” he said during a visit to the Faslane naval base.

Johnson said the EU must drop a “backstop” intended to keep the Irish border open. The backstop would require the United Kingdom to remain aligned to EU customs rules if a future trading relationship falls short of ensuring an open border.

“What we want to do is to make it absolutely clear that the backstop is no good, it’s dead, it’s got to go. The withdrawal agreement is dead. It’s got to go,” Johnson continued.

Johnson is trying to pressure the EU to give ground by intensifying preparations for the UK to leave the bloc in three months without a deal.

“There must be some change from the EU and if the EU are not willing to move at all we must be ready to give the country some finality,” Foreign Secretary Dominic Raab said on Monday, adding that London was “turbo-charging” no-deal preparations.

The 27 other EU members, though, say publicly and privately that the divorce settlement – including the backstop – is not up for barter.

Johnson became prime minister last week after winning a Conservative Party leadership contest by promising that the UK will leave the EU on the scheduled date of October 31 – with or without a deal.

(Reuters) LSE’s $27 billion Refinitiv takeover plan lifts its shares to record


(Reuters) – London Stock Exchange (LSE.L) shares rose more than 15% to a record high on Monday after it said it was in talks to buy financial data firm Refinitiv, in a deal worth $27 billion including debt.Signage is seen outside the entrance of the London Stock Exchange in London, Britain. Aug 23, 2018. REUTERS/Peter Nicholls

The proposed deal, which would turn LSE into a global player in financial data and expand its footprint in foreign exchange and fixed income, comes less than a year after Blackstone (BX.N) bought a majority stake in Refinitiv from Thomson Reuters (TRI.TO), which valued it at $20 billion.

LSE’s shares were 15% higher at 6,520 pence at 1110 GMT on Monday after hitting a record high of 6,562 pence, taking them to the top of London’s bluechip index .FTSE.

Thomson Reuters, the parent company of Reuters, holds a 45% stake in Refinitiv. A person familiar with the matter told Reuters that if the negotiations conclude successfully, a deal could be announced this week.

LSE shareholder Royal London Asset Management (RLAM) said it was right the exchange expanded further into data, but that it wanted more information about Refinitiv’s business lines.

“We are eager to hear more from management as to their quality and ability to integrate them,” Mike Fox, head of sustainable investments at RLAM, holds 0.98% of LSE, said in an email.

Refinitiv’s bonds, issued when Blackstone bought Thomson Reuters’ Financial and Risk business to form Refinitiv, rallied across the curve on Monday.

For example, a senior unsecured US dollar November 2026 bond 31740LAC7= rose 5 cents on the dollar to 109.5, sending the yield – which moves inversely to price – to 5.4791% from 7% at the end of last week.

Refinitiv had $12.2 billion in debt as of the end of December as a result of its leveraged buyout by Blackstone, which LSE would assume under the proposed deal.

(GRAPHIC – Exchanges Race To Grow:

A merger with Refinitiv would significantly expand LSE’s information services business, which the bourse operator has been building as a more stable source of cash flow than its primary transaction-reliant businesses.

JP Morgan analysts said the deal would be strategically sensible, and in line with the LSE’s strategy to focus on deals that extend into growth areas such as data and analytics and to complement existing businesses.

LSE tried to merge with rival Deutsche Boerse AG (DB1Gn.DE) in 2017, their fifth attempt to combine, but the deal collapsed when European regulators blocked it due to concerns about overlaps in their bond processing businesses.

Deutsche Boerse had been in talks to buy Refinitiv’s FX trading platform FXAll but said on Saturday that the deal was unlikely to complete.

Deutsche Boerse’s shares were 2.1% lower at 124.8 euros.

(GRAPHIC – LSE in talks to buy Refinitiv for $27 bln:


LSE’s proposed deal is also expected to face a long antitrust review, four sources told Reuters.

Berenberg analysts said the size of the proposed deal makes a detailed competition review almost inevitable, with regulators likely to look at the impact of combining Refinitiv’s over-the-counter trading platforms with LSE’s clearing business.

“We do not anticipate any deal to fall foul of anti-trust concerns,” the analysts said.

(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


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.


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 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.


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


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


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.


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 …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