Category Archives: Markets

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


Investors are worrying, but not too much yet

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

No real fear of aggravated trade war yet

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

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

Investors still may be underpricing both upside and downside risk.

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

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

Our subjective judgements on the outcomes for markets are:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Donald J. Trump(@realDonaldTrump)

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

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

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

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

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

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

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

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

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

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

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

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

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

Eleanor Creagh(@Eleanor_Creagh)

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

How do interest rates fit into this?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

Galp cai após resultados e Jerónimo Martins corrige

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

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

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

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

(ZH) Stocks Struggle With S&P At All Time High; Global Stocks, Yields Slide On China Stimulus Fears


Global markets took a step back on Wednesday, with US index futures and Asian stocks struggling to push higher following Tuesday’s record S&P close amid clear signals that China has put broader monetary stimulus on hold. The MSCI world equity index, edged down 0.1 percent in early European trade, as Treasuries continued to climb alongside European sovereign bonds and the dollar extended its rally to a six-week high, defying the signal from the fresh all time highs in US stocks as bond traders refuse to “rotate greatly” into stocks, and instead see even more economic weakness (or just more QE) in the future.

European shares followed Asia lower, pulling back from eight-month highs, with Europe’s Stoxx 600 index slipping 0.4% in early trading, although subsequent gains in technology companies and builders as the ETF bid came in, helped push the the Stoxx 600 into positive territory, and looking to extend the longest run of gains since 2017, boosted by positive earnings reports from companies including Credit Suisse.

Germany’s DAX was in the green despite the latest confirmation that Europe was still not out of the woods, after the German Ifo business survey showed German business morale deteriorated in April. The Ifo index measuring Germany’s business climate fell 0.5pt to 99.2 in April, below consensus expectations, driven by the manufacturing sector, while the services and construction sectors showed improvements. The decline reflects both a negative assessment of future economic conditions in the next 6 months (down 0.4pt to 95.2) and of current conditions, which fell 0.6pt (to 103.3). The March print was revised up from the first estimate (driven by a 0.1pt upward revision in the current conditions subindex).

The first major European bank to report, Credit Suisse’s shares rose 3.9% after the bank posted an unexpected rise in earnings and said it was cautiously optimistic about the second quarter following a challenging start to the year.  It posted a net profit of 749 million Swiss francs ($734 million) for the first quarter of 2019 as larger-than-expected wealth management gains offset investment banking declines. Results from UBS Group AG and Barclays follow on Thursday and Deutsche Bank on Friday.

The top performers on the STOXX 600 were payments company Wirecard and business software company SAP, which also boosted the DAX. As reported earlier, the battered Wirecard soared 8% after Bloomberg reported that Japan’s SoftBank was looking to invest about 900 million euros ($1 billion) for a minority stake in the company, forcing a violent short squeeze. Meanwhile, SAP climbed 6% as the company set new medium-term profit targets after reporting a first-quarter operating loss that chiefly resulted from a restructuring charge according to Reuters.

Elsewhere, payments firm Ingenico rose +5% after reporting 1Q sales and raising FY organic growth guidance; chip stocks quickly reversed opening losses to trade higher, shaking off cautious management comments from U.S. peer Texas Instruments which weighed on expectations of industry recovery in second half of this year. STMicro also rose +3.6% after cutting spending plans and keeping its forecast for sales growth to improve this quarter as well as in 2H.

Earlier in the session, the MSCI Index of Asian shares ex Japan dropped 0.2%, where the biggest regional loser was South Korea’s KOSPI, which fell 0.9%, with Samsung Electronics down 1%. Korean investors shrugged off the government’s proposed supplementary budget aimed in part at supporting exports from the country and focused instead on a warning from chipmaker Texas Instruments, which said it expects a slowdown in demand for microchips to last a few more quarters.

Chinese equities flitted between gains and losses as investors debated whether Beijing would slow its pace of policy easing following stronger-than-expected first-quarter economic growth.

“The big picture is the tussle between Asia, which has pulled back, and America, where the markets made new highs, so Europe is probably going to be a bit torn between the two,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments. “The positive for Europe is Credit Suisse’s earnings, which could reignite upbeat sentiment and show that some financials are doing well despite weak European economic sentiment and the problems from very low interest rates.”

The muted euphoria that took U.S. stocks to record highs on abysmal volume appears to have triggered some “soul-searching” among investors, with Bloomberg noting that positive earnings surprises in Europe failing to erase lingering concerns about the region’s economic outlook. To date, almost 80% of S&P 500 companies reporting results have exceeded estimates. Looking ahead we get some key economic news, with US Q1 GDP data due on Friday, while emerging market investors will be nervously watching the dollar’s climb.

“The risk is not massively balanced to the downside,” Jasper Lawler, head of research at London Capital Group, told Bloomberg. “We’ve had a big run higher, we’ve tested record highs in the U.S., and maybe this is time for consolidation. Everything has been baked into the market already.”

Elsewhere in global markets,

Sri Lanka’s main stock index traded at its lowest since December 2012 following the deadly Easter Sunday attacks that killed more than 350 people. Analysts have said the country’s economy might need IMF assistance to overcome the devastation from the incident.

The Turkish lira hit its weakest intraday level against the dollar since mid-October as investors worried about risks generated by challenges to Istanbul election results and strains in relations with the United States.

Market attention is also focused on the Turkish central bank’s rate-setting meeting on Thursday, when it is expected to keep its policy rate unchanged at 24 percent.

Also in FX, Australia’s dollar tumbled against all major peers after a very weak inflation print boosted bets for an interest-rate cut with Citi now expecting at least 2 rate cuts in the months ahead. The dollar climbed to the highest in almost 7 weeks, defying most bank predictions for a weaker greenback. The Euro stayed under pressure after German IFO data missed estimates, trying to hold above 1.12 before the European Central Bank releases its economic bulletin. The pound slipped as U.K. politics returned to center stage as Prime Minister Theresa May is said to be mulling a new plan to get her Brexit deal through Parliament

In commodities, after jumping to 2019 highs earlier this week, oil prices eased on Wednesday on signs that global markets remain adequately supplied. Brent traded down 0.34 percent at $74.26 per barrel, while U.S. crude dipped 0.39 to $66.04 a barrel. Gold prices dipped 0.1 percent to $1,270.60 per ounce, hovering around the four-month low touched in the previous session.

A busy earnings day lies ahead with Microsoft, Facebook, Visa, AT&T and Boeing among companies due to report.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,935.00
  • STOXX Europe 600 down 0.2% to 390.67
  • MXAP down 0.3% to 162.53
  • MXAPJ down 0.2% to 541.57
  • Nikkei down 0.3% to 22,200.00
  • Topix down 0.7% to 1,612.05
  • Hang Seng Index down 0.5% to 29,805.83
  • Shanghai Composite up 0.09% to 3,201.61
  • Sensex up 0.5% to 38,768.58
  • Australia S&P/ASX 200 up 1% to 6,382.14
  • Kospi down 0.9% to 2,201.03
  • German 10Y yield fell 1.7 bps to 0.024%
  • Euro down 0.1% to $1.1216
  • Brent Futures down 0.4% to $74.21/bbl
  • Italian 10Y yield rose 7.1 bps to 2.302%
  • Spanish 10Y yield fell 1.4 bps to 1.102%
  • Brent futures down 0.3% to $74.28/bbl
  • Gold spot up 0.1% to $1,273.46
  • U.S. Dollar Index up 0.01% to 97.65

Top Overnight News

  • Key gauges of confidence in Germany and France, the euro area’s two largest economies, unexpectedly deteriorated, signaling that a long-expected rebound may still be some way off
  • Trade negotiators led by U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing next week, the White House said, as both sides work to reach a draft agreement by next month
  • The U.K. formally kick-started its search for Mark Carney’s successor as governor of the Bank of England, a role that’s been linked to both senior people within the institution and ex-central bankers around the world
  • The People’s Bank of China offered 267.4 billion yuan ($40 billion) of targeted medium-term loans on Wednesday, a step that funnels money to some lenders while avoiding broad easing
  • The death toll in the Easter massacre in Sri Lanka rose to 359, while internal tensions among the country’s dueling leaders have resurfaced in recent days over intelligence failures in the run-up to the blasts

Asian equity markets traded mixed after the region failed to sustain the tailwinds from Wall St where strong blue-chip earnings propelled the S&P 500 and Nasdaq to fresh record closes. ASX 200 (+0.9%) resumed this week’s outperformance as soft CPI data brought forward various expectations for a rate cut to as early as next month, while gains in the Nikkei 225 (-0.3%) were later pared on detrimental currency moves. Elsewhere, Hang Seng (-0.5%) and Shanghai Comp. (U/C) also failed to sustain opening gains as White House confirmation that US-China trade talks will resume next week and the PBoC announcement of CNY 267bln in targeted MLF, was overshadowed after the PBoC dismissed rumours related to a potential targeted RRR cut for rural banks and refrained from Reverse Repo operations. Finally, 10yr JGBs saw mild gains as sentiment in the region soured and after similar upside in T-notes amid bull-steepening in the US, while the BoJ were also active in the market today for a respectable JPY 950bln of JGBs and focus now shifts towards the conclusion of the central bank’s 2-day policy meeting tomorrow.

Top Asian News

  • This Time Around, Asia Investors Aren’t Buying the Tech Euphoria
  • Richest Family in Thailand Is Getting Richer by Helping China
  • HKMA, SFC Inspect A China-Based Bank Over ‘Complex Transactions’
  • China Stocks Fluctuate in Afternoon Trading as Small Caps Jump

Major European indices are mixed [Euro Stoxx 50 -0.1%] as sentiment continues to deteriorate from the Asia session which failed to sustain the momentum in US equities where the S&P and Nasdaq reached record closes. Sectors are similarly mixed, with Energy names underperforming in line with the oil complex’s positive momentum dissipating after the larger than expected API build. Also performing poorly is the auto sector, following Nissan cutting their FY guidance; which has weighed particularly heavily on Renault (-3.8%), with other auto names such as BMW (-0.8%) and Volkswagen (-1.0%) down in sympathy. Conversely, the Technology sector is significantly outperforming its peers led by the strong performance in sector heavyweight SAP (+6.8%) who represents 26% of the sector after the Co. reported strong earnings and raised 2019 operating profit guidance; subsequently, Co. shares have this morning printed a record high of EUR 109.3. Other notable movers this morning include Credit Suisse (+3.0%) and Novartis (+2.7%) following earnings with the SMI (+0.4%) outperforming on the back of this. In addition, Novartis strong performance, following the Co. raising guidance in-spite of the Q1 sales miss, has caused the Healthcare sector to perform strongly. Finally, in a turnaround from recent performance Wirecard (+7.1%) are the outperforming DAX constituent (+0.1%), after reports that the Co. and Softbank have signed an agreement for Softbank to purchase a 5.6% stake in the Co. for around USD 1bln.

Top European News

  • U.K. Borrowing Hits 17-Year Low as Calls Grow to End Austerity
  • London’s Unsold Homes Under Construction Increase to Record
  • U.K. Said to Prepare Tougher Rules on Huawei, Avoid Full Ban
  • Italy’s Coalition Reaches Accord on Rome Relief Amid Infighting

In FX, the Aussie has sharply extended losses in wake of weaker than expected Q1 CPI metrics overnight that have raised RBA rate cut expectations for the next policy meeting in May to circa 60% and heightened the probability of another 25 bp ease before year end. Aud/Usd collapsed from around 0.7102 to 0.7028 in response before finding some underlying bids ahead of big barriers at the psychological 0.7000 level and a couple of downside chart supports in very close proximity, like 0.7005 (50% Fib) and 0.7003 (March 7 low). Note also, more exporter bids are anticipated around the next big figure following similar interest at 0.7050 that were filled on the way down amidst all round selling from high frequency and leverage accounts along with macro funds when 0.7070 gave way. Similarly, Aud/Nzd saw leverage and momentum longs bail on a break through 1.0650 as the cross hit a low of 1.0618 from 1.0671 at one stage, while the Kiwi also fell in sympathy vs its US counterpart to 0.6614 from 0.6657 and Nzd/Usd is now hovering near 0.6625 ahead of NZ trade data on Thursday.

  • CAD – The other non-US Dollar is also languishing and retreating further from recent highs as a downturn in crude prices adds to defensive positioning in the lead up to today’s BoC meeting and MPR that is expected to be cautious if not dovish, with downgrades to Canadian growth and inflation projections. The Loonie is currently near the bottom of 1.3461-18 parameters and not far from last month’s low of 1.3468, as Usd/Cad options predict a 67 pip break-event for the BoC.
  • EUR – The single currency is holding rather precariously on to the 1.1200 handle after another dip below stopped just short of Wednesday’s 1.1192 base, with the latest German Ifo survey missing on all counts and softer than the previous month. Moreover, the institute noted that the April readings point to more slowing in the economy and industrial sector underperformance, chiming with underwhelming preliminary PMIs, and could translate to lower 2019 GDP growth overall compared to the 0.8% forecast that has only recently been revised down. However, Eur/Usd has recovered to retest a key Fib at 1.1216 within a 1.1195-1.1231 range.
  • CHF/SEK – Relative G10 outperformers as the Franc rebounds through 1.0200 vs the Greenback and from 1.1450+ against the Euro, while the Swedish Krona is back above 10.5000 vs the single currency and braced for the Riksbank to reaffirm tightening guidance for H2 this year tomorrow. Conversely, Eur/Nok remains elevated over 9.6000 on the aforementioned retreat in oil.
  • DXY – The Usd continues to proffer at the expense of others, in part if not the most part, but the index has not managed to build on Tuesday’s new 97.783 ytd peak as the JPY and GBP also display a degree of resilience and contain downside forays ahead of 112.00 and 1.2900 respectively. Cable has bounced off Fib support at 1.2911, albeit mildly amidst ongoing Brexit uncertainty, while Usd/Jpy is still encountering supply and the Yen retains underlying safe-haven support in the run up to the BoJ and US GDP data the day after. Note, detailed previews of all this week’s Central Bank policy convenes are available via the Research Suite and/or in the form of primers on the headline feed into each meeting.

In commodities, Brent (-0.2%) and WTI (-0.4%) prices have broken the Iran waiver induced positivity following last nights API’s, where crude stocks printed a significantly larger build than was expected; 6.9mln vs. Exp. 1.3mln; ahead of today’s EIA release which may result in some additional downward pressure on oil prices if a similar figure is reported. Newsflow for the complex has been relatively light, although Saudi Energy Minister Al Falih has reiterated that they remain focused on balancing the global oil market and global inventories will guide their actions. Adds that there will be little variance in May production levels from the previous months, as they will not pre-emptively increase production even though they expect increased demand following the conclusion of Iranian oil waivers. Gold (+0.1%) is little changed as the dollar remains firm with yellow metal remaining above the USD 1270/oz level and towards the top of the day’s relatively narrow range. Elsewhere, Copper has traded lacklustre in line with the general market sentiment and due to the underperformance seen in China for much of the overnight session; with China the largest buyer of the red metal.

US Event Calendar

  • 7am: MBA Mortgage Applications -7.3%, prior -3.5%

DB’s Craid Nicol concludes the overnight wrap

Timing it with a holiday week doesn’t help, but you’d be hard pressed to find another occasion when there’s been a more subdued record-breaking day for US stock markets. Indeed the S&P 500 and NASDAQ waltzed to new all-time highs yesterday with both breaching their October peaks after advancing +0.88% and +1.32%, respectively. The DOW also gained +0.55% and remains just over 1% off its all-time peak. We had a quick glance back at this recent run and since the December trough, 82 trading sessions ago, the S&P 500 and NASDAQ are up a remarkable +24.78% and +31.13%, respectively. The last time they bounced as sharply and as quickly was after the financial crisis,after markets bottomed out in March 2009. Then, the S&P 500 took only 23 days to bounce over 25% off the trough, while it took the NASDAQ 36 days to rally 32%.

So this rebound has been the strongest in a decade, even if it feels less dramatic. Indeed, the VIX index slid -0.14pts yesterday to 12.28, back near its year-to-date lows. For comparison, during the aforementioned rebounds in 2009, the VIX averaged over 40pts over the rally period. In fact, we also looked back at the closing moves for the S&P 500 since April 2nd and the average in the 15 sessions up until and including then is just +0.15%. It doesn’t get any better if we look at ranges either with the average intraday range of just 0.59%. You have to go back to early January 2018 to find the last time we had a smaller average intraday range over 15 sessions. The good news is that the direction of travel is positive for now though and yesterday earnings played their part. We’ll go through the details on those below but with Microsoft and Facebook reporting today, positive earnings reports could provide a further tailwind for risk in the absence of any other drivers out there at the moment.

Speaking of earnings Caterpillar are also due to report their latest quarterly numbers today. Those results are always closely watched by both micro and macro investors given the company’s status as an economic bellwether.Remember that the stock tumbled -9.13% following its Q4 earnings release back in January when management flagged slowing demand in China. Caterpillar is expected to post Q1 EPS of $2.82 (Bloomberg consensus) which would be roughly flat on the same period last year. Like always though it’ll be the forward looking commentary which is most closely watched.

Back to markets yesterday where in Europe the STOXX 600 hit its highest level since last July after advancing +0.23%. The DAX and CAC posted fairly modest gains (+0.20% and +0.11% respectively), while Spain’s IBEX and Italy’s FTSE MIB lagged, falling -0.57% and -0.27%. More eye catching was European bank stocks falling -1.59%, possibly in response to comments from ECB Management Board member Benoit Coeure, playing down the possibility of deposit tiering. He told the Frankfurter Allgemeine Zeitung that “at the current juncture, I do not see the monetary policy argument for tiering” and sounded optimistic about the growth outlook.

The regional divergence was mirrored in fixed income markets, as 10y yields in Spain and Italy rose +5.2bps and +7.3bps respectively. Bund yields rose a more modest +1.7bps, while Treasury yields fell -2.4bps and also are down another -1.4bps overnight. A bit of catch up to the oil move seemed to play a part for European rates with WTI pushing above $66/bbl following another +0.91% jump yesterday. Il Sole also reported that Italy’s government could delay the approval of a growth pact until next week amidst feuding over corruption charges involving a League party lawmaker. On a related note it’s worth noting that S&P’s rating review for Italy is due this Friday with the sovereign currently rated BBB/Negative. While no change is expected it’ll be worth a watch all the same.

Meanwhile in FX there was a reasonable bid for the dollar yesterday which saw the Dollar index rise +0.36% and approach the top of a recent technical range. The euro (-0.27%) and sterling (-0.34%) suffered along with EM FX (-0.32%). There was some suggestion that a tweet from President Trump highlighting the impact of tariffs from the EU on Harley Davidson and the suggestion that the US would reciprocate as driving some of the price action however the reaction did appear to be somewhat delayed if so.

Looking out at screens this morning, despite the gains on Wall Street last night it’s a very different picture in Asia where most bourses are seeing decent losses.That’s the case for the Nikkei (-0.48%), Hang Seng (-0.85%), Shanghai Comp (-0.92%) and Kospi (-1.32%) in particular. Futures on the S&P 500 (-0.15%) are also slightly lower. The moves come despite confirmation from the White House that Lighthizer and Mnuchin will travel to China on April 30th for another round of trade talks while the Chinese Vice Premier Liu He will then lead a Chinese delegation to the US for subsequent trade talks on May 8th. Perhaps most significantly, Bloomberg is reporting that the US and China are aiming to announce during Liu’s visit that they have agreed to a deal and details of a signing summit.

Moving on. Back to the earnings releases that were out yesterday, the highlight was Twitter (+15.64%), which reported healthy gains in revenue and daily active users.Sales were up 18% yoy and the platform added 8 million new users over the first quarter. The other major mover was Hasbro (+14.23%) as sales surprisingly grew for the first time in six quarters and earnings were positive. Coca-Cola (+1.78%) also rallied on strong sales growth in Asia. On the other hand, Procter and Gamble (-2.69%) underperformed despite sales and profit growth, as guidance for the rest of the year was a touch soft, with the CEO citing higher input prices as a headwind.

In other news, you couldn’t really blame Brexit headlines for the Sterling move yesterday however we did see the return of some headlines yesterday. Bloomberg reported an official as saying that the withdrawal bill was planned to be put to parliament next week, although this would be the implementation legislation required to kick off the process, rather than the meaningful vote. A spokesman for PM May confirmed that all the focus is on getting the WA passed by Parliament and that talks with Labour are ongoing still.

Finally yesterday’s data was a sideshow once more, however for completeness the April Richmond Fed manufacturing index in the US dropped 7pts unexpectedly to +3 after expectations were for no change. The new orders component also dropped and turned negative for the first time since January however it’s worth noting that this data does tend to be fairly volatile. On the plus side March new home sales rose +4.5% versus expectations for a -2.7% mom decline while the February FHFA house price index rose +0.3% mom and slightly less than expected in February. In Europe the April consumer confidence reading slipped 0.7pts to -7.9.

In terms of the day ahead, this morning in Europe we’re due to get April confidence indicators out of France before focus turns to the April IFO survey in Germany and March public finances data in the UK. It’s quiet in the US with only the latest MBA mortgage applications data due. Away from that we’ve got the BoC decision this afternoon while UK Chancellor Hammond is due to testify on the Spring Statement. Russia President Putin may also meet North Korean leader Kim Jong Un. Expect earnings to be a big focus once more with Microsoft, Facebook, AT&T, Boeing and Caterpillar amongst the headliners.

(Reuters) U.S. prepares to end Iran oil waivers; Asian buyers to be hardest hit

(Reuters) The United States is expected to announce on Monday that buyers of Iranian oil need to end imports soon or face sanctions, a source familiar with the situation told Reuters, triggering a 3 percent jump in crude prices to their highest for 2019 so far.

Officials in Asia opposed the expected move, pointing to tight market conditions and high fuel prices that were harming industry.

The source confirmed a report by the Washington Post that the administration will terminate the sanctions waivers it granted to some importers of Iranian oil late last year.

Benchmark Brent crude oil futures rose by as much as 3.2 percent to $74.31 a barrel, the highest since Nov. 1, in early trading on Monday in reaction to expectations of tightening supply. U.S. West Texas Intermediate (WTI) futures climbed as much as 3 percent to $65.87 a barrel, its highest since Oct. 30.

U.S. President Donald Trump wants to end the waivers to exert “maximum economic pressure” on Iran by cutting off its oil exports and reducing its main revenue source to zero.

Saudi Arabia, the world’s top oil exporter, was willing to compensate the potential supply loss, but it would first need to assess the impact before boosting its own production, a source familiar with Saudi thinking told Reuters.

In November, the U.S. reimposed sanctions on exports of Iranian oil after President Trump unilaterally pulled out of a 2015 nuclear accord between Iran and six world powers.

Washington, however, granted waivers to Iran’s eight main buyers – China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece – that allowed them limited purchases for six months.

On Monday, Secretary of State Mike Pompeo will announce “that, as of May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate,” the Post’s columnist Josh Rogin said in his report, citing two State Department officials that he did not name.

Oil markets have tightened this year because of supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).

As a result, Brent prices have risen by more than a third since January, and WTI by more than 40 percent.

Analysts said they expected the Trump administration to push OPEC and its de-facto leader Saudi Arabia to stop withholding supply to calm market fears of oil shortages.

Trump spoke with Saudi Arabia’s Crown Prince Mohammed bin Salman by phone last week, and discussed ways of “maintaining maximum pressure against Iran.”

The source familiar with Saudi thinking said any action by OPEC’s biggest producer depends on the certainty of scrapping the waivers and its effect on the oil market. Saudi Arabia has about 2 million barrels of oil per day of spare capacity.

Riyadh raised its oil output last year after the Trump administration pledged to bring Iranian crude exports to zero, only to grant waivers later triggering a decline in prices and build-up in oil inventories.

“The Saudis don’t want to make the same mistake again,” one OPEC source said.

Iraq, OPEC’s second largest producer, is committed to the global supply cuts taken by OPEC and its allies and any decision to raise production must be taken collectively, an Iraq oil ministry spokesman said on Monday.

Iraq is among major producers from OPEC and non-OPEC who are meeting next month in Jeddah, Saudi Arabia, as part of a panel committee to discuss the oil market and make output recommendations, the spokesman said.


An end to the exemptions would hit Asian buyers hardest. Iran’s biggest oil customers are China and India, who have both been lobbying for extensions to sanction waivers.

Geng Shuang, a Chinese foreign ministry spokesman, said at a daily news briefing in Beijing on Monday that it opposed unilateral U.S. sanctions against Iran and that China’s bilateral cooperation with Iran was in accordance with the law.

He did not say whether China would heed the U.S. call to cut Iran oil imports to zero.FILE PHOTO: Gas flares from an oil production platform at the Soroush oil fields in the Persian Gulf, south of the capital Tehran, July 25, 2005. REUTERS/Raheb Homavandi/File Photo

In India, refiners have started a search for alternative supplies.

The government, however, declined to comment officially.

“We are engaged with the U.S. administration on this matter and once the U.S. side makes a comment on this matter, then we will come up with a comment,” said a source at India’s foreign affairs ministry who declined to be named.

“I expect India to fall in line with the sanctions,” said Sukrit Vijayakar, director of Indian energy consultancy Trifecta.

South Korea, a close U.S. ally, is a major buyer of Iranian condensate, an ultra-light form of crude oil that its refining industry relies on to produce petrochemicals.

Government officials there declined to comment, but Kim Jae-kyung of the Korean Energy Economics Institute said the end of the sanction waivers “will be a problem if South Korea can’t bring in cheap Iranian condensate (for) South Korean petrochemical makers.”

Japan is another close U.S. ally in Asia that is also a traditionally significant buyer of Iranian oil.

The government also declined to comment ahead of an official U.S. announcement, but Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corporation (JOGMEC), said the end of the sanction waivers “is not a good policy for Trump.”

Prior to the re-imposition of sanctions, Iran was the fourth-largest producer among OPEC at almost 3 million bpd, but April exports have shrunk to well below 1 million bpd, according to ship tracking and analyst data in Refinitiv.

(JE) Valor de títulos negociados em day-trading na bolsa caiu 48% num ano para 144 milhões

(JE) MO day-trading é uma modalidade de negociação em mercados financeiros, que tem por objetivo a obtenção de lucro com a oscilação de preço, ao longo do dia, dos ativos financeiros.

Os dados são da CMVM. O valor total negociado em day-trading na Euronext Lisbon diminuiu 20,1% no primeiro trimestre de 2019 face aos três meses anteriores tendo-se fixado em 144,5 milhões de euros. Se comparar-mos com o valor de titulos comprados e vendidos no mesmo dia aproveitando a oscilação do preço ao longo da sessão, no prrimeiro trimestre de 2018, verifica-se que caiu 48%, quase metade face aos 277,7 milhões registados no ano passado.

Em média, o valor negociado por intermediário financeiro decresceu 12,9% numa base trimestral, para 7,7 milhões. Mas caiu 45,2% quando comparado com o trimestre homólogo do ano anterior.

As transações em day-trading continuaram a ser efetuadas quase na totalidade para a carteira dos clientes dos intermediários financeiros, representando 99,9% do valor total negociado.

Os três intermediários financeiros com maior quota de mercado foram responsáveis por 62,3% do valor de day-trading entre janeiro e março, percentagem superior à registada no trimestre anterior.

No segmento acionista, estas transações registaram uma descida de 0,8 pontos percentuais (p.p.), representando 2,9% do valor negociado.

No mesmo período, 97,7% do valor da negociação em day-trading foi efetuado por investidores não institucionais e 2,3% por institucionais (excluindo carteira própria dos intermediários financeiros).

Os investidores residentes efetuaram no trimestre 95,6% do valor de day-trading e os não residentes 4,4% (excluindo carteira própria dos intermediários financeiros). Entre os investidores residentes, os principais ordenantes foram os investidores não institucionais (94,4%).

As ordens transmitidas pela internet corresponderam a 88,4% do total, por outros meios eletrónicos a 6,7% e por outros canais a 4,9%.

(TCVnews) Boeing shares fall sharply after second deadly 737 MAX 8 crash


Image result for Boeing shares drop following second deadly crash

Boeing Company shares dropped badly on Monday, the worst in three years, after China, Indonesia and Ethiopia decided to ground their seven three seven MAX eight planes following the second deadly crash of one of the plane in just five months.

Lilian Eze mark reports that an Ethiopian Airlines B737 Max 8 bound for Nairobi crashed minutes after take-off, killing all 157 people on board.

It was the second crash of the B737 MAX, the latest version of Boeing’s workhorse narrowbody jet that first entered service in 2017.

In October, a 737 MAX flown by Indonesian budget carrier Lion Air flying from Jakarta on a domestic flight crashed 13 minutes after take-off, killing all 189 passengers and crew on board.

A source from Reuters said it was too early to say whether the accidents are related but added it would be a “very big issue for Boeing” if they are.

The drop – around 7 percent in late morning trade – wiped nearly $16 billion off Boeing’s market value, marking an abrupt reversal for a stock that had been the runaway top performer this year in the Dow Jones Industrial Average.

With a stock price near $400 a share, it was by far the largest drag on the price-weighted blue chip index on Monday.

Boeing said on Monday the investigation into the Ethiopian Airlines crash is in its early stages and there was no need to issue new guidance to operators of its 737 MAX 8 aircraft based on the information it has so far.

China has taken the unusual step today of telling its airlines to stop flying the 737 Max. But some have critisized that move because it’s not the lead regulator for the 737 which is built in the U.S. asking them to wait for the country where the aircraft is certified to take the lead.

(CNBC) World’s largest sovereign wealth fund to scrap oil and gas stocks


  • The exclusion will affect companies that explore and produce oil and will not impact integrated oil and gas companies such as BP and Shell.
  • The move, initiated by Norges Bank which manages the fund, is designed to make the Norwegian government’s wealth less exposed to a lasting drop in oil prices.
  • Oil and gas stocks represented 5.9 percent of equity investments by the end of 2018, Reuters reported, citing fund data. That’s the equivalent to approximately $37 billion.

Sam Meredith@smeredith19Published 11 Hours Ago  Updated 7 Hours

An offshore oil rig off the coast of Norway.

Nerijus Adomaitis | ReutersAn offshore oil rig off the coast of Norway.

Norway’s trillion-dollar sovereign wealth fund plans to dump oil and gas companies from its benchmark index, the finance ministry announced on Friday.

The move, initiated by Norges Bank which manages the fund, is designed to make the Norwegian government’s wealth less exposed to a lasting drop in oil prices.

“The Government is proposing to exclude companies classified as exploration and production companies within the energy sector from the Government Pension Fund Global to reduce the aggregate oil price risk in the Norwegian economy,” the finance ministry said in a statement published on its website.

The exclusion will affect companies that explore and produce oil and will not impact integrated oil and gas companies such as BP and Shell. The Norwegian government also said that the companies to be excluded are those belonging to FTSE Russel’s Index sub sector called exploration and production. According to the government, the value of 134 stocks to be excluded from fund amounted to NOK 70 billion ($7.9 billion), Reuters reported.

Shortly after the announcement, energy stocks worldwide extended losses on Friday morning.

International benchmark Brent crude traded at around $65.18 on Friday, down around 1.7 percent, while U.S. West Texas Intermediate (WTI) stood at around $55.78, more than 1.6 percent lower.

Energy stocks are notoriously volatile. Brent crude collapsed from a near four-year high of $86.29 in early October down to $50.47 in late December — marking a fall of more than 40 percent in less than three months.

Energy stocks

Norway’s government said on Friday that the fund would still be allowed to invest in oil and gas firms so long as they were committed to activities concerning renewable energy.

Oil and gas stocks represented 5.9 percent of equity investments by the end of 2018, Reuters reported, citing fund data. That’s the equivalent to approximately $37 billion.

Norway has faced criticism over its attempts to balance environmentally-focused policies and being one of the world’s largest petroleum producers.

It has become one of the world’s leading countries for electric vehicles while putting pressure on emerging market economies, such as Brazil and Indonesia, to better protect their rainforests.

After a strong start to 2019 for stocks, the Norges Bank website said late last month that the fund is currently valued at $1.03 trillion.

At the end of 2018, the fund’s biggest equity holdings were in Microsoft ($7.5 billion), Apple ($7.3 billion), Alphabet ($6.7 billion), Amazon ($6.4 billion), Nestle ($6.3 billion) and Royal Dutch Shell ($6 billion).

(Reuters) Global stocks stuck in worst run of the year ahead of ECB

(Reuters) LONDON (Reuters) – World stocks were stuck in their worst run of the year and bonds were on the rise on Thursday, as investors waited for confirmation that the European Central Bank will start shoveling cheap cash at the euro zone again.FILE PHOTO: Signage is seen outside the entrance of the London Stock Exchange in London, Britain. Aug 23, 2018. REUTERS/Peter Nicholls

The ECB was holding its second meeting of the year, and with the euro almost motionless and stocks suffering from the same growth nerves that will see the central bank chop its in-house forecasts later, markets were poised.

European shares retreated further from five-month highs as MSCI’s 47-country world share index also dropped for a fourth straight session to set its longest losing streak since December’s rout.

Italy’s government bonds rallied to a 7-month high while its banks, which used the biggest share of the previous round of cheap central bank loans, rose 0.1 percent but remained below the highs hit in the previous session.

A return to what was once its flagship crisis-fighting tool would be a wrenching change of direction for the ECB just months after it wound down its 2.6 trillion euro QE program,

But Head of investments at UK fund manager Hermes, Eoin Murray, said he wondered how much impact such measures, or even more U.S. Fed stimulus, would have, considering the potency has tended to wane with every new round in recent years.

“I just don’t think it will have the power to get the economy to the point of takeoff,” Murray said.

Europe’s subdued mood came after Asia and Wall Street had also both stumbled overnight.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.3 percent lower on Thursday, yet hovering not far from its five-month high marked last week, and was up 10 percent year-to-date.

Japan’s Nikkei average fell 0.7 percent, while Hong Kong’s Hang Seng shed 0.7 percent and Chinese blue-chips snapped a four-day winning streak as the boost from new stimulus plans there ran into the sand.

Wall Street’s main indexes had fallen for a third straight session, with the S&P 500 posting its biggest one-day decline in a month, as investors sought reasons to buy after a near 20 percent rally since the start the year.

“For some time, markets had been pricing in good news, namely that the talks between the U.S. and China will likely go well,” said Tatsushi Maeno, senior strategist at Okasan Asset Management. “Now markets are having a pause.”

Adding to concerns about the talks was data that showed the U.S. goods trade deficit surged to a record high in 2018 as strong domestic demand pulled in imports, despite the Trump administration’s “America First” policies aimed at shrinking the gap.

Other U.S. data out on Wednesday suggested some slowing in the labor market, though the pace of job gains remains more than enough to drive the unemployment rate down.

The ADP National Employment Report showed private payrolls increased by 183,000 in February after surging 300,000 in January. Economists polled by Reuters had forecast private payrolls advancing 189,000 in February.

The government’s more comprehensive “non-farm” payrolls employment report for February is scheduled for release on Friday.

Stocks sink for a 3rd day

(graphic: Impact of TLTRO on Italian and Spanish banks link:


In the currency market, the euro traded at $1.1304, hovering near a two-week low ahead of the ECB and its expected news on its cheap long-term loans for banks, known more formally as Targeted Long-Term Refinancing Operations (TLTROs).

The dollar was little changed at 111.74 yen, moving away from Tuesday’s 2-1/2-month peak of 112.135, while the dollar index, which measures the greenback against a basket of six of its peers, barely moved at 96.887.

The Canadian and Australian dollar sank to two-month lows on Wednesday as traders scaled back holdings on expectations policy-makers would leave interest rates alone in the foreseeable future or even lower them to counter their softening economies.

Adding to the Aussie’s woes on Thursday was data showing local retailers suffered another bleak month in January, in a sign overall economic momentum was slowing. The Aussie dollar last changed hands at $0.7042, up 0.1 percent on the day.

Brexit uncertainty kept the pound below an eight-month high hit last week as investors waited for some clarity to emerge out of negotiations between Britain and the European Union.

Diplomats said talks in Brussels on Tuesday led by British Prime Minister Theresa May’s chief lawyer, Geoffrey Cox, failed to find common ground, with three weeks to go before Britain’s scheduled departure on March 29.

“Markets are getting conflicting signals from lawmakers in Britain and the negative news flow from Brussels on the negotiation process, and that is keeping the pound in a tight range,” said Nikolay Markov, a senior economist at Pictet Asset Management.

Among commodities, oil edged up amid ongoing OPEC-led supply cuts and U.S. sanctions against exporters Venezuela and Iran, although prices were prevented from rising further by record U.S. crude output and rising commercial fuel inventories.

U.S. crude futures rose 0.1 percent to $56.29 per barrel, moving closer to its 3-1/2-month high of $57.88 touched Friday, while international benchmark Brent futures gained 0.3 percent to $66.20 per barrel.

(JN) JPMorgan: Novas subidas nas bolsas terão que ser suportadas por crescimento

(JN) A gestora de ativos do JPMorgan acredita que as bolsas mundiais vão registar um ano positivo, mas a evolução da economia será determinante para perceber se há margem para as ações prolongarem as subidas.

A gestora de ativos do JPMorgan tem vindo a adotar uma postura de investimento mais defensiva. A entidade continua, porém, a identificar espaço para retornos positivos nas ações mundiais. No entanto, após a escalada registada neste início de ano, apenas se houver uma confirmação de notícias positivas no crescimento económico é que as bolsas poderão prolongar as subidas.

Uma política monetária mais acomodatícia, um alívio das tensões comerciais e expectativas de um crescimento mais moderado, mas positivo. São estes os temas que têm estado a determinar a recuperação dos mercados financeiros, mas que, segundo o JPMorgan Asset Management, também estão amplamente descontados nos mercados. Numa apresentação a jornalistas realizada em Lisboa esta terça-feira, Manuel Arroyo argumentou que, grande parte da subida registada em 2019, se deve a um ajuste técnico, depois das descidas expressivas acumuladas nos últimos meses de 2018.

Após uma valorização superior a 10% nas praças norte-americanas e de mais de 8% na Europa, em mês e meio, o diretor de vendas da JPMorgan AM Portugal refere que é necessário “mais crescimento económico” para sustentar a extensão dos ganhos nas bolsas. O especialista acredita que caso a Europa e a China apresentem uma evolução positiva da sua economia, isto pode alimentar maiores retornos nas ações.

Com uma visão moderadamente otimista para a economia mundial, Manuel Arroyo destaca que é esperada muita volatilidade nos próximos meses, fruto de já estarmos numa fase tardia do ciclo económico.

“Os EUA vão continuar a crescer à volta de 2%”, antecipa o mesmo especialista, que lembra, contudo, que este ano não haverá nenhum programa de estímulos orçamental. Vai haver sim estímulos monetários.

A Reserva Federal indicou, em janeiro, uma inversão na sua política de subida de taxas de juro, levando os bancos de investimento e as gestoras de ativos a rever as suas expectativas para a normalização das taxas. Enquanto no final do ano a gestora do JPMorgan previa quatro subidas de juros em 2019, as previsões apontam agora para uma ou duas mexidas nos juros, nos terceiro e quarto trimestre do ano.

Já em relação aos resultados empresariais, Manuel Arroyo realça que está a antecipar um crescimento entre 5% e 7% dos resultados nos EUA. O responsável lembra que, ao longo do último ano, baixaram-se muito as expectativas, mas “ao baixar as expectativas aumenta a margem para surpreender pela positiva”.

(MW) Roubini calls out the big blockchain lie


Blockchain isn’t a transformative technology; it’s just Excel spreadsheets with a misleading name

Bitcoin has lost about two-thirds of its value since December.



NEW YORK (Project Syndicate) — With the value of Bitcoin BTCUSD, +0.19% having fallen by around two-thirds since its peak late last year, the mother of all bubbles has now gone bust. More generally, cryptocurrencies have entered a not-so-cryptic apocalypse.

The value of leading coins such as Ether ETHUSD, +0.45%  , EOS, LitecoinLTCUSD, +1.42%  , and XRP XRPUSD, -0.01%  have all fallen by over 80%, thousands of other digital currencies have plummeted by 90% to 99%, and the rest have been exposed as outright frauds. No one should be surprised by this: four out of five initial coin offerings (ICOs) were scams to begin with.

Now that cryptocurrencies such as Bitcoin have plummeted from last year’s absurdly high valuations, the techno-utopian mystique of so-called distributed-ledger technologies should be next. The promise to cure the world’s ills through “decentralization” was just a ruse to separate retail investors from their hard-earned real money.

Faced with the public spectacle of a market bloodbath, boosters have fled to the last refuge of the crypto scoundrel: a defense of “blockchain,” the distributed-ledger software underpinning all cryptocurrencies. Blockchain has been heralded as a potential panacea for everything from poverty and famine to cancer.

In fact, it is the most overhyped — and least useful — technology in human history.

In practice, blockchain is nothing more than a glorified spreadsheet. But it has also become the byword for a libertarian ideology that treats all governments, central banks, traditional financial institutions, and real-world currencies as evil concentrations of power that must be destroyed. Blockchain fundamentalists’ ideal world is one in which all economic activity and human interactions are subject to anarchist or libertarian decentralization. They would like the entirety of social and political life to end up on public ledgers that are supposedly “permissionless” (accessible to everyone) and “trustless” (not reliant on a credible intermediary such as a bank).

Yet far from ushering in a utopia, blockchain has given rise to a familiar form of economic hell.

A few self-serving white men (there are hardly any women or minorities in the blockchain universe) pretending to be messiahs for the world’s impoverished, marginalized, and unbanked masses claim to have created billions of dollars of wealth out of nothing. But one need only consider the massive centralization of power among cryptocurrency “miners,” exchanges, developers, and wealth holders to see that blockchain is not about decentralization and democracy; it is about greed.

For example, a small group of companies — mostly located in such bastions of democracy as Russia, Georgia, and China — control between two-thirds and three-quarters of all crypto-mining activity, and all routinely jack up transaction costs to increase their fat profit margins. Apparently, blockchain fanatics would have us put our faith in an anonymous cartel subject to no rule of law, rather than trust central banks and regulated financial intermediaries.

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A similar pattern has emerged in cryptocurrency trading. Fully 99% of all transactions occur on centralized exchanges that are hacked on a regular basis.And, unlike with real money, once your crypto wealth is hacked, it is gone forever.

Moreover, the centralization of crypto development — for example, fundamentalists have named Ethereum creator Vitalik Buterin a “benevolent dictator for life” — already has given lie to the claim that “code is law,” as if the software underpinning blockchain applications is immutable.

The truth is that the developers have absolute power to act as judge and jury. When something goes wrong in one of their buggy “smart” pseudo-contracts and massive hacking occurs, they simply change the code and “fork” a failing coin into another one by arbitrary fiat, revealing the entire “trustless” enterprise to have been untrustworthy from the start.

Lastly, wealth in the crypto universe is even more concentrated than it is in North Korea. Whereas a Gini coefficient of 1.0 means that a single person controls 100% of a country’s income/wealth, North Korea scores 0.86, the rather unequal United States scores 0.41, and Bitcoin scores an astonishing 0.88.

As should be clear, the claim of “decentralization” is a myth propagated by the pseudo-billionaires who control this pseudo-industry. Now that the retail investors who were suckered into the crypto market have all lost their shirts, the snake-oil salesmen who remain are sitting on piles of fake wealth that will immediately disappear if they try to liquidate their “assets.”

As for blockchain itself, there is no institution under the sun — bank, corporation, non-governmental organization, or government agency — that would put its balance sheet or register of transactions, trades, and interactions with clients and suppliers on public decentralized peer-to-peer permissionless ledgers.

There is no good reason why such proprietary and highly valuable information should be recorded publicly.

Moreover, in cases where distributed-ledger technologies — so-called enterprise DLT — are actually being used, they have nothing to do with blockchain. They are private, centralized, and recorded on just a few controlled ledgers. They require permission for access, which is granted to qualified individuals. And, perhaps most important, they are based on trusted authorities that have established their credibility over time.

All of which is to say, these are “blockchains” in name only.

It is telling that all “decentralized” blockchains end up being centralized, permissioned databases when they are actually put into use. As such, blockchain has not even improved upon the standard electronic spreadsheet, which was invented in 1979.

No serious institution would ever allow its transactions to be verified by an anonymous cartel operating from the shadows of the world’s authoritarian kleptocracies. So it is no surprise that whenever “blockchain” has been piloted in a traditional setting, it has either been thrown in the trash bin or turned into a private permissioned database that is nothing more than an Excel spreadsheet or a database with a misleading name.

(JN) “Rei das obrigações” vai reformar-se


Bill Gross vai deixar a Janus Henderson para se concentrar na gestão dos seus ativos e na sua fundação.

Um dos gestores de ativos mais conhecidos em todo o mundo decidiu reformar-se.

Segundo o Financial Times, Bill Gross, de 74 anos, vai deixar a Janus Henderson para se dedicar à gestão dos seus ativos, bem como à sua fundação. Uma informação já confirmada pela firma que o contratou à Pimco há quatro anos.

Conhecido por “Rei das obrigações” (“The bond king”), Gross foi um dos mais bem-sucedidos gestores de títulos de dívida do mundo. Estava na Janus Henderson desde 2014, mas foi na Pimco que ganhou fama e sucesso.

Gross foi um dos fundadores da Pimco em 1971 e o principal responsável pela ascensão desta firma ao topo das gestoras de ativos de maior sucesso do mundo.

“Tive um percurso maravilhoso ao longo dos meus 40 anos de carreira – tentando sempre colocar o interesse dos clientes em primeiro lugar e reinventar a gestão de carteiras de obrigações”, diz Gross numa carta de despedida que está a ser citada pelo Wall Street Journal.

O CEO da Janus, Dick Weil, agradeceu a Bill Gross o contributo que deu à firma. “Conheço o Bill há 23 anos. Foi um dos melhores investidores de todos os tempos e foi uma honra trabalhar ao lado dele”, acrescentou.

O gestor, que se apelidava um Justin Bieber com 70 anos, saiu da Pimco em 2014 em conflito com os restantes líderes da firma e numa altura em que a firma estava a perder dinheiro.

Antes deste mau desempenho, Gross era o responsável pela gestão do maior fundo de obrigações do mundo, com ativos avaliados em 300 mil milhões de dólares.

Se a saída de Gross originou uma debandada de investidores da Pimco em 2014, os últimos tempos na Janus também não foram fáceis. O fundo de obrigações da Janus Henderson Global Unconstrained sofreu resgates de cerca de 60 milhões de dólares em dezembro, que reduziram o valor dos ativos para 950,4 milhões de dólares. Abaixo da fasquia dos mil milhões e muito aquém do máximo atingido em fevereiro, quando este fundo totalizou 2,24 mil milhões de dólares de ativos sob gestão.

(BBG) Portugal’s Debt Appeal Grows After Strong 2018 Run for Investors


  •  Bonds could outperform further versus Italy, Citigroup says
  •  Nation returned 1.4 percent in January after 3 percent in 2018

Portuguese bonds look set to extend their peer-beating performance into 2019, after providing investors with the best returns among peripheral euro-area debt markets last year.

In January, the nation’s bonds gave investors 1.4 percent, according to a Bloomberg Barclays Euro Aggregate Index, ahead of Italy and just behind Spain’s 1.5 percent. This comes after beating both countries with a 3 percent gain in 2018.

Portugal spread to Italy forecast to narrow to minus 144 basis points, says Citi

“Portugal could outperform further versus Italy in the coming weeks,” said Jamie Searle, a fixed-income strategist at Citigroup Inc. He cited a supportive issuance outlook, reinvestment of maturing debt by the European Central Bank and the prospects for further upgrades from rating companies.

Citigroup recommended investors buy Portugal’s 2.125 percent bond due October 2028 and sell Italy’s 2.8 percent bond maturing in December 2028. That is to target the yield spread between the two nations’ debt at minus 144 basis points, from around minus 124 basis points on Friday.

(Reuters) IMF cuts global growth outlook, cites trade war and weak Europe


DAVOS, Switzerland (Reuters) – The International Monetary Fund on Monday cut its world economic growth forecasts for 2019 and 2020, due to weakness in Europe and some emerging markets, and said failure to resolve trade tensions could further destabilize a slowing global economy.Swiss special police officer keeps watch from a rooftop, ahead of inauguration of World Economic Forum (WEF) in Davos, Switzerland, January 21, 2019. REUTERS/Arnd Wiegmann

In its second downgrade in three months, the global lender also cited a bigger-than-expected slowdown in China’s economy and a possible “No Deal” Brexit as risks to its outlook, saying these could worsen market turbulence in financial markets.

The IMF predicted the global economy to grow at 3.5 percent in 2019 and 3.6 percent in 2020, down 0.2 and 0.1 percentage point respectively from last October’s forecasts.

The new forecasts, released ahead of this week’s gathering of world leaders and business executives in the Swiss ski resort of Davos, show that policymakers may need to come up with plans to deal with an end to years of solid global growth.

“Risks to global growth tilt to the downside. An escalation of trade tensions beyond those already incorporated in the forecast remains a key source of risk to the outlook,” the IMF said in an update to its World Economic Outlook report.

“Higher trade policy uncertainty and concerns over escalation and retaliation would lower business investment, disrupt supply chains and slow productivity growth. The resulting depressed outlook for corporate profitability could dent financial market sentiment and further dampen growth.”

The downgrades reflected signs of weakness in Europe, with its export powerhouse Germany hurt by new fuel emission standards for cars and with Italy under market pressure due to Rome’s recent budget standoff with the European Union.

Growth in the euro zone is set to moderate from 1.8 percent in 2018 to 1.6 percent in 2019, 0.3 percentage point lower than projected three months ago, the IMF said.

The IMF also cut its 2019 growth forecast for developing countries to 4.5 percent, down 0.2 percentage point from the previous projection and a slowdown from 4.7 percent in 2018.

“Emerging market and developing economies have been tested by difficult external conditions over the past few months amid trade tensions, rising U.S. interest rates, dollar appreciation, capital outflows, and volatile oil prices,” the IMF said.Slideshow (2 Images)

The IMF maintained its U.S. growth projections of 2.5 percent this year and 1.8 percent in 2020, pointing to continued strength in domestic demand.

It also kept its China growth forecast at 6.2 percent in both 2019 and 2020, but said economic activity could miss expectations if trade tensions persist, even with state efforts to spur growth by boosting fiscal spending and bank lending.

“As seen in 2015–16, concerns about the health of China’s economy can trigger abrupt, wide-reaching sell-offs in financial and commodity markets that place its trading partners, commodity exporters, and other emerging markets under pressure,” it said.

Britain is expected to achieve 1.5 percent growth this year though there is uncertainty over the projection, which is based on the assumption of an orderly exit from the EU, the IMF said.

China’s economic growth hits 28-year low

The rare bright spot was Japan, with the IMF revising up its forecast by 0.2 percentage point to 1.1 percent this year due to an expected boost from the government’s spending measures, which aim to offset a scheduled sales-tax hike in October.

The IMF has been urging policymakers to carry out structural reforms while the global economy enjoys solid growth, with its managing director, Christine Lagarde, telling them to “fix the roof while the sun is shining”. The IMF has stressed the need to address income inequality and reform the financial sector.

However, as growth momentum peaks and risks to the outlook rise, policymakers must now focus on policies to prevent further slowdowns, the IMF said.

“The main shared policy priority is for countries to resolve cooperatively and quickly their trade disagreements and the resulting policy uncertainty, rather than raising harmful barriers further and destabilizing an already slowing global economy,” it added.

(P-S) Risks to the Global Economy in 2019 – Kenneth Rogoff


Over the course of this year and next, the biggest economic risks will emerge in those areas where investors think recent patterns are unlikely to change. They will include a growth recession in China, a rise in global long-term real interest rates, and a crescendo of populist economic policies.

CAMBRIDGE – As Mark Twain never said, “It ain’t what you don’t know that gets you into trouble. It’s what you think you know for sure that just ain’t so.” Over the course of this year and next, the biggest economic risks will emerge in those areas where investors think recent patterns are unlikely to change. They will include a growth recession in China, a rise in global long-term real interest rates, and a crescendo of populist economic policies that undermine the credibility of central bank independence, resulting in higher interest rates on “safe” advanced-country government bonds.1

A significant Chinese slowdown may already be unfolding. US President Donald Trump’s trade war has shaken confidence, but this is only a downward shove to an economy that was already slowing as it makes the transition from export- and investment-led growth to more sustainable domestic consumption-led growth. How much the Chinese economy will slow is an open question; but, given the inherent contradiction between an ever-more centralized Party-led political system and the need for a more decentralized consumer-led economic system, long-term growth could fall quite dramatically.1

Unfortunately, the option of avoiding the transition to consumer-led growth and continuing to promote exports and real-estate investment is not very attractive, either. China is already a dominant global exporter, and there is neither market space nor political tolerance to allow it to maintain its previous pace of export expansion. Bolstering growth through investment, particularly in residential real estate (which accounts for the lion’s share of Chinese construction output) – is also ever more challenging.1

Downward pressure on prices, especially outside Tier-1 cities, is making it increasingly difficult to induce families to invest an even larger share of their wealth into housing. Although China may be much better positioned than any Western economy to socialize losses that hit the banking sector, a sharp contraction in housing prices and construction could prove extremely painful to absorb.

Any significant growth recession in China would hit the rest of Asia hard, along with commodity-exporting developing and emerging economies. Nor would Europe – and especially Germany – be spared. Although the US is less dependent on China, the trauma to financial markets and politically sensitive exports would make a Chinese slowdown much more painful than US leaders seem to realize.1

A less likely but even more traumatic outside risk would materialize if, after many years of trend decline, global long-term real interest rates reversed course and rose significantly. I am not speaking merely of a significant over-tightening by the US Federal Reserve in 2019. This would be problematic, but it would mainly affect short-term real interest rates, and in principle could be reversed in time. The far more serious risk is a shock to very long-term real interest rates, which are lower than at any point during the modern era (except for the period of financial repression after World War II, when markets were much less developed than today).

While a sustained rise in the long-term real interest rate is a low-probability event, it is far from impossible. Although there are many explanations of the long-term trend decline, some factors could be temporary, and it is difficult to establish the magnitude of different possible effects empirically.

One factor that could cause global rates to rise, on the benign side, would be a spurt in productivity, for example if the so-called Fourth Industrial Revolution starts to affect growth much faster than is currently anticipated. This would of course be good overall for the global economy, but it might greatly strain lagging regions and groups. But upward pressure on global rates could stem from a less benign factor: a sharp trend decline in Asian growth (for example, from a long-term slowdown in China) that causes the region’s long-standing external surpluses to swing into deficits.

But perhaps the most likely cause of higher global real interest is the explosion of populism across much of the world. To the extent that populists can overturn the market-friendly economic policies of the past several decades, they may sow doubt in global markets about just how “safe” advanced-country debt really is. This could raise risk premia and interest rates, and if governments were slow to adjust, budget deficits would rise, markets would doubt governments even more, and events could spiral.

Most economists agree that today’s lower long-term interest rates allow advanced economies to sustain significantly more debt than they might otherwise. But the notion that additional debt is a free lunch is foolish. High debt levels make it more difficult for governments to respond aggressively to shocks. The inability to respond aggressively to a financial crisis, a cyber attack, a pandemic, or a trade war significantly heightens the risk of long-term stagnation, and is an important explanation of why most serious academic studies find that very high debt levels are associated with slower long-term growth.

If policymakers rely too much on debt (as opposed to higher taxation on the wealthy) in order to pursue progressive policies that redistribute income, it is easy to imagine markets coming to doubt that countries will grow their way out of very high debt levels. Investors’ skepticism could well push up interest rates to uncomfortable levels.1

Of course, there are many other risks to global growth, including ever-increasing political chaos in the United States, a messy Brexit, Italy’s shaky banks, and heightened geopolitical tensions.1

But these outside risks do not make the outlook for global growth necessarily grim. The baseline scenario for the US is still strong growth. Europe’s growth could be above trend as well, as it continues its long, slow recovery from the debt crisis at the beginning of the decade. And China’s economy has been proving doubters wrong for many years.

So 2019 could turn out to be another year of solid global growth. Unfortunately, it is likely to be a nerve-wracking one as well.