Category Archives: Markets

(NYT) The Most Important Number in Finance Is Going Away. Wall St. Isn’t Prepared.

(NYT

Andrew Bailey, chief executive of Britain’s Financial Conduct Authority, warned banks against “misplaced confidence in Libor’s survival” last week.CreditSimon Dawson/Bloomberg

In the world of finance, there is one number that arguably matters more than any other. You can find it in the small print on adjustable-rate mortgages and private student loans, it is the basis for enormous corporate loans, and it underpins nearly $200 trillion of derivatives contracts.

But it is on the way out, and Wall Street has not worked out how to replace it.

The number in question is called Libor, which is short for the London interbank offered rate. Published daily, Libor is an interest rate benchmark, or the basis for many other interest rates. If you have heard of it, that might be because it was at the center of a market-manipulation scandal that resulted in jail time for some traders and billions of dollars in fines for many banks.

There are other important financial benchmarks, of course — the Federal Reserve’s fed funds rate and the yield on the 10-year Treasury note among them — but Libor has emerged over time as the dominant rate for determining interest payments on almost all adjustable-rate financial products.

Now, regulators are stressing that the benchmark could be gone by 2021.

What will replace it? Nobody knows for sure.

As traders speculate about what will happen to financial markets when Libor disappears, regulators appear to be worried that banks are not taking the coming change seriously enough. To move away from Libor requires vast amounts of work, and given how tightly woven it is into the financial fabric, it isn’t the kind of thing anyone wants to see rushed.

“I hope it is already clear that the discontinuation of Libor should not be considered a remote probability,” Andrew Bailey, chief executive of Britain’s Financial Conduct Authority, said in a speech last week.

Warning against “misplaced confidence in Libor’s survival,” Mr. Bailey said that the number of financial contracts with interest rates derived from the benchmark continued to grow. Regulators in the United States, including the chairman of the Commodity Futures Trading Commission, have raised similar warnings.

On Thursday, a meeting that is scheduled at the Federal Reserve Bank of New York will focus on preparing for a world without Libor: A panel is expected to address crucial details, including the best ideas for language that should be used to replace Libor in contracts for financial products like business loans, derivatives and floating-rate notes.

In simplest terms, Libor is a number produced daily in response to a theoretical question posed to a group of large banks: What interest rate would you have to pay to borrow money from other banks?

Libor is calculated by stripping out the highest and lowest estimates and averaging the rest. There are many different versions of Libor, calculated in different currencies and over different borrowing time periods.

The most widely used variant applies to borrowing dollars for three months. On Tuesday, that number — expressed as an annual rate — was 2.34 percent.

If you have taken a loan with a variable interest rate, there is a good chance it is based on Libor. (The interest rate on such a loan is typically Libor plus a certain number of percentage points.) The same is true for loans to big companies and other institutions that borrow money, including cities, pension funds and university endowments.

Libor’s biggest use is in financial contracts known as derivatives. Some, like interest-rate swaps, are used by institutions to protect themselves from future swings in interest rates and by traders to place bets on which way rates will move in the future.

At the end of 2016, there were more than $190 trillion of these Libor-based contracts outstanding all over the world.

(That’s trillions with a T.)

A Rate That’s Easy to Manipulate

A big problem with Libor is that it has been incredibly easy to manipulate.

In part, that is because the question on the Libor survey does not ask the banks, “What did you pay to borrow this morning?” Instead, it asks the more subjective “What do you think you would have to pay?”

With a relatively small number of banks responding to the survey, it did not take traders long to realize they could skew the number higher or lower by coordinating with colleagues at other banks.

Because bank traders make high-stakes wagers using derivatives whose values are based in part on Libor, they could vastly improve their chances of making money if they could influence the very thing they were betting on.

The market-manipulation scheme started to unravel in 2008 when The Wall Street Journal published an article casting doubt on Libor’s integrity. That prompted government investigations that eventually revealed what was going on.

Banks collectively paid many billions of dollars in penalties for their roles in trying to rig Libor. A few former traders have gone to prison, including Tom Hayes, a former UBS and Citigroup trader who is serving an 11-year sentence in England.

A Lifeline From Nervous Regulators

After all the fines, penalties and prison sentences had been handed out, the only reason some banks still respond to the Libor survey is that British regulators pressed them to do so. The regulators fear that banishing the rate in an abrupt, disorderly way could endanger the broader financial system.

Regulators decided they would give the industry time to prepare itself for a world without Libor. After 2021, regulators will not push banks to participate in the Libor survey. Many people expect that absent that prodding, banks will stop responding, and Libor will disappear.

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For the record, the group that produces Libor — ICE Benchmark Administration — says it has held talks with banks about a voluntary agreement to continue submitting rates that would allow some form of Libor to be published into the middle of the next decade. No agreement has yet been struck.

“Ultimately this is up to the banks,” said Timothy Bowler, the group’s president. “The banks have got to decide whether they want to keep Libor or not.”

The transition to a post-Libor world would not be painless. Remember those $190 trillion of Libor-linked derivatives? Hardly any of those instruments — essentially contracts between two parties — provide a workable option for what to do if Libor were to vanish.

In a worst-case scenario, banks and their customers would effectively have to negotiate how to end Libor-based contracts over the phone, said Darrell Duffie, a Stanford University finance professor. For a sense of what is at stake, Lehman Brothers was a party to more than 900,000 derivatives contracts when it went bankrupt in 2008, according to research publishedby the Federal Reserve Bank of New York.

“It’ll be really nasty in terms of costly, difficult workouts,” he said.

‘A Lot of Inertia,’ and Perhaps a Huge Mess

The scope of the challenge is beginning to make people on Wall Street nervous. In the past few weeks, research reports have been published and conference calls with experts have been convened to consider ways to avert what could be a huge mess.

An industry group sponsored by the New York Fed has developed a new benchmark rate to replace Libor: the Secured Overnight Financing Rate, or SOFR. It began to be published in April.

Contracts must be changed. Computer systems must be updated. Customers must be communicated with. Such costly administrative work does not yield bonus-increasing fees, and it is not generally considered glamorous on Wall Street.

“There’s a lot of inertia. There’s a lot of reluctance to make the change,” said Richard Berner, a former Wall Street economist and director of the Treasury’s Office of Financial Research until the end of 2017. “There’s a lot of work to do.”

(BBG) Stocks Sink on Trade War Escalation; Dollar Gains: Markets Wrap

(BBG) Stocks slumped, the dollar gained and commodities slid with emerging-market assets as markets prepared for another escalation in the burgeoning trade war between the U.S. and China.

S&P 500 futures headed for their biggest drop in two weeks, the Stoxx Europe 600 Index ended its best run since March and the MSCI Asia Pacific Index fell after the Trump administration released the biggest list yet of Chinese goods it may hit with tariff increases. The Asian nation vowed to retaliate, and shares in Shanghai led the retreat as the yuan weakened.

The potential escalation spurred advances in the greenback, Treasuries and most European government bonds. Stocks and currencies in emerging markets both declined, while metals bore the brunt of the reaction in commodities. Copper, nickel and zinc all tumbled.

Follow our live blog as China responds to latest tariff threats.

China’s Commerce Ministry described the U.S. move as “totally unacceptable” bullying, and promised to lodge complaints at the World Trade Organization without detailing what its retaliatory steps would be. One pattern seen so far in the escalating battle between the world’s top two economies is that the tensions hit Chinese shares harder than American ones — they are now in a bear market, while the S&P 500 is within about 3 percent of a record high.

“In the short run it’s very difficult to see what’s going to bring an end to this escalation of tit-for-tat,” Richard Turnill, chief investment strategist at BlackRock Inc., told Bloomberg TV in Hong Kong. “It’s those increasing concerns that are going to weigh on market returns and force investors increasingly to look for more resilience in their portfolios.”

A bumper corporate earnings season may still support sentiment, with expectations that strong results can compliment a recent run of positive economic data and overshadow growth concerns stemming from the trade tensions.

Terminal users can read more in Bloomberg’s Markets Live blog.

Elsewhere, oil dropped below $74 a barrel in New York, even as an industry report was said to show shrinking U.S. crude stockpiles.

These are some events to look out for this week:

  • Earnings season gets into gear with JPMorgan Chase & Co. and Citigroup Inc. among the largest companies due to give results, as well as India’s Infosys Ltd.
  • The most noteworthy U.S. data may be the June inflation report on Thursday, which consensus expects will show both headline and core price growth picking up. There’s another deluge of Treasury debt sales too, with a total $156 billion of notes and bills offered during the week.
  • Chinese trade data due at the end of the week will probably show slightly slower export growth, after early indicators pointed to softer overseas demand and weaker export orders, Bloomberg Economics said.

And here are the main market moves:

Stocks

  • Futures on the S&P 500 were down 0.6 percent as of 7:14 a.m. in New York after dropping as much as 1.1 percent earlier.
  • The Stoxx Europe 600 Index retreated 1.1 percent.
  • The U.K.’s FTSE 100 declined 1.1 percent.
  • Japan’s Topix index dropped 0.8 percent.
  • Hong Kong’s Hang Seng fell 1.3 percent and the Shanghai Composite lost 1.8 percent.
  • South Korea’s Kospi dropped 0.6 percent.

Currencies

  • The Bloomberg Dollar Index was up 0.3 percent
  • The Japanese yen slipped to 111.23 per dollar.
  • The offshore yuan fell 0.7 percent to 6.6768 per dollar.
  • The euro dropped 0.2 percent lower to $1.1716.

Bonds

  • The yield on 10-year Treasuries slipped one basis point to 2.84 percent.

Commodities

  • West Texas Intermediate crude slid 0.7 percent to $73.62 a barrel.
  • Gold lost 0.4 percent to $1,250.89 an ounce.

(BBG) Ronaldo Bid Reports Send Juventus Shares to Four-Month High

(BBG) Shares of Juventus Football Club SpA surged following reports the Italian soccer club is poised to sign five-time Ballon d’Or winner Cristiano Ronaldo.

Current club Real Madrid would consider a fee of about 100 million euros ($117 million) for its record goal-scorer, a fraction of his 1 billion-euro release clause, Spanish sports website Marca reported. The 33-year-old agreed to accept a 30 million-euro salary from Juventus, Spanish newspaper As reported, saying the clubs still need to reach a transfer agreement.

Juventus shares rose as much as 9.7 percent in Milan, the biggest intraday rally since a crucial Champions League winin March for the team that would later crash out in a quarter-final defeat at the hands of its Spanish rival, sealed by a penalty goal from Ronaldo. The stock has climbed 23 percent in the last five days as speculation of a possible transfer gathered pace.

While a fee of the reported amount may seem high for a player in the twilight of his career, it would be a coup for the Turin-based side known as “la Vecchia Signora,” or The Old Lady, given Ronaldo’s global brand appeal as well as his on-field talent.

Ronaldo is a “marketer’s dream” who would entice fresh revenue to Juventus through sponsorships, full stadiums and potential broadcasting rights, Robert Wilson, a lecturer in sports business management at Sheffield Hallam University in the north of England, said by email.

The fee would top the 80 million pounds ($105.8 million) Real Madrid paid Manchester United for the Portuguese star in 2009.

Also the UEFA Champions League’s all-time top scorer, Ronaldo earned $61 million dollars in salary and bonuses last year, plus an extra $47 million via endorsements, according to Forbes, making him the third-highest paid athlete in the world behind FC Barcelona star Lionel Messi and American boxer Floyd Mayweather.

His most recent exploits came at the World Cup in Russia, where he scored a breathtaking hat-trick against Spain in the group stage before Portugal was eliminated by Uruguay in the first knock-out round.

A spokesman for Juventus declined to comment and Real Madrid didn’t respond to an emailed request for comment.

(CNBC) Over 800 cryptocurrencies are now dead as bitcoin is 70 percent off its record high

(CNBC)

  • Over 800 cryptocurrencies are now dead and worth less than one cent.
  • New digital tokens are created through initial coin offerings but some of these projects have been scams and many have not materialized into real products.
  • Bitcoin has fallen roughly 70 percent since its record high near $20,000 last year, adding to bearish sentiment around cryptocurrencies.

More than 800 cryptocurrencies are now dead  

Cryptocurrency projects have been popping up left, right and center in the past 18 months, but over 800 of those are now dead, adding to comparisons between the current digital coin market and the dotcom bubble in 2000.

New digital tokens are created via a process known as an initial coin offering (ICO) where a start-up can issue a new coin which investors can buy. The investor doesn’t get an equity stake in the company, but the cryptocurrency that they buy can be used on the company’s product. People usually buy into an ICO because the coins are cheap and could offer big returns in the future.

There has been an explosion in ICOs. Companies raised $3.8 billion via ICOs in 2017, but in 2018 so far, this number has already shot up to $11.9 billion, according to CoinSchedule, a website that tracks the market.

However, hundreds of these projects are now dead because they were scams, a joke or the product hasn’t materialized. Dead Coins is a website that lists all the cryptocurrencies that fall into those categories. So far, it has identified just over 800 digital tokens that it considers dead. These coins are worthless and trade at less than 1 cent.

Why bitcoin uber bull is sticking with his 2018 $50K forecast

Why bitcoin uber bull is sticking with his 2018 $50K forecast  

Bitcoin, which is the biggest cryptocurrency by market capitalization or value, has also had a tough year. The price of bitcoin has fallen roughly 70 percent since its record high near $20,000 last year, according to CoinDesk data. The big plunge in bitcoin’s price has has drawn comparisons with the Nasdaq’s sharp fall in 2000 and the failure of many cryptocurrencies has been likened to some of the companies that crashed during the dotcom boom.

Some of the recent bearish sentiment came after two South Korean cryptocurrency exchanges were hacked.

ICOs are incredibly risky investments and there is a lot of fraud in the space. Earlier this year, CNBC reported on a scam ICO called Giza. The fake start-up ended up running off with $2 million of investor money. Still, many advocates see a future for ICOs as an alternative to initial public offerings and venture capital funding.

Cryptocurrencies have come under a lot of pressure but there’s still optimism that regulators could look more favorably towards them and that could boost participation in the market. Arthur Hayes, CEO of cryptocurrency exchange BitMEX, told CNBC’s “Fast Money” on Friday that bitcoin could climb to $50,000 by the end of the year.

(KJD) Unification funds are a hot ticket

(KJDHoping for improved relations, investors bet on infrastructure

As hopes for peace sweep the Korean Peninsula ahead of the historic North Korea-U.S. summit on June 12, investment firms are hoping to cash in on optimism through so-called unification funds.

These funds mostly invest in construction and steel companies, which are projected to rise in value if the two Koreas agree to economic cooperation.

The HI Korea Unification Renaissance Class A stock fund, one unification fund from investment firm HI Asset Management, recorded 8.15 percent year-to-date (YTD) returns between January and May of this year, according to investment consulting firm KG Zeroin on Sunday. During the same period, Korean equity funds posted negative returns of 1.15 percent on average.

Not counting exchange-traded funds (ETFs), there were only 12 funds, including HI Korea Unification Renaissance, that posted over 8 percent returns among all the 543 active equity funds in Korea.

The HI Korea Unification Renaissance fund invests in construction and railway shares that are expected to grow if South Korean firms help build infrastructure in North Korea.

“Before, unification funds invested in shares related to government support, like consumer goods, food, fertilizer and biopharmaceuticals, as well as infrastructure and underground resources,” said Kim Yeon-su, a manager at HI Asset Management.

“Now, we’ve revamped the fund’s portfolio to focus on investing in firms that will benefit the most from each stage of inter-Korean cooperation, with the end goal of North-South unification in mind.”

In the past month, total investment in the HI Korea Unification Renaissance fund doubled from 1.4 billion won ($1.3 million) to 2.8 billion won.

Investors also put 2 billion won into Shinyoung Asset Management’s Shinyoung Marathon Unification Korea stock fund in May, as the upcoming North-South summit boosted investor sentiment.

The fund recorded 3.47 percent YTD returns, and had a total investment size of 28.3 billion won as of the end of May.

Unification funds initially emerged in 2014, when former President Park Geun-hye said in a speech that riches could be made in unification. However, they faded into obscurity as North-South relations worsened.

The May North-South summit was a boon for the HI Korea Unification Renaissance fund, which was on the verge of liquidation earlier this year.

“As return rates improved and customers showed high interest, we decided to reorganize the fund and nurture it,” said Kim.

HI Asset Management no longer charges investors redemption fees on the fund. It also makes donations to the Korean Red Cross, which has historically worked on projects to assist North Koreans.

Other investment companies are scrambling to launch their own unification funds.

On May 14, UBS Hana Asset Management launched the Hana UBS Greater Korea stock fund, based on the Hana UBS FirstClass Ace fund, which came out in 1999. Though the Greater Korea fund invests in large-cap shares, including Samsung Electronics, KB Financial Group and Posco, the rest of the investment is in shares related to inter-Korean cooperation.

Samsung Asset Management is also redesigning the Samsung My Best fund – made up of large-cap and blue-chip stocks – into a unification fund. BNK Asset Management’s BNK Brave New Korea fund, which is scheduled to start accepting investments this month, will invest in shares from companies that are planning on entering North Korea, according to industry sources.

Hopes for peace are also helping to buoy ETFs related to inter-Korean cooperation. Samsung Asset Management’s KODEX Construction stock ETF posted 16.52 percent in one-year returns as of Monday, one of the highest among all the equity funds.

Other ETFs that invest in construction shares, like Mirae Asset Global Investments’ Tiger 200 Construction stock ETF, posted returns of over 14 percent as well.

Some consulting firms are even coming up with products that will allow clients to invest in hand-picked high-return ETFs. NH-Amundi Asset Management’s Great Korea ETF-Managed Portfolio, unveiled on May 23, invests in several ETFs related to inter-Korean cooperation.

“Because there will be a large structural change in the domestic economy as North-South economic cooperation materializes, investors need to think long-term and invest with insight,” said Lee Jin-young, a marketing manager at NH-Amundi Asset Management. “We are also planning to launch a new open-ended public offering fund that will invest in shares that will benefit from inter-Korean cooperation.”

(BBG) Trade War Could Trigger Global Recession, China and Europe Warn

(BBG) UBS Wealth CIO Mark Haefele discusses the impact of trade frictions on the economy and markets.

China and the European Union vowed to oppose trade protectionism in an apparent rebuke to the U.S., saying unilateral actions risked pushing the world into a recession.

Vice Premier Liu He — President Xi Jinping’s top economic adviser — said China and the EU had agreed to defend the multilateral trading system, following talks Monday in Beijing. The comments, made at a press briefing with European Commission Vice President Jyrki Katainen, come as both sides prepare to face off against President Donald Trump’s tariff threats.

“Unilateralism is on the rise and trade tensions have appeared in major economies,” Liu said. “China and the EU firmly oppose trade unilateralism and protectionism and think these actions may bring recession and turbulence to the global economy.”

Both China and the EU are coming under pressure from Trump, as the U.S. president seeks to remake a global trading system that he sees as rigged against the world’s largest economy.

After months of rhetoric and threats, the trade fight seems to be coming to a head, with Europe imposing tariffs on $3.3 billion of American products Friday in response to U.S. barriers on imports of aluminum and steel. That triggered threats of further tariffs on European cars from Trump.

Investment Curbs

Later this week, the U.S. Treasury Department is expectedto release fresh rules on Chinese investment in technology companies, Bloomberg reported on Monday, putting additional pressure on China — which hit back against the plans. Chinese investment has provided jobs and tax income for the U.S., and it should view commercial activities “objectively,” Foreign Ministry spokesman Geng Shuang told reporters in Beijing on Monday.

The U.S. is due to impose tariffs on $34 billion of Chinese imports from July 6, and Trump has threatened to impose levies on another $200 billion of Chinese goods. If that threat is realized, it could cut as much as half a percentage point off China’s economic growth, and also hit the American economy, economists have said.

Anxiety over the economic fallout is cutting deep in financial markets, with China’s yuan sliding to a six-month low Monday. The S&P 500 Index fell to the lowest since May and the Dow Jones Industrial Average sank for the ninth time in 10 sessions.

As if to reinforce concerns about the economic outlook, the Dutch Bureau for Economic Policy Analysis on Monday published its latest trade monitor, showing world trade momentum dropped in April to the lowest since 2015. The measure has fallen sharply since hitting a seven-year high at the start of 2018.

As the conflict over trade has intensified, China has sought to align itself with Europe as a way of pushing back against the U.S. Both sides agreed in Monday’s talks to promote globalization and forged a consensus on climate change, Liu said.

But despite their alignment against the U.S. trade threat, the EU and China remain at odds over issues including the lack of reciprocal access for European firms and the EU’s reluctance to endorse China’s Belt and Road trade and infrastructure program. As China steps up its engagement in Europe, the EU, too, is working on measures to tighten screening of outside investments to protect critical technologies and infrastructure.

survey released last week by the European Union Chamber of Commerce in China showed that a slim majority of members thought foreign-invested companies are treated unfairly, and almost two-thirds see a lack of reciprocity between the access to China’s markets that they get, and the access Chinese companies get to Europe.

China and the EU will exchange offers related to market access at an upcoming summit in July, Liu said Monday. He also said both sides agreed to connect the Belt and Road initiative to the EU’s development strategies.

The EU and China agreed to set up a working group to update the WTO to better equip it for the contemporary world, Katainen said at a press conference late Monday in Beijing. While the details have yet to be decided, the EU hopes the working group is at vice-minister level, he said.

In what Katainen described as “a big step forward,” the two sides will also exchange a list regarding a bilateral investment agreement at the upcoming summit. Still, that doesn’t mean the accord will be reached immediately, with different views outstanding on overcapacity, forced technology transfer and cyber security, he said.

(WSJ) Japan’s Biggest Bitcoin Exchange Suspends New Business

(WSJRegulator orders bitFlyer and other cryptocurrency exchange operators to review business practices.

Japan is one of the more friendly environments for bitcoin.
Japan is one of the more friendly environments for bitcoin. PHOTO:ROBICHO/EPA/SHUTTERSTOCK

TOKYO—Japan’s biggest bitcoin exchange said it would halt taking new business after regulators said it wasn’t doing enough to stop money laundering and terrorist financing.

The move by Tokyo-based bitFlyer Inc. led to a drop in the price of the cryptocurrency and highlighted how regulators in Japan, one of the hot spots of cryptocurrency trading, are shifting their stance toward tighter controls.

The Financial Services Agency said it found problems in bitFlyer’s security system including its measures to prevent money laundering and unauthorized access. An agency official said its inspections found problematic accounts such as one registered using a post-office box as a mailing address.

It also said bitFlyer board members who were supposed to monitor management were mostly friends of the chief executive, Yuzo Kano, a former trader at Goldman Sachs who co-founded the company. And the agency said that when bitFlyer registered with the government last year, it provided some false information about its plans to prevent “antisocial forces”—a Japanese euphemism for organized crime—from using the exchange.

BitFlyer apologized to its customers and said it would halt taking new customers until it addressed the regulators’ findings.

“Our management and all employees are united in our understanding of how serious these issues are,” bitFlyer said. Its statement didn’t address the corporate governance issues or the alleged false information, and company representatives didn’t answer calls seeking comment.

A tweet on Mr. Kano’s verified Twitter account didn’t address specific allegations but said, “I take this action seriously and will exert every effort to improve.”

The statement said bitFlyer planned to recheck the identities of existing customers after it found flaws in its earlier processes. It is set to submit its plan for improving its operations to the Financial Services Agency by July 23.

The agency on Friday also issued business-improvement orders to five other cryptocurrency exchange operators.

Japan is one of the more friendly environments for bitcoin. Rules put in place last year established bitcoin as a legitimate payment method in Japan, helping the digital currency flourish in the country. Typically between two-thirds and three-fourths of bitcoin trading is yen-denominated, according to Coinhills.

The FSA, however, has stepped up its warnings against many cryptocurrency exchanges after Japanese exchange Coincheck Inc. was hacked and lost cryptocurrency worth some $530 million in January.

The price of bitcoin fell sharply minutes after the FSA announced its order and the cryptocurrency was trading below $6,400, according to research site CoinDesk. Its low for the year came in early February at just under $6,000. After surging nearly 1,400% last year, bitcoin has lost more than half its value in 2018.

Masanori Kusunoki, chief technology officer at Japan Digital Design Inc. and a member of a Financial Services Agency study group on cryptocurrency exchanges, said the agency was shifting to a tighter stance after initially seeing the new rules as a way to foster innovation in payment systems.

“There’s a trend for regulators around the world to see [cryptocurrencies] increasingly as a method of speculation. And if it is a tool of speculation, they need to respond firmly from the perspective of investor protection,” said Mr. Kusunoki, whose company is part ofMitsubishi UFJ Financial Group Inc.

He said that if exchanges address the problems, there was still room for Japan to be a cryptocurrency leader. “It could actually spur the maturation of the market and ultimately lead to greater competitiveness.”

(CNBC) GE shares drop after blue chip is booted from the Dow after 110 years

(CNBC)

General Electric to leave the Dow Jones index

General Electric to leave the Dow Jones index  

General Electric shares were lower early Wednesday, a day after news that the industrial conglomerate would be replaced on the Dow Jones industrial average by Walgreens Boots Alliance.

Shares of GE, which has been in the blue-chip benchmark continuously since November 1907, fell more than 2 percent in premarket trading Wednesday to around $12.70 per share. The stock closed at $12.95 on Tuesday.

GE, with a market cap of more than $112 billion, has seen its shares fall more than 55 percent over the past year, on investors’ concern about the value of GE’s businesses declining.

GE Chairman and CEO John Flannery is in the midst of an aggressive turnaround plan and restructuring.

Flannery replaced GE chief executive Jeff Immelt in the latter half of 2017. Immelt’s departure capped a rocky 16-year run at the helm that saw GE stock lose about 38 percent of its value.

Deutsche Bank’s John Inch had warned back in January that GE would likely be dropped from the Dow this year and that such a move would hurt its shares.

“We believe headline risk to be the most significant risk factor if GE were to be dropped from the Dow – potentially amplified by GE’s high mix of retail investors (roughly 40% of GE’s common stock is held by retail investors),” the analyst wrote.

Nicholas Heymann, a multi-industry analyst William Blair & Co., told CNBC on Wednesday he believes GE’s stock should be trading between $14 and $21 depending on earnings.

“Asset sales are going to come through,” Heymann said in a “Squawk Box” interview, adding the industrial giant is “obviously” going through a transition phase.

“There’s been serial capital misallocation here for a long time,” since 2004 in the early years of Immelt’s tenure, Heymann said.

When Immelt took over at General Electric in 2001 from venerable GE boss Jack Welch, the stock was already turning over, as the dotcom bubble of the 1990s burst and took the broader stock market lower as well. Immelt navigated GE through the aftermath of the Sept. 11, 2001, terrorist attacks and the 2008 financial crisis.

(ZH) Global Markets Tumble As Trade War Fears Spike; China Crashes

(ZHBulletin headline summary from RanSquawk

  • DAX and FTSE at 1 month lows in sour risk tone as Trump issues USD 200bln tariff threat
  • Tariff threats send the DXY to YTD high
  • Looking ahead, highlights include, the Technical committee meeting between OPEC and non-OPEC members, ECB’s Lane and Fed’s Bullard

The headline news that dominate markets today are not that different from yesterday, especially since it is really just one: the escalating trade war between the US and China. Only unlike yesterday, when futures were modestly lower and levitated higher all day, with the Nasdaq closing in the green and the S&P barely lower, today’s tripling down by the Trump administration, which has now threatened to re-double down and set 10% tariffs on up to $200BN in Chinese imports has finally spooked US equity futures and global markets, with the Dow futures down 340 points this morning, and global markets a sea of red, while safe havens such as the dollar and US Treasurys are sharply bid.

In response, China Mofcom said China will have to adopt comprehensive steps to fight back firmly and warned it will take qualitative and quantitative measures if US publishes additional tariff list; China also warned that it was preparing a second round of tariffs on US energy; US oil, gas and coal face 25% levy in threatened second round of duties.

While tough trade talk is nothing new for investors in 2018, a sense that stress is ratcheting up between the U.S. and China is clearly taking a toll on markets. The protectionist moves come at a time when many are already voicing concern that global growth could lose momentum, as it also contends with America’s faster tightening of monetary policy and the end of European stimulus.

“What you saw at the start of the year was global synchronized growth,” Emad Mostaque, co-chief investment officer at Capricorn Fund Managers, said in an interview on Bloomberg Television. “It was a cooperative game. Now, we’re moving to a more competitive, negative-sum game.”

In light of the escalating tit-for-tat trade war, which so far shows no signs of stopping, and to the contrary appears to be accelerating, S&P futures have fallen sharply throughout the session, while Dow futures are -340 points, with the cash index set for its 6th consecutive down day.

The MSCI index of Asia-Pacific shares outside Japan fell 1.9 percent to its lowest since early December. The losses intensified through the day as the rout deepened in China where the 3,000 support level in the Shanghai Composite finally gave way as Beijing’s “National Team” plunge protectors failed to step in after Monday’s holiday, resulting in the lowest close in nearly two years as the Shanghai Composite Index plunged 3.8%, its lowest since June 27, 2016, while Hong Kong’s Hang Seng .HSI shed as much 3 percent before ending 2.8% down.

“Trump appears to be employing a similar tactic he used with North Korea, by blustering first in order to gain an advantage in negotiations,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.
“The problem is, such a tactic is unlikely to work with China.”

Predictably, hardest hit were tech stocks which stand to suffer the most in any direct trade war, with Orient Securities, 360 Security Technology plunging by the 10% daily limit, while the tech heavy Shenzhen Composite index crashed -5.9%, while the ChiNext Index of small-cap and tech shares slumped 4.8%, to its lowest level in more than three years, and is now 61% below peak reached in June 2015. Not even the PBOC adding liquidity with 200BN MLF operation and net 50BN reverse repo injection helped boost sentiment.

“You only have to look at how far the main Shanghai index has fallen to see that people would probably want some safe-haven assets at this point,” said DZ Bank analyst Andy Cossor. China had warned it will take “qualitative” and “quantitative” measures if the U.S. government publishes an additional list of tariffs on its products.

China’s economy has already been clouded by a sharp slowdown in fixed asset investment growth due to the government’s deleveraging drive, a problematic property sector, a mounting debt burden and rising credit defaults. Economists at Nomura wrote, “The rising risk of a disruptive trade conflict makes a bad situation tentatively worse.”

Elsewhere, Japan’s Nikkei lost 1.8%, South Korea’s KOSPI dropped 1.3% while Australian stocks bucked the trend and added 0.1%, helped by a depreciating currency and an overnight bounce in commodity prices.

In Europe it was more of the same, with the Stoxx Europe 600 tumbling for a third day. The stock move in Europe was tempered by a weaker euro, however, which unlike its reaction to last week’s trade jitters, promptly tumbled, wiping out all of Monday’s gains. European mining stocks lead the Stoxx 600 Index down to touch lowest level since late-April; the export-heavy DAX underperformed, sliding 1.4% as automakers continue declines.

As usual, during times of stress and suring dollar, emerging markets were in turmoil as the implications of a possible trade war filter through to investors. Developing-nation stocks headed for the biggest drop since March, and currencies slid as the South African rand and Turkish lira led declines.

As one would expect, the safe haven US Dollar advanced across the board and pressured G-10 and EM counterparts, with the EUR/USD sliding below 1.1600 and GBP/USD falls below 1.3200; the Bloomberg Dollar Index, BBDXY, is now the highest it has been since April 2017.

Meanwhile, as Chinese stocks crashed, the yuan hit a five-month low amid speculation that China may launch an aggressive FX devaluation in retaliation hence the scramble to frontrun the next major central bank move. The dollar wasn’t the only safe haven: the Japanese Yen also strengthened 0.7% while commodity-currencies AUD and CAD underperform G-10 peers. The British pound was also under pressure as U.K. Prime Minister Theresa May prepares for another knife-edge Brexit vote on Wednesday. The Australian dollar, often seen as a proxy for China-related trades, brushed a one-year low of $0.7381.

But the big FX story was once again in EM currencies, which as shown below have been another sea of red as capital flight becomes a major concern for most of these nations which until recently were the happy recipients of excess dollar funding.

The rush for safety also manifested itself in the Treasury complex with US 10-year yields sliding as low as 2.85%, before settling three bps lower to 2.88% as T-note futures clear Friday’s high. Elsewhere it was more of the same with Germany’s 10-year yield dropped 4bps to 0.36%, the lowest in almost three weeks with its sixth straight decline; Bunds got further support from Draghi’s Sintra speech which was similar to ECB meeting, and certainly not the fireworks from last year. Britain’s 10-year yield dipped 5bps to 1.324 percent, reaching the lowest in almost three weeks on its sixth straight decline and the biggest decrease in three weeks, while Italy’s 10-year yield dipped less than one basis point to 2.554%, hitting the lowest in more than two weeks.

 

Once again, the stress was highest in emerging markets, where the average yield on domestic currency debt was the highest since March 2017 and fast approaching 7%.

 

The Bloomberg Commodity Index fell 1% as crude, base metals and agriculture products slide in tandem.

With Russia and Saudi Arabia pushing for higher output, crude oil markets remained volatile ahead of Friday’s OPEC meeting. Brent crude futures fell 0.8 percent to $74.76 a barrel after rallying 2.5% overnight, while U.S. light crude futures retreated 0.9 percent to $65.27. Lower-risk assets gained on the latest round of trade threats with spot gold up 0.35% at $1,282.26 an ounce albeit after its sharpest drop in 1-1/2 years late last week.

Looking ahead, highlights include, the Technical committee meeting between OPEC and non-OPEC members, ECB’s Lane and Fed’s Bullard.

Market Snapshot

  • S&P 500 futures down 1.2% to 2,747.00
  • STOXX Europe 600 down 1.1% to 381.54
  • MXAP down 1.5% to 168.92
  • MXAPJ down 2% to 548.61
  • Nikkei down 1.8% to 22,278.48
  • Topix down 1.6% to 1,743.92
  • Hang Seng Index down 2.8% to 29,468.15
  • Shanghai Composite down 3.8% to 2,907.82
  • Sensex down 0.5% to 35,359.32
  • Australia S&P/ASX 200 down 0.03% to 6,102.12
  • Kospi down 1.5% to 2,340.11
  • German 10Y yield fell 3.8 bps to 0.36%
  • Euro down 0.6% to $1.1555
  • Brent Futures down 0.5% to $74.97/bbl
  • Gold spot up 0.1% to $1,279.24
  • U.S. Dollar Index up 0.5% to 95.18
  • Italian 10Y yield fell 5.4 bps to 2.289%
  • Spanish 10Y yield rose 0.2 bps to 1.256%

Top overnight news from Bloomberg

  • Chinese shares plunged after Trump ordered the identification of up to $200 billion in imports from the country for additional tariffs of 10% — with another $200 billion after that if Beijing retaliates. China vowed to respond “forcefully” to any such moves
  • The ECB will remain patient in determining the timing of the first rate rise and will take a gradual approach to adjusting policy thereafter, money-market rates “broadly reflects these principles” Draghi said in speech in Sintra, Portugal
  • ECB’s Liikanen says can hold rates even after summer 2019 if needed (NOTE: Liikanen will step down as Finnish central bank governor and GC member next month)
  • The EU’s 27 remaining leaders may warn the U.K. that it faces crashing out of the bloc without a deal and call for contingency preparations, as an update due from the Brexit negotiators is set to highlight the limited progress made since March
  • Anti-Brexit U.K. lawmakers pushing for more power over the divorce process will meet government officials on Tuesday for talks, as the government tries to head off a potentially humiliating defeat in Parliament. After the House of Lords defeated the government on Monday, May won’t be offering more concessions, a person familiar with her position said
  • Fed’s Bostic comfortable continuing to move policy toward more neutral
  • Iran says OPEC output hike would swell oil stockpiles again

Asia-Pac equity markets were mostly lower amid a further escalation of trade tensions after President Trump asked the US Trade Representative to identify USD 200bln in Chinese goods for further tariffs of 10% which will be imposed if China goes ahead with reciprocal tariffs, while he also threatened tariffs on another USD 200bln of goods if China retaliates yet again. This wasn’t taken sitting down by China as Mofcom responded that China will take strong counter measures if US issues a new list. As such, US equity futures sold off and Asia stocks were mostly pressured with Hang Seng (-2.8%) and Shanghai Comp. (-3.8%) feeling the brunt of the blaring sabre-rattling between the world’s 2 largest economies as they move closer to the brink of a trade war. In addition, the mainland blood bath was also exacerbated by the Shanghai Comp.’s decline below the 3000 level for the first time in 2 years. Elsewhere, Nikkei 225 (-1.8%) was also negative alongside the widespread risk averse tone and on JPY strength, while ASX 200 (flat) bucked the trend led by strength in energy following the recent rebound in oil prices. Finally, 10yr JGBs traded marginally higher amid the risk averse tone in the region, but with gains limited as focus was centred on stocks and amid a mixed 30yr JGB auction. PBoC injected CNY 70bln via 7-day reverse repos, CNY 20bln via 14-day reverse repos and CNY 10bln via 28-day reverse repos for a net daily injection of CNY 50bln, while it also PBoC announced CNY 200bln in 1yr MLF loans.

Top Asian News

  • China High-Grade Bond Spreads Widen as Trade Tensions Intensify
  • Xiaomi CDR Said to Be Delayed Amid Valuation Dispute: Reuters
  • China Urges U.S. to Stop Actions Which Will Hurt Both: Ministry
  • Europe Credit Widens as U.S.-China Trade Tensions Roil Markets
  • Emerging-Market ETF Outflows Most in Over a Year as Rout Deepens

European equites are experiencing significant losses (Euro stoxx 50 -1.0%, at 2 month lows) after US President Trump’s announcement asked the US Trade Representative to identify USD 200bln in Chinese goods for further 10% tariffs, with an additional USD 200bln prepared should retaliation occur. This has hammered European markets , with all equity bourses in the red. The DAX is the underperformer (-1.3%) at 1 month lows with FTSE 100 (-0.5%, at 1 month lows) outperforming due to support from a weakening GBP. The technology sector is currently drifting lower as investors are avoiding high beta stocks in the risk off  environment, with Infineon leading the losses in this sector.

Top European News

  • Pound Is on Verge of Large Move as Technical Picture Gets Messy
  • Ifo Sees ‘Storm Clouds’ Over German Economy, Cuts Forecasts
  • Moneysupermarket Falls; Stock May Lose Discount Appeal: Barclays
  • Bain, Cinven Sued by Stada Minority Shareholders Over Payout

In FX, the DXY index and broad Dollar are back in the ascendency amidst ramped up global trade war concerns, as the US and China threaten to impose significantly higher tariffs against each other. The DXY has just eclipsed its previous peak for the year to set new pinnacle at 95.270 and the next decent technical objective around 95.470 is firmly back in sight and within striking distance. JPY/AUD – Polar opposites amidst heightened risk aversion as Usd/Jpy extends and accelerates its pull-back from recent peaks (circa 110.90) to just a few pips off 109.50 and fib support at 109.51. Conversely, Aud/Usd has fallen through fib support at 0.7413 and 0.7400 on the way to 1 year+ lows not far from 0.7350, with dovish-leaning RBA minutes overnight adding further downside pressure on the headline pair.
CHF – The Franc retains a degree of underlying safe-haven demand and relative resilience vs the Greenback within 0.9920-60 trading parameters, but remains reluctant to rally to far against the Eur (hovering above 1.1500 after only a brief dip under) as Thursday’s SNB quarterly review looms with growing prospects of a more concerted attempt to curb the Chf’s appeal. EUR – The next biggest G10 casualty of broad risk-off sentiment, but also on further dovish rate guidance from the ECB, as the single currency probes new post-policy meeting lows sub-1.1540 and could re-test bids/support ahead of the 1.1510 ytd base if stops are tripped. EM – Fresh depths plumbed for the already  beleaguered currencies, and with some predictions that the misery is unlikely to end as forecasts for Usd/Try rise to 5.0000 in some quarters given the increased risk of capital flight.

In commodities, oil is trimming gains seen on Monday, with WTI currently down 1% ahead of the OPEC and non- OPEC technical committee monitoring meeting, with Brent outperforming on Libya losing 400k BPD. The fossil fuel is also being pressured by a soured risk tone on the possibility of Chinese crude tariffs and a rising dollar, which has hit YTD highs. Copper, iron and steel are all being hit by the widening trade war with the construction materials down 3%, 2% and 2.9% respectively, as supply concerns in all of these markets have taken a back seat to potential tariffs in China. OPEC to consider Republic of Congo’s application to join the cartel, according to a delegate. Multiple OPEC source say Venezuela, Iran and Algeria oppose an output increase in oil. OPEC sources say they see strong oil demand in H2 2018, suggesting market may absorb extra production. Iran’s Commerce Minister Kazempour reiterates opposition to output increase in oi

Looking at the day ahead, the ECB Sintra conference features comments from President Draghi again, along with Board Member Praet and Governor Lane. The Fed’s Bullard is also due to take part. Away from that the only data of note is the Euro area’s current account balance reading for April and US housing starts and building permits for May. It’s worth noting that Germany Chancellor Merkel will also meet France President Macron today. Meanwhile, Italy’s Senate will debate the fiscal policy for 2019.

US Event Calendar

  • 7am: ECB’s Lane, St. Louis Fed’s Bullard speak in Sintra, Portugal
  • 8:30am: Housing Starts, est. 1.31m, prior 1.29m; MoM, est. 1.86%, prior -3.7%
  • 8:30am: Building Permits, est. 1.35m, prior 1.35m; MoM, est. -1.03%, prior -1.8%

DB’s Jim Reid concludes the overnight wrap

Markets started yesterday as jumpy as a kangaroo rushing home to watch the football although a bit of a recovery in the US session at least helped put the brakes on. Momentum has been lost in the Asian session though as Mr Trump said in a White House statement late last night that he had instructed the US Trade Rep. Office to identify higher tariffs (+10%) on an additional $200bn worth of Chinese imports and threatened to impose tariffs on another $200bn of goods if China retaliates. He said “the US will no longer be taken advantage of on trade by China and other countries”. On the other side, China’s Ministry of Commerce said “if the US…publishes such a list, China will take comprehensive quantitative and qualitative measures and retaliate forcefully”. Earlier on, Secretary of State Pompeo also stepped up the tension as he noted “Chinese leaders…have been claiming openness and globalisation, but it’s a joke” and added that “it’s the most predatory economic government…” which is “a problem that’s long overdue in being tackled”.

Markets are in a risk off mode following the new US tariff threat with losses accelerating post China’s response. Across the region, the Nikkei (-1.52%) and Kospi (-0.86%) are down while the Hang Seng (-2.18%) and Shenzen Comp. (-4.35%) are leading the declines, with the latter impacted by shares in ZTE (-25% in HK), as the US senate passed legislations that would restore the penalties on the telco company. Elsewhere, safe haven assets are in demand with the YEN c0.6% stronger and UST 10y yields c3bp lower while futures on the S&P are down c0.8%.

Before all this, the German political drama was the main story in Europe where Chancellor Merkel was forced into considering concessions to stave off a potential political crisis. As a reminder all this centres around the migrant debate with Interior Minister Horst Seehofer, who is head of Bavaria’s Christian Social Union party (one-third of the coalition), insisting that Merkel reaches a deal by the end of this month with EU governments to negotiate the return of migrants to countries where they were first registered, or else begin turning migrants away from the German border. Merkel agreed to the timeframe (if not committing to a solution) and announced that she will report back on July 1st. As a reminder the EU summit is scheduled for June 28th and 29th.

Our economists in Germany highlighted in their note yesterday (link) that the setting up of such controls by Seehofer would leave Merkel with only two options, either she would go along with Mr. Seehofer’s more restrictive policy approach – a loss of face she might not survive for very long – or she would have to sack him which would almost certainly cause the CSU to leave the coalition and ultimately result in a collapse of the Groko. Our colleagues consider the latter option very unlikely and see a further muddling through with no clear winner but a substantially damaged Merkel as the most likely outcome. Therefore, they expect this conflict to linger around up until the Bavarian elections on October 14, unless polls provide insights that this approach will not improve the CSU’s election chances. They also add that while yesterday’s compromise buys time for Merkel and her European approach, the German government crisis has weakened her role on the EU and international stage, in particular. Her room for manoeuvre in this question will remain constrained. This will also have repercussions for Merkel’s ability to move forward on euro area reforms as both CDU and CSU are reluctant to back proposals on budget lines for investment and/ or support in case of asymmetric shocks for individual member states.

Staying with Merkel, last night she met with the new Italian PM Mr Conte, where she pledged to “support Italy’s desire for solidarity, and also hopes that Germany receives understanding when it comes to EU solidarity on the question of migration”. This is going to be swiftly followed by a meeting with President Macron today. Migration will be a major topic although the Franco-German meeting was supposed to hammer out a joint position on euro area reforms. Perhaps unsurprisingly President Trump also opined on the Merkel immigration saga, tweeting that “the people of Germany are turning against their leadership as migration is rocking the already tenuous Berlin coalition, big mistake made all over Europe in allowing millions of people in who have so strongly and violently changed their culture”.

Back to the markets from yesterday, no great surprises that Germany underperformed (not helped by VW -2.90% on an executive arrested after the emissions scandal) with the DAX closing -1.36% (worst day since late May) compared to -0.83% for the Stoxx 600, -0.93% for the CAC, -0.83% for the IBEX and -0.41% for the FTSE MIB. The S&P 500 pared back losses to close -0.21% (-0.81% at the lows) helped by stronger energy stocks while the Nasdaq was marginally up. Bonds had a less eventful day. 10y Bunds (-0.6bps to 0.394%) were more or less unchanged while the periphery was 4-6bps lower in yield.  OATs were 1.0bp lower and Treasuries -0.3bp lower (2s10s was also steady at 36.7bp compared to 37.3bp on Friday). Meanwhile the euro was down as much as -0.39% before bouncing back to close +0.11% by the end of play.

Conversely Oil had a much stronger showing with Brent up nearly two Dollars to finish at $75.34/bbl (+2.59%) after having traded as low as $72.45/bbl in the morning session. That came after headlines on Bloomberg suggesting that OPEC countries were discussing a smaller increase in oil production of 300k-600k barrel a day. That compares to the 1.5m bbl per day increase which Russia had previously proposed.

Now turning to Fed speak on rates and the US economy. On rates, the Fed’s Bostic noted he is “comfortable continuing to move policy towards a more neutral stance” – which he believes to be around 2.25%-3%. He also reiterated that he is “still at three” rate hikes for this year, but will “let data inform how rapidly I think we need to be moving”. Meanwhile, he noted that “(business) optimism has almost completely faded among” his contacts, replaced by concerns about trade policy and tariffs, while the bar for new business investments are getting quite high.

Elsewhere, on his first day as the new NY Fed chief, Mr Williams was relatively upbeat as he noted “the US economy is in great shape” and “this solid growth, a strong labour market and inflation near our target are exactly what I want to see”. Although he cautioned that “…paradoxically, it’s precisely the sense that things have gotten so much better that worries me most”.

Finally onto some Brexit headlines. The upper House has voted against PM May’s Brexit legislation, instead backing an amendment to ensure a “meaningful vote” for Parliament on potential Brexit deals agreed with the EU or next steps if there is no deal. The bill will now return to the lower House for negotiations before another vote on Wednesday. Meanwhile DB’s Oliver Harvey published a report discussing a possible compromise to the Brexit negotiations – the Association Agreement outlined by the EU Parliament in March. He believes the Parliament’s proposal deserves serious consideration. As well as being closer to the Norwegian than Canadian model in terms of market access, its framework could address some thorny issues – including an end to freedom of movement and more limited jurisdiction of ECJ, while mitigating EU concerns of cherry picking. Refer to his note for details.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the June NAHB Housing market index fell 2pts mom to a still solid level of 68 (vs. 70 expected). In the UK, the June Rightmove House price index was up 0.4% mom, leading to an annual growth of 1.7 % yoy (vs. 1.1% previous). Elsewhere, Italy’s trade surplus was narrower than last month’s print at €2.9bn (vs. €4.5bn previous).

Looking at the day ahead, the ECB Sintra conference will feature comments from President Draghi again, along with Board Member Praet and Governor Lane. The Fed’s Bullard is also due to take part. Away from that the only data of note is the Euro area’s current account balance reading for April and US housing starts and building permits for May. It’s worth noting that Germany Chancellor Merkel will also meet France President Macron today. Meanwhile, Italy’s Senate will debate the fiscal policy for 2019.

(Reuters) The bigger cryptocurrencies get, the worse they perform: BIS

(Reuters)Cryptocurrencies are not scalable and are more likely to suffer a breakdown in trust and efficiency the greater the number of people using them, the Bank of International Settlements (BIS)said on Sunday in its latest warning about the rise of virtual currencies.

For any form of money to work across large networks it requires trust in the stability of its value and in its ability to scale efficiently, the BIS, an umbrella group for the world’s central banks, said in its annual report.

But trust can disappear instantly because of the fragility of the decentralized networks on which cryptocurrencies depend, the BIS said.

Those networks are also prone to congestion the bigger they become, according to the BIS, which noted the high transaction fees of the best-known digital currency, bitcoin, and the limited number of transactions per second they can handle.

“Trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded,” the Switzerland-based group said in its report.

BLOCKCHAIN EXPLAINEDReuters breaks down blockchain in an interactive guide.

“Not only does this call into question the finality of individual payments, it also means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value.”

The BIS’ head of research, Hyun Song Shin, said sovereign money had value because it had users, but many people holding cryptocurrencies did so often purely for speculative purposes.

“Without users, it would simply be a worthless token. That’s true whether it’s a piece of paper with a face on it, or a digital token,” he said, comparing virtual coins to baseball cards or Tamagotchi.

The dependency of users on so-called miners to record and verify crypto transactions is also flawed, according to the BIS, requiring vast and costly energy use.

It has issued a series of warnings this year after an explosive rise in cryptocurrency values attracted a wave of followers.

Agustin Carstens, general manager of the BIS, has described bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster”.

The BIS has told central banks to think hard about the potential risks before issuing their own cryptocurrencies.

No central bank has issued a digital currency, though the Riksbank in Sweden, where the use of cash has fallen, is studying a retail e-krona for small payments.

The BIS also said in its annual report that effective regulation of digital coins needed to be global, targeting both regulated financial institutions as well as companies offering crypto-related services.

(EXPRESS) Bitcoin latest: ‘Whales’ with $37.5bn holdings scoop up THIRD of crypto market

(EXPRESSA SECRET cluster of 1,600 investors known as bitcoin whales’ collectively hold a third of the entire cryptocurrency with holdings of $37.5billion, according to new data.

bitcoin whales Up to1,600 investors known as bitcoin whales’ collectively hold a third of the entire cryptocurrency


Data from blockchain research company Chainalysis showed in April there were 1,600 bitcoin wallets held by investors, all of which contained 1,000 of the alt-coin each.

The unidentified ‘whales’ scooped an eye-watering 5million bitcoins between them, which amassed to a third of the market, according to the FT.

Just under 100 wallets contained between 10,000 and 100,000 bitcoin which would be valued at between $75million and $750million at today’s prices.

Chainalysis chief economist Phillip Gladwell said: “This concentration of wealth means that bitcoin is at risk of volatility as the moves of a small number of people will have a large price effect.”

bitcoin whalesGETTY

Bitcoin is the most popular cryptocurrency and enjoyed a dramatic rise to the top last year when its price rose by 1,000 percent and its value peaked at $20,000 in the run-up to Christmas.

But since then, its trade price has fallen back down to $7,500 as regulators circle the sector and competitors Litecoin, Ripple and Ethereum flood the market.

Chainalysis data estimated long-term bitcoin holders sold off $30billion of the digital currency between December 2017 and April 2018, with half of trading taking place last December alone.

Mr Gladwell said: “This was an exceptional transfer of wealth, and conditions for it to occur again are unlikely to form again soon.”

Bitcoin is a cryptocurrency and worldwide payment system and was the first decentralised digital currency.

It was launched in 2009 by founder Satoshi Nakamoto.

The system works without a central bank or single administrator meaning it is open to anybody and everybody.

Last November, the amount of bitcoin owned by those who held the currency for more than a year was around three times what was held by short-term investors who traded more recently.

But by April 2018 the 6million bitcoin possessed by long-term investors was closer to matching the amount held by short-term spectators, with 5.1millin bitcoin.

(CNBC) Volatility is here — but it’s not the main risk for investors

(CNBC)

  • Global stock markets fell as much as 9 percent between January and March, and many investors are unprepared as we enter this more volatile phase of the current bull market.
  • The real risk for private investors is not a volatile market itself — it is abandoning long-term financial goals that align with their life goals.
  • To cope, diversify beyond traditional equity and bond indices; reconsider sources of yield outside of riskier companies; and look beyond your home market.
Tom Naratil, co-president, UBS Global Wealth Management and president, UBS Americas

Bull market volatility

Gopixa | Getty Images

As we reach the midpoint of what’s been an eventful and at times uncertain year, one thing is clear: Volatility has returned.

Global stock markets fell as much as 9 percent between January and March, with implied volatility rising to levels seen only three times since the global financial crisis. Investors with whom I speak question the impacts of a potential end to the credit cycle, the wind-down of quantitative easing, and a rise in inflation.

I’m also finding that many investors are unprepared as we enter this more volatile phase of the bull market. For instance, they are sticking to familiar assets in their home markets when they should also be looking at opportunities globally.

The real risk for individual investors is not a volatile market itself — it is abandoning long-term financial goals that align with their life goals.

This is a vital moment when investors need to remain invested and to manage risks. They should be asking themselves if they are prepared for alternating stretches of volatility and high growth, with a long-term plan in mind.

Today, robust economic expansion is translating into higher corporate earnings growth. (We estimate companies are likely to deliver 10 percent to 15 percent earnings growth globally this year.) Over the long term, equity prices tend to rise in tandem with earnings growth rates. And while risks have surfaced that could end the economic cycle, some of the best returns are made in the later stages of bull markets.

Since 1928, returns in the final year of bull markets have averaged 22 percent, versus 11 percent in mid-bull-market years. But only those with the required degree of patience and perspective realize those gains.

When we fixate on near-term risks, the chances of a costly mistake from “market timing” are higher. Since 1936, even investors with relatively good market timing — those able to consistently sell 10 months before market peaks and buy back 10 months after troughs — have still ended up worse off than investors who remained invested throughout the period.

There are a number of strategies to navigate this part of the cycle: diversifying beyond traditional equity and bond indices; reconsidering sources of yield outside of riskier companies; and looking beyond one’s home market. But investors also need to reframe their notion of risk. Risk is not about day-to-day volatility, but about whether one’s investment portfolio is on track to meet life goals that span decades.

When you reframe risk and opportunity around these goals, you can focus more on investments aligned with long-term trends, especially the dominant global themes of aging, urbanization and population growth.

For example, the latter two are increasing demand for emerging market tourism and infrastructure, making these attractive investment considerations. Similarly, the global “fintech” industry is at a positive inflection point, fueled by rapid urbanization, as well as favorable regulation and strong demand from millennials.

“Times of volatility present opportunities to look at investments that others may not see or choose to consider.”

Sustainable investing is rapidly gathering momentum, too, particularly with a focus on themes that can enhance long-term risk-adjusted rates of return. For example, companies with high standards of corporate governance face fewer tail risks, such as large fines from regulators or reputational damage.

All of these factors show that it is not in investors’ best interests to make snap decisions based on day-to-day market movements. Times of volatility present opportunities to look at investments that others may not see or choose to consider.

As an industry, wealth managers and financial advisors need to ensure our clients avoid unwise market exits that could have a significantly negative impact. Instead, we need to help them to set the right overall asset allocation, frame their unique investment horizon, and work toward their long-term financial security.

(Reuters) Stocks rise, bond yields fall as Italian political deadlock ends

(Reuters) World stocks rose and bond yields fell on Friday as investors welcomed an apparent end to a political crisis in Italy, although prospects of a full-blown trade war put a dampener on gains.

The MSCI All-Country World index .MIWD00000PUS, which tracks shares in 47 countries, rose 0.2 percent. It was set for a third week of losses however, dented earlier in the week by risks of a snap election in Italy.

Late on Thursday, leaders of Italy’s anti-establishment parties revived coalition plans, apparently ending three months of political turmoil.

Italian stocks rallied 2.6 percent .FTMIB, the standout performers in Europe. The political crisis knocked more than 9 percent off the Italian benchmark in May, its worst months since June 2016. The pan-European STOXX 600 rose 0.7 percent. [.EU]

Borrowing costs in Italy also fell sharply. Italian two-year yields, which soared to five-year highs above 2.7 percent on Tuesday in a throwback to the euro debt crisis, retreated back to Monday’s levels.

Events in Italy pushed peripheral euro zone bond yields down for a third straight day [GVD/EUR], as investors also kept an eye on a second southern European state, Spain, where Prime Minister Mariano Rajoy set to be forced out of office by a no-confidence vote.

“We’ve had a rude awakening of European political risks this week, so the potential fall of the Spanish government would cause volatility but the situation in Spain is very different from Italy,” said Michael Metcalfe, head of global macro strategy, State Street Global Markets.

“The parties leading in the polls in Spain are centrists so we’re not getting the proposals for fiscal extremes as we have in Italy.”

RENEWED TRADE TENSIONS

Of potentially greater concerns to investors was the renewed prospect of a global trade war after the United States imposed steel and aluminum tariffs on Canada, Mexico and the European Union.

The news pushed Wall Street lower overnight and set the initial tone in Asian stocks, though a weaker yen supported Japanese stocks and firm exports boosted South Korean markets.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.1 percent but the index was still down roughly 0.6 percent for the week, reflecting earlier concerns about Italy’s struggle to form a government that drove it to a six-week low.

Equity markets are likely to feel pressure, said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo, “as the United States has opened up a new point of contention on the trade front by getting involved with the European Union.

.FTMIBFT-SE INTERNATIONAL
+518.56(+2.38%)
.FTMIB
  • .FTMIB
  • .SSEC
  • .CSI300

“President (Donald) Trump has not accomplished very much in terms of trade issues and is likely to remain vocal with the U.S. mid-term elections coming up”.

The Shanghai Composite Index .SSEC fell 0.5 percent and the blue-chip CSI300 index .CSI300 dropped 0.75 percent.

Traders said Chinese stocks were volatile as the long-awaited inclusion of large-cap shares from the country in MSCI’s emerging markets index had failed to buoy the market or attract immediate flows of foreign money. .SS

On Friday, about 230 yuan-denominated mainland A-shares were included in MSCI index for the first time. Bank of America Merrill Lynch estimates China’s A-shares could account for some 30 percent of MSCI’s emerging market index once they are fully included.

In currencies, the Canadian dollar CAD=D4 and the Mexican peso MXN=D2 were flat, recovering from Thursday’s falls after the U.S. decision to impose tariffs.

The euro was flat, while the dollar climbed 0.3 percent to 109.140 yen JPY=, supported by U.S. yields reversing overnight declines. The dollar index, which measures it against a basket of currencies was up 0.1 percent. .DXY [FRX/]

The 10-year Treasury yield US10YT=RR was at 2.871 percent after brushing a 1-1/2-month low of 2.759 percent on Tuesday.

Brent crude LCOc1 rose 0.2 percent to $77.70 a barrel. U.S. crude rose 0.2 percent to $67.19 a barrel CLOc1. Brent’s premium over U.S. crude reached its widest since March 2015 this week.

(Xinhua) Portuguese 5, 10-year bonds issued at record low rates

(Xinhua) Portugal issued 1.2 billion euros (1.4 billion U.S. dollars) worth of five and 10-year treasury bonds on Wednesday with both maturities paying the lowest ever interest rates, according to the IGCP, Portugal’s debt management agency.

The 10-year notes took an allotment yield of 1.67 percent, a record low for the tenor. By way of comparison, when Portugal sold 10-year bonds in March it paid 1.778 percent. At an auction in February 2017, the coupon was 2.046 percent.

High demand this time round allowed the IGCP to auction 483 million euros worth of the 10-year bonds.

The five-year bonds paid an allotment yield of 0.529 percent. This was also a record low and down on the 0.577 percent the same dated paper took at the last auction in February.

There was further good news for the Portuguese economy on Wednesday with the National Statistics Institute (INE) announcing improving quarterly unemployment figures. Unemployment in the first three months of 2018 averaged 7.9 percent, 0.2 percentage points lower than Q4 2017 and 2.2 percentage points lower than Q1 2017.

+++ (BBG) An Investing Guide for Conspiracy Theorists: Barry Ritholtz

(BBG) I spill a lot of words on the various ways people let their own wetware get in the way of their capital. For most people, their behavior is much more important than the stocks they pick or the managers they hire. The watchwords I repeat over and over are: eliminate noise; manage your emotions; watch your costs; understand what you own and why you own it.

Lately, I have been seeing the uniquely foolish opposite of this behavior: the belief that investors are being cheated by a cabal of market professionals who share a nefarious intent. We’ve seen this before. It used to be the market-makers who were at the heart of this conspiracy; then it was the high-frequency traders; now it’s the crypto-traders.

Of course, in every trade, as in politics, there are people on both sides. But the bull and bear sides of any market position — or the pros and cons on political issues — is not the same as a deep conspiracy operating in the shadows. That anyone needs to explain this difference in this day and age is quite astonishing.

Despite having been debunked before, some conspiracy theories seem to come around again and again. Just to cite a few:

Deep State: A shadowy group controls the government, executing its own agenda against the wishes of duly elected officials and the broader populace;

Deep Capture: A shadowy group of media and financial players does the bidding of Wall Street, simultaneously protecting short sellers while also preventing the market from crashing;

Deep Throat: There are shadowy secret informants with compelling and overwhelming evidence that will either bring down the president (or the market) or send his opponents (or the bears) into the wilderness, never to be heard from again.

Only one of the above has been proven to be true, at least in the past: former FBI Associate Director Mark Felt was the person who revealed the illegal actions of the Nixon administration to reporters at the Washington Post. They had identified him as their source in their 1974 book “All the President’s Men,” but they did not reveal his name or his job — that didn’t happen until he agreed to discuss his role in a 2005 magazine article.

What makes the Watergate scandal’s Deep Throat so remarkable is how rare these things actually are.

But conspiracy theories remain a powerful draw. They allow some people to explain things that seem beyond their comprehension. Few people want to admit ignorance, and even fewer care to admit a lack of intelligence. Enter the shadowy cabal (often with a side of anti-Semitism thrown in) to rationalize whatever seems to be going wrong. Whether it is an investigation into possible collusion with Russia by Trump’s election campaign or the accusation of market manipulation, the search for an easy way to explain unsettling events that are beyond our grasp is a very human foible.

But however rare they may be, conspiracy theories spring to life because every once in a rare while real conspiracies do happen. I was reminded of this recently after finishing Ryan Holiday’s delightful book, “Conspiracy: Peter Thiel, Hulk Hogan, Gawker, and the Anatomy of Intrigue.” (Masters in Business interview here). The book is ostensibly about the legal battle between Nick Denton and his media property Gawker, and tech billionaire Peter Thiel, who secretly bankrolled pro wrestler Hulk Hogan’s invasion-of-privacy lawsuit against Gawker. Ultimately, the Thiel/Hogan conspiracy, which was in no way theoretical, proved to be better financed and smarter than the fatuous and overly confident Gawker team.

In “Conspiracy,” the legal battle is what filmmaker Alfred Hitchcock used to call the “MacGuffin.” It is a plot device, an object or goal that is irrelevant, other than to act as the motivation for the characters’ actions in a film. Think “The Maltese Falcon” — the object of desire that drives the plot forward.

Among the surprises Holiday shares with us was just how hard it is to plan, formulate and execute a conspiracy in secret. To create a genuine and effective conspiracy requires more than just enormous resources and an agenda; it requires a level of commitment and discipline that almost everyone lacks. Holiday describes how only two people knew about the conspiracy at the heart of Gawker case. Despite this, it still got out and became public. Notice how infrequently we get conclusive proof of conspiracies the rest of the time?

This is why we know most conspiracy theories are nonsense: Watergate/Deep Throat and Thiel/Gawker are notable because they are the exceptions.

There are some obvious problems for investors who enjoy blaming conspiracies for their own failures: aside from being intellectually lazy, it reflects an unwillingness or inability to admit error, and a refusal to take responsibility for their own actions.

As venture investor Morgan Housel explains, “Confirmation is in much higher demand than information.” This is especially true for those who may be under water in trades that did not work out.

Investors should spend their mental energy where it is most useful. I try not to worry about the Deep State, Deep Capture or Deep Throat. My personal priority is to avoid getting entangled in Deep Foolishness. You should, too.

+++ (JN) Juros da dívida espanhola em mínimos de 16 meses após subida de rating pela S&P

(Jornal De Negócios)  —  Os juros associados à dívida
pública espanhola seguem em queda generalizada, contrariando a tendência
registada na maior parte dos países da Zona Euro. A justificar esta tendência
está o facto de, na sexta-feira passada, a agência de notação financeira
Standard & Poor’s ter elevado em um nível a classificação atribuída a
Espanha de “BBB+” para “A-“.
Nesta altura, a taxa de juro associada às obrigações de dívida
espanhola no prazo de referência a 10 anos está a recuar 1,4 pontos base para
1,255%, isto depois de esta manhã a “yield” já ter tocado nos 1,240%, o menor
valor desde 9 de Novembro de 2016.
A perspectiva de que a S&P iria aumentar o “rating” atribuído à dívida
espanhola já tinha contribuído para que nas duas últimas sessões da semana
passada os juros a 10 anos tivessem recuado, pelo que esta segunda-feira, 26 de
Março, é o terceiro dia consecutivo de queda das “yields” espanholas.
Em menos de duas semanas, a rendibilidade exigida pelos investidores para
comparem dívida espanhola com maturidade a 10 anos no mercado secundário
recuou de 1,4% para a casa dos 1,2%.
Em Janeiro, a agência Fitch já havia aumentado o “rating” de Espanha,
sendo que no próximo dia 13 de Abril será a vez de a Moody’s se pronunciar
sobre a dívida pública espanhola.
O reforço da confiança das agências de notação financeira na dívida
espanhola permite aos investidores mais conservadores apostarem nos títulos
soberanos espanhóis, o que está de certa forma a compensar a incerteza
provocada pelo bloqueio político que se vive na Catalunha, região autonómica
que continua a ser governada por Madrid e que corre o risco de ter de realizar
novas eleições antecipadas nos próximos meses.Em sentido inverso seguem os
juros associados aos títulos da dívida portuguesa que, no prazo a 10 anos,
sobem 1,9 pontos base para 1,740%. O mesmo para as “bunds” germânicas que sobem
0,6 pontos base para 0,533% e para os juros das obrigações italianas a 10
anos que sobem 2,5 pontos base para 1,903% numa altura em que ganha força a
possibilidade de acordo de governo entre o Movimento 6 Estrelas de Luigi Di Maio
e a Liga Norte de Matteo Salvini.

(CNBC) World’s largest asset manager says get ready to ‘stomach complete losses’ in cryptocurrencies

(CNBC)

  • Cryptocurrencies “should only be considered by those who can stomach potentially complete losses,” says Richard Turnill, BlackRock’s global chief investment strategist.
  • “We don’t see them becoming part of mainstream investment portfolios soon,” he adds.
  • However, Turnill says cryptocurrencies could become more widespread with time.

A Bitcoin crypto-currency shop in Rovereto, Italy.

Pierre Teyssot | AFP | Getty Images
A Bitcoin crypto-currency shop in Rovereto, Italy.

Investors should only consider cryptocurrencies such as bitcoin if they are prepared to lose everything, BlackRock Investment Institute said in its weekly report Monday.

“We see cryptocurrencies potentially becoming more widely used in the future as the markets mature. Yet for now we believe they should only be considered by those who can stomach potentially complete losses,” Richard Turnill, BlackRock’s global chief investment strategist, said in the note.

Turnill noted cryptocurrencies’ high volatility, fragmented markets and lack of regulation. “We don’t see them becoming part of mainstream investment portfolios soon,” he said, adding that their volatility makes U.S. stock market turbulence during the financial crisis “almost look placid.”

Sources: BlackRock Investment Institute, with data from Thomson Reuters, February 2018.

Cryptocurrencies also haven’t been able to protect investors from sharp drops in stocks. That’s despite arguments for investing in the digital assets given their low correlations to traditional assets.

The digital currencies had “no ability to mitigate portfolio drawdown during periods of acute market stress like equity flash crashes of August 2015 and February 2018,” J.P. Morgan Securities’ John Normand said in a Feb. 9 report.

Bitcoin, the largest cryptocurrency by market capitalization, leaped 2,000 percent to above $19,000 in the 12 months through mid-December. The surge of interest spurred the world’s largest futures exchange, CME, and its competitor, Cboe, to launch bitcoin futures in December as well.

Enthusiasts expected the derivatives products would pave the way for more institutional investor participation and even the launch of bitcoin exchange-traded funds later this year.

However, the U.S. Securities and Exchange Commission has asked companies to withdraw their applications for bitcoin ETFs. Trading volume in the CME and Cboe bitcoin futures also remains relatively low compared with other, more widely traded products.

Bitcoin has lost about half its value in just about two months and was trading near $10,000 Monday.

BlackRock’s Turnill expects cryptocurrencies will need to overcome significant challenges in order to gain wider appeal.

He noted the blockchain technology underlying cryptocurrencies would require a “massive shift” in software development for broad adoption. Regulators would likely need to play a major role in such a shift, Turnill said. He does expect a global regulatory framework on cryptocurrencies to emerge, potentially from a G-20 meeting set for March.

BlackRock had $6.28 trillion in assets under management at the end of December as the world’s largest asset manager.

+++ (BBG) Buffett Warns Investors That Safe-Looking Bonds Can Be Risky

(Bloomberg) — Sometimes the best lessons are worth
repeating.
Billionaire investor Warren Buffett used his widely-read
annual letter to Berkshire Hathaway Inc. shareholders on
Saturday to again call out the wasteful fees that many money
managers charge. He highlighted the risk of bonds and emphasized
the importance of sticking with a simple investment strategy.
“Performance comes, performance goes,” Buffett wrote. “Fees
never falter.”
The letter was notably shorter than in years past, at 17
pages versus 29 in the 2016 version, and didn’t include
commentary on some of the company’s largest stock holdings.
Buffett, chairman and chief executive officer at Berkshire,
meditated on what he thinks people should take away from his
charitable bet against Protege Partners. He challenged the asset
manager to pick a group of hedge funds that it thought would
beat an S&P 500 Index fund over 10 years. When the wager
concluded on Dec. 31, the index fund had won easily.
Buffett also drew a lesson from a tweak he and Protege made
to the bet. Five years in, the two parties took the wagered
amount out of Treasury bonds after yields fell and put it in
shares of Berkshire. That led to Buffett’s charity getting more
than double the promised $1 million, and bolstered his urging of
investors to stick with stocks even though they can be riskier
in the short-term.

‘Terrible Mistake’

“It is a terrible mistake for investors with long-term
horizons — among them, pension funds, college endowments and
savings-minded individuals — to measure their investment ‘risk’
by their portfolio’s ratio of bonds to stocks,” Buffett wrote.
“Often, high-grade bonds in an investment portfolio increase its
risk.”
Buffett’s advice to investors comes in a month when the
U.S. equity market experienced its worst single-day plunge in
almost seven years. He warned against using leverage to invest
in stocks because it can accentuate panic during periods of
volatility.
“There is simply no telling how far stocks can fall in a
short period,” he wrote. “Even if your borrowings are small and
your positions aren’t immediately threatened by the plunging
market, your mind may well become rattled by scary headlines and
breathless commentary. And an unsettled mind will not make good
decisions.”
He also spent much of the letter explaining Berkshire’s
results for 2017, which were aided by a huge gain on the recent
U.S. tax overhaul. The Omaha, Nebraska-based conglomerate’s
insurance businesses, however, posted a rare underwriting loss.
Read more on Berkshire’s earnings here
He discussed some of the challenges to finding large deals.
Cash and cash equivalents have been piling up at Berkshire —
reaching $116 billion by year end — but Buffett said most of
the businesses he looked to buy last year were too expensive.
“We will need to make one or more huge acquisitions,”
Buffett wrote. “Our smiles will broaden when we have redeployed
Berkshire’s excess funds into more productive assets.”
Buffett wrote that his “one sensible” standalone deal last
year was to buy a stake in the owner of the Pilot Flying J truck
stop chain. And he couldn’t resist making a plug for the
business.
“When driving on the Interstate, drop in,” he encouraged
shareholders in the letter. “PFJ sells gasoline as well as
diesel fuel, and the food is good. If it’s been a long day,
remember, too, that our properties have 5,200 showers.”

Succession Planning

Buffett wrote the company’s goal is to increase earnings of
its businesses outside of insurance through acquisitions. That
side of the company is now run by Greg Abel, who was promoted in
January to oversee those subsidiaries within the conglomerate.
At the same time, Buffett put another longtime Berkshire
executive, Ajit Jain, in charge of insurance operations. Both
were also appointed to the board as part of a move toward
succession planning.
“You and I are lucky to have Ajit and Greg working for us,”
Buffett told shareholders in the letter. “Each has been with
Berkshire for decades, and Berkshire’s blood flows through their
veins. The character of each man matches his talents. And that
says it all.”
The 87-year old reiterated that while he’s “never felt
better,” the company has a plan in the works for when he’s no
longer running it.
“Our directors know my recommendations,” he wrote. “All
candidates currently work for or are available to Berkshire and
are people in whom I have total confidence.”
To read the full letter, click here.