|Day's range||2.7200 - 2.8300|
(Bloomberg) -- Goldman Sachs Group Inc. agreed to pay $20 million to settle an investor lawsuit accusing traders at the bank, along with 15 other financial institutions, of rigging prices for bonds issued by Fannie Mae and Freddie Mac.As part of the settlement, disclosed Friday in a court filing, Goldman Sachs will cooperate with investors in their case against the other banks. The firm also agreed to make changes to its antitrust-compliance policies related to bond trading. A federal judge in Manhattan must approve the settlement before it can take effect.Investors sued after Bloomberg reported in 2018 that the U.S. Department of Justice was investigating some of the world’s largest banks for conspiring to rig trading in unsecured government bonds.Goldman Sachs has turned over 71,000 pages of potential evidence, including four transcripts of chat-room conversations among its traders and some from Deutsche Bank AG, BNP Paribas SA, Morgan Stanley and Merrill Lynch & Co., according to court papers filed Friday. The bank agreed to provide additional help, including deposition and court testimony, documents and data related to the bond market.Goldman Sachs isn’t the first to resolve the civil claims. In September, Deutsche Bank agreed to settle for $15 million. First Tennessee Bank and FTN Financial Securities Corp. agreed to a $14.5 million settlement later in September.Among the firms remaining as defendants in the case are Credit Suisse AG, Barclays PLC and Citigroup Inc.The case is In re GSE Bonds Antitrust Litigation, 19-01704, U.S. District Court, Southern District of New York (Manhattan).To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at firstname.lastname@example.orgTo contact the editors responsible for this story: David Glovin at email@example.com, Steve StrothFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Bank of America (BAC) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.
(Bloomberg) -- Apple Inc. received a rare bear call on Thursday, after the company was downgraded to sell from hold at Maxim Group, which cited the potential for lower iPhone revenue over the next year.Analyst Nehal Chokshi forecast weakness in both unit sales and average selling prices, citing an analysis of a proprietary survey.The survey data “lead us to expect 14% below consensus iPhone revenue in F2Q20 & 6% below for FY20,” the firm wrote to clients. It expects iPhone revenue will fall 5% in Apple’s fiscal 2020, and also anticipates that Apple’s operating profits will fall 2% year-over-year “as ongoing growth in services and wearables will only partially offset iPhone declines.”Maxim established a $190 price target on the stock, which implies downside of nearly 30% from Apple’s Wednesday record close of $264.47. Shares of Apple have climbed more than 50% from a June low and were little changed on Thursday.Sell ratings on Apple are somewhat rare, although the ranks of bears has been growing this year. According to data compiled by Bloomberg, Maxim is the sixth firm to recommend selling the stock, compared with the 27 firms with a buy rating and the 15 with a hold-equivalent view. The average price target on Apple shares is $255, or nearly 4% below current levels.The cautious view about the iPhone is also something of an anomaly on Wall Street. Earlier this week, Hon Hai Precision Industry Co. -- the assembler for most iPhones and iPads -- reported earnings that beat expectations, in what was seen as a proxy for solid iPhone 11 demand. Apple’s recent results also pointed to strong demand, and there is a good deal of optimism for 2020, when the Cupertino, California-based company is expected to release a 5G version of the product. Last week, BofA wrote that Apple shares still had “significant room for upside,” given the potential of the next product cycle.According to a Bloomberg MODL estimate, Apple is expected to ship 190.1 million iPhones over its 2020 fiscal year, with an average selling price of $750.71. In 2019, nearly 55% of Apple’s total revenue was derived from the iPhone, per data compiled by Bloomberg.(Updates stock to maket open in fourth paragraph)To contact the reporter on this story: Ryan Vlastelica in New York at firstname.lastname@example.orgTo contact the editor responsible for this story: Catherine Larkin at email@example.comFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.Japan’s economy slowed sharply in the third quarter as overall exports continued to fall amid trade tensions and a shopping splurge before a sales tax increase ran down stockpiles of goods.The deceleration comes as Prime Minister Shinzo Abe mulls the size of an economic stimulus package aimed at shielding Japan’s economy from the global slowdown and the impact of the tax hike. Abe may also need to consider the implications of Tokyo’s trade spat with Seoul, as a steep decline in Korean tourist numbers dragged on the economy.Gross domestic product grew at an annualized pace of 0.2% in the three months through September from the previous quarter, the Cabinet Office said Thursday, stuttering from revised growth of 1.8% in the April-June period. Economists had forecast a 0.9% expansion.Stronger business investment combined with robust consumer spending before last month’s tax hike helped prop up growth, though rush demand was weaker than expected. The softer jump in consumer spending before the tax increase suggests an expected contraction in the economy in the current quarter will be smaller than feared.“Given today’s data, I think fiscal spending of 3 trillion yen ($28 billion) would be sufficient for an economic package to keep the economy going,” said Takashi Shiono, economist at Credit Suisse Group AG. If the package turns out to be 4 trillion yen or more, that would likely prompt economists to revise up their forecasts for the economy, he added.Abe ordered the stimulus measures last week as Japan’s economy shows sign of losing momentum, hit by soft global demand amid the U.S.-China trade war, the tensions with Korea and natural disasters such as Typhoon Hagibis. Those factors put growth in a vulnerable spot, given concerns over a cooling of consumer spending after the tax hike.Japan’s Abe Calls for Extra Spending for Disaster Relief, GrowthWhile an influential member of Abe’s ruling party has said government spending of more than 6 trillion yen ($55 billion) is needed, the size and timing of the measures have yet to be announced.Fiscal measures will likely reduce the need for the Bank of Japan to add stimulus, barring a major deterioration of economic data or a slide in markets, though speculation rumbles on that the BOJ will lower its negative rate by January. The smaller jump in quarterly spending will also reassure the central bank, which has flagged the impact of the tax hike as a concern.The gain in private consumption was less than a quarter the size of the bump that came before the last sales tax hike in 2014. That suggests Japan’s economy will suffer less damage from the tax hike than five years ago, when a boom in consumption was followed by a bust that triggered a 7.3% economic contraction in the following quarter.Temporary PainFalling service exports was the dark spot on trade, outweighing a slight improvement in shipments of goods overseas. That reflected a sharp drop in spending by Korean tourists as they chose other destinations or stayed home amid the dispute with Japan, a point highlighted by economy minister Yasutoshi Nishimura. The spat between the two neighboring economies has its roots in a dispute over Japan’s colonial past.Still, economists said they didn’t expect the dispute with Korea to further depress growth in coming quarters given that exports of key items for Korea’s tech sector haven’t fallen in the way feared. That likely leaves tourist sentiment as a passing factor for Japan’s economy.“I think the slump in the number of Korean tourists is already bottoming out. This time, the figures showed the worst extent of the impact, but I don’t think things will get deteriorate from here,” said Atsushi Takeda, chief economist at Itochu Research Institute Inc.What Bloomberg’s Economists Say“The undershoot in 3Q GDP growth suggests the slump in 4Q due to the higher sales tax is likely to be less severe than expected. The slowdown was driven mainly by a drag from net exports as imports picked up on front-loaded demand.”\-- Yuki Masujima, senior economistClick here to read the report(Adds comments from economy minister, analyst.)\--With assistance from Tomoko Sato and Toru Fujioka.To contact the reporter on this story: Yoshiaki Nohara in Tokyo at firstname.lastname@example.orgTo contact the editors responsible for this story: Malcolm Scott at email@example.com, Paul Jackson, Jason ClenfieldFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- The bond market isn’t ready to concede that the economy is on a sustained upturn that will allow it to skirt a severe slowdown or even a recession. U.S. Treasuries followed most of the rest of the global government debt market higher Wednesday, providing a welcome respite from a sell-off that’s looking more like an adjustment of overextended positions than a referendum on faster growth.Sure, some of the gains in the bond market may be related to doubts about the U.S. and China actually agreeing to the first phase of a trade deal after some downbeat comments by President Donald Trump on Tuesday and subsequent reports of a “snag” on Wednesday. But what hasn’t been discussed as much is evidence that the recent slump in bonds had much to do with the reversal of positions by general investors who bought government debt in August, September and early October as recession speculation peaked. That was borne out in the latest monthly survey of global fund managers by Bank of America released on Tuesday. It showed being long Treasuries is no longer the world’s “most crowded trade,” with 21% of respondents saying so, down from a massive 41% in October. The new “most crowded trade” is long U.S. technology and growth stocks at 39%. And with yields on benchmark 10-year Treasuries having risen from 1.43% in early September to 1.87% on Wednesday, there’s reason to believe that bonds are more fairly valued. In fact, the latest yield is higher than the 1.71% that economists expect it to be at the end of the year and the 1.78% they estimate at the end of the first quarter 2020, according to data compiled by Bloomberg.Although the data show that the economy both in the U.S and globally may not be getting any worse, that’s far different from showing it’s getting much better and causing central banks to turn hawkish again. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook,” Federal Reserve Chair Jerome Powell told the Congressional Joint Economic Committee on Wednesday in Washington. “However, noteworthy risks to this outlook remain.”STOCKS HIT A TRADE SNAGThanks in part to Powell’s dovish comments, everything was going swimmingly in the stock market until the Wall Street Journal reported that trade talks between the U.S. and China had hit a snag, briefly causing equities to erase their gains. Citing people familiar with the matter, the paper said China is leery of putting a numerical commitment on agriculture purchases in the text of a potential agreement. The development seems to explain why Trump only a day earlier sounded unusually cautious about a trade agreement, saying only that it “could happen soon” and adding that if it didn’t, then he would just increase tariffs on Chinese goods. This is no small matter for the stock market, which has rallied to new highs largely on the notion that a “phase one” deal would be reached, eliminating a significant drag on the global economy. “A couple of weeks ago, it looked like that phase one deal looked all but certain. I think the market started to price in a really positive outcome on the trade side,” Jeff Mills, chief investment officer at Bryn Mawr Trust, told Bloomberg News. “Although I do think that progress is moving in a positive direction, I think it would be foolish for us to assume that we’re going to move completely in a positive direction in trade without any type of intermittent setbacks.” Although equities recovered in late trading, buying stocks in the hopes of a trade deal is proving to be a perilous strategy.DEFICITS (SOMETIMES) DON’T MATTERThe Bloomberg Dollar Spot Index rose for the seventh time in eight days on Wednesday to its highest in a month even though the U.S. government said its budget deficit widened in October, the first month of the fiscal year, as government spending increased and receipts declined. The shortfall grew about $34 billion, or almost 34%, from the same month last year, to $134.5 billion. This comes after the budget deficit for fiscal 2019 clocked in at just shy of $1 trillion at $984.4 billion. One benefit to having the world’s primary reserve currency is that such deficits don’t exactly matter as much as they would in a place such as Greece. Still, an out-of-control deficit and borrowing could reduce demand for the greenback and U.S. debt at the margins. The upshot is it looks as if the U.S. may not borrow as much as previously estimated to finance the deficit, thanks to recent moves by the Fed to buy Treasury bills to ensure reserves remain abundant. As a result, the strategists at JPMorgan Chase wrote in a report this week that net debt issuance to the public by the U.S. Treasury will be just $720 billion, down from a projected $1.27 trillion in fiscal 2019. That should provide some support to the dollar and, by extension, the U.S. government.ITALY GETS BYPASSEDOne place where the bond rally failed to make an appearance was Italy. Demand slumped to the lowest in 14 months at an auction Wednesday of seven-year notes, even with yields near the highest in three months. That suggests investors prefer countries with slimmer returns but lower credit risk and comes after a recent rise in yields in markets such as Germany and France, weakening Italy’s relative appeal, according to Bloomberg News’s James Hirai. Investors have been cooling toward Italy after political uncertainty and a recent revival in the fortunes of euro-skeptic politician Matteo Salvini. “Peripheral spreads become more vulnerable the higher core yields go as investors switch demand to safer core, semi-core bonds,” Peter Chatwell, head of European rates strategy at Mizuho International, told Bloomberg News. “Higher yields, without a broad based and structural rise in nominal growth, will pose a sustainability risk to Italy’s debt.” With $2.26 trillion of government debt, Italy has more bonds outstanding than all but the U.S., China and Japan, data compiled by Bloomberg show. Italy also has one of the highest debt-to-gross domestic product ratios at 131.5%, compared with 82.3% in the U.S. So when Italy has a poor debt auction, it’s worth paying attention.HOT COCOAChocolate lovers may soon have to dig a little deeper in their pockets to afford their favorite indulgence. Cocoa prices have staged an impressive rally in recent months, approaching an almost 18-month high in New York on Wednesday. The gains come amid speculation that near-term supplies are getting tighter, according to Bloomberg News’s Agnieszka de Sousa. The clearest sign that traders expect tighter supplies can be seen in the prices of so-called nearby contracts, which have moved into a premium compared with later deliveries in a market structure known as backwardation and a sign of tightening supplies. “Traders are blaming the upsurge on concerns about a shortage in the short-term availability of cocoa beans,” Carsten Fritsch, an analyst at Commerzbank AG, said in a note. Still, it’s not clear why short-term supplies should be so tight as shipments in top grower Ivory Coast are still in full swing and higher than a year earlier, he said. There are also some concerns that a new $400-a-ton premium for supplies from West Africa, the world’s top producing region, may affect the way cocoa is traded on the exchanges. The new pricing system could mean that fewer supplies end up getting delivered to warehouses monitored by ICE Futures U.S., driving a rally in the market, according to NickJen Capital Management.TEA LEAVESThere is a good chance that talk of a global recession could heat up again as soon as Thursday. That’s when Germany — Europe’s largest economy — reports on GDP for the third quarter. The median estimate of economists surveyed by Bloomberg is for a contraction of 0.1%, which would mark a technical recession because the economy shrank by the same amount in the second quarter. But as Bloomberg Economics points out, whether the German economy records the shallowest of recessions or escapes one by the narrowest of margins isn’t important; what’s important is how long the dip will persist.DON’T MISS FOMO Doesn’t Cut It as a Buy Signal for Stocks: John Authers The World Is Being Inundated With Financial Capital: Noah Smith Jamie Dimon Is Wrong About Negative Rates: Ferdinando Giugliano The IEA’s New Energy Outlook Comforts No One: Liam Denning Trump’s Economy Complicates Democrats’ Message: Karl W. SmithTo contact the author of this story: Robert Burgess at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Morgan Stanley is one of the most bearish -- and bullish -- on Saudi Aramco’s valuation.In a presentation for investors, Morgan Stanley bankers ran through several valuation models that gave a spread of about $1 trillion between the most bearish and bullish scenarios.For example, based on a dividend discount model the spread ran from $1.06 trillion up to $2 trillion. The base case was $1.52 trillion, according to the presentation seen by Bloomberg. A spokesman for Morgan Stanley declined to comment.Morgan Stanley isn’t alone in struggling to pinpoint exactly how much Aramco is worth. Valuation has been a sticking point since the IPO was first touted in 2016. Aramco faces a delicate balance as it seeks to push its IPO valuation as close as possible to Crown Prince Mohammed Bin Salman’s $2 trillion -- a figure that’s been met with skepticism from many professional investors -- while making sure it’s attractive to potential Saudi buyers.Range of some of the banks with the IPO mandate:Another Morgan Stanley scenario shows a valuation of between $1 trillion and $2.2 trillion, according to the presentation. A third model shows a range of $1.07 trillion and $2.5 trillion.Among 16 banks that offered a valuation, the range in estimates ran from $1.1 trillion at the bottom right up to $2.5 trillion, a number that even the crown prince might find optimistic. The midpoint was $1.75 trillion, according to people who’ve reviewed all the research.This $1.4 trillion spread between the top and low end of valuations is more than the combined market capitalizations of Exxon Mobil Corp., Royal Dutch Shell Plc and Chevron Corp, the world’s three largest publicly listed energy companies.Ultimately, investors will decide. The price range for the IPO will be announced on Nov. 17 and bookbuilding for the offering will start the same day. Retail investors will have to bid at the top end of that range and the company will set the final price for all investors based on institutional investors’ book-building process that ends on Dec. 5.To contact the reporters on this story: Archana Narayanan in Dubai at firstname.lastname@example.org;Matthew Martin in Dubai at email@example.comTo contact the editors responsible for this story: Stefania Bianchi at firstname.lastname@example.org, Shaji MathewFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- According to the Thundering Herd, the herd is thundering back into risk-taking. And the greatest spur leading it on has little to do with politics, or the economy, or the corporate sector. Instead, it is driven by that most basic human emotion: fear of missing out. President Donald Trump’s much-heralded New York speech on Tuesday provided almost nothing that was newsworthy, but it did give him an opportunity to gloat — quite accurately — about the state of the stock markets. They have been on a tear, with most of the key U.S. benchmarks breaking out of the ranges in which they have been stuck since early last year, to set new highs. They have done this even though, as the president never ceases to complain, the Federal Reserve raised rates repeatedly last year, before reversing much of that move over the last three months. The problem is to identify just why stock markets have suddenly strengthened. It isn’t because of an end to the trade war. Despite hopes, Trump failed to roll back any tariffs in his speech, or offer any promises on when a deal with China might be signed. His surprise announcement of new tariffs on Aug. 1 plainly forced the S&P 500 Index lower; nothing that has happened on the trade front since then would justify the 9% rally in stocks since markets troughed after that news hit.It is also hard to attribute the rally to the economy. When stocks took a dive late last year, they did so against a background of nasty surprises in the U.S. data, as measured by Bloomberg’s U.S. economic surprise index. In the summer, that data started to surprise much more positively — but stocks were becalmed during that period. The rally has only come since the economic surprise indexes stalled, in mid-September. The S&P’s rally also roughly coincided with the season of corporate earnings announcements for the third quarter, which came in 3.8% ahead of expectations, according to FactSet. But earnings almost always exceed expectations, thanks to the games played by corporate investor relations departments. Over the last five years, they have on average beaten forecasts by more — 4.9%. Further, third-quarter earnings were accompanied by such downbeat assessments of the future that the consensus estimate for earnings growth for the next 12 months has actually gone negative, according to SocGen Quantitative Research. And yet, despite all of this, there is no doubt that market sentiment has turned on a dime. In mid-summer, the U.S. yield curve inverted, a classic recession signal, and many braced for an economic downturn. That’s over. According to Bank of America Merrill Lynch’s latest global survey of fund managers, we have just witnessed the greatest month-on-month improvement in economic sentiment since the survey began in 1994. A month ago, a net 37% of fund managers expected the global economy to deteriorate over the next 12 months; now, a net 6% expect an improvement.What could possibly be behind this? The president may have at least nodded at the answer with his claim that that the U.S. indexes would be 25% higher now if the Fed had negative rates. This is a dubious assertion, as only disastrous economic conditions would prompt the U.S. central bank to take such desperate measures.But that sudden improvement in investors’ sentiment did indeed come as the Fed reversed its policy of five years, and started to expand its balance sheet again. It did this to restore liquidity to the repo market, where banks raise their short-term funding, and the Fed has protested repeatedly that this is not a return to “QE” asset purchases to boost the economy. For all these protestations, the market has treated it as a turning point. Added to this, as mentioned, there is the age-old fear of missing out. The end of the year is coming, when investment managers will be judged on their performance. Those who are behind have an incentive to clamber into the market now, while there is still time. And the rally has been unbalanced, with most gains going to a small group of large U.S. stocks. If the stars align for a broad recovery, there is ample potential for big rallies by smaller companies, and by stocks outside the U.S. The rest of the world has joined in this rally, but there is still a long way to go before they catch up — and nervous investment managers are conscious of this. It is tempting to fit a narrative of economic and trade optimism to the rebound in appetite for risk. But sadly, this looks a lot like a return to the pathology that has dominated throughout the post-crisis decade: markets await free money from central banks, and fear missing out when that money arrives.To contact the author of this story: John Authers at email@example.comTo contact the editor responsible for this story: Beth Williams at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.John Authers is a senior editor for markets. Before Bloomberg, he spent 29 years with the Financial Times, where he was head of the Lex Column and chief markets commentator. He is the author of “The Fearful Rise of Markets” and other books.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Investing.com - U.S. futures fell on Wednesday as U.S. President Donald Trump continued to keep markets guessing about when and if a trade deal with China will be reached, while testimony from Fed Chair Jerome Powell will be the highlight of the day.
(Bloomberg Opinion) -- Markets were widely anticipating that President Donald Trump would use his speech to the Economic Club of New York on Tuesday to trumpet progress on reaching the first phase of a trade deal with China. Instead, all he said was that an agreement “could happen soon.” That’s not exactly the language markets wanted to hear, which helps explain why equity markets spent much of the rest of the day erasing the bulk of their gains.The S&P 500 Index is now up 23.3% for the year, and whether the rally extends or not is largely dependent on the U.S. and China showing progress in trade talks. But astute market watchers such as Medley Global Macro Managing Director Ben Emons note that Trump’s language toward the talks has become more cautious of late. He’s gone from describing them as “going very well” to saying they are “moving along” to Tuesday’s “could happen soon.” As linguists know, “could” is one of the weaker verbs in the English language because theoretically anything “could” happen. It’s certainly no match for “may.” Emons pointed out in a research note that there was also a softening in Trump’s tone toward the trade talks in April, when the trade hawks gained his ear. The S&P 500 tumbled 6.58% the next month. Some would say this is just semantics, but the ebb and flow of the trade war is the primary driver of markets. The latest monthly survey of global fund managers by Bank of America released on Tuesday showed that 39% of respondents said it’s the biggest risk facing markets, followed by 16% who fear a bond bubble, 12% who cite monetary policy impotence and 11% who said a slowdown in China is the biggest worry.So, does Trump’s language suggest there will a repeat of the May episode for stocks? It’s impossible to know, but the stakes are higher. The Bank of America survey shows that allocations to global equities are higher and average cash holdings are lower, falling to the lowest since June 2013 at 4.2% of assets.NEGATIVE RATES? NO THANKSTrump also took a shot at the Federal Reserve, saying it was hurting the U.S. by not copying other central banks in deploying negative interest rates. On the face of it, getting paid to borrow seems appealing. But that ignores the fact that countries with negative rates have deep economic problems, and many central bankers are finding that they do more harm than good. One of those countries is Japan. Its central bank is actively trying to steepen its yield curve, pushing yields on long-term government bonds back above zero. But instead of worrying what this might do to Japan’s economy, the country’s stock market has been on a tear. The benchmark Topix index is up 15.7% since late August, outperforming the MSCI All-Country World Index, which is up just 8.06% in the same period. The biggest beneficiary of positive rates is the banking system, which is why the Topix bank index has done better, surging 19%. More economists say negative rates don’t really increase borrowing and certainly don’t promote lending. The International Monetary Fund forecast last month that Japan’s economy will expand just 0.9% this year, compared with 2.4% for the U.S. This change in sentiment toward negative rates by central banks is one reason the global government bond market has softened, with yields as measured by the Bloomberg Barclays Global Aggregate Treasuries Index having risen from a three-year low of 1.17% on average in early September to 1.48% as of Monday.COMPLACENCY IS IN THE EYE OF THE BEHOLDERAnother revelation from the Bank of America survey is that fears of a looming global recession have largely vanished. A net 6% of those polled expect a strong economy next year, an increase of 43 percentage points from the October survey and the biggest monthly jump on record. Combine that with the largest allocations toward equities in a year and the declining cash balances, and it’s logical to ask whether investors have become too complacent. The CBOE Volatility Index, commonly known as the VIX, is back down to some of its lowest levels of the year, which is to say it’s not far from its record lows. Nicknamed “the fear gauge,” the measure tracks implied volatility in the stock market. The lower it goes, the less “fear” there is perceived to be among investors. But those who say this is a sure sign of complacency fail to acknowledge the expanded role of central banks in markets. It’s no coincidence that the rally in equities that gathered steam in October came as the collective balance-sheet assets of the Fed, European Central Bank, Bank of Japan and Bank of England rose by 0.6 percentage point to 35.7% of their countries’ total gross domestic product in October, according to data compiled by Bloomberg. The increase from September was the most for any month since March 2017. At the same time, a custom index measuring M2 figures for 12 major economies including the U.S., China, euro zone and Japan shows their aggregate money supply surged by $846.1 billion in October, the most since June. Central banks clearly have put a floor under markets, which should reduce volatility. LATIN AMERICA IS DOWNLatin America is quickly turning into the sick man of emerging markets. The economic problems in Venezuela and Argentina were already well known when protests swept Chile last month. Now there’s strife in Bolivia, resulting in violence, military intervention and the resignation of President Evo Morales, who was granted asylum in Mexico. But that move has caused friction between the U.S. and Mexico, which reversed a pledge not to intervene in affairs of other countries. That may have been a big reason Mexico’s peso sank the most in three months Tuesday, along with a Fox Business report that the U.S. may impose tariffs on autos and auto parts from Mexico. The Bloomberg JPMorgan Latin America Currency Index is down 2.84% since Nov. 1, sliding much further than the 0.43% drop in the MSCI EM Currency Index. On top of that, dollar-denominated bonds issued by borrowers in Latin America have lost 3.25% of their value since early August, according to Bloomberg News’s Paul Wallace. That’s the worst performance among emerging markets, according to JPMorgan Chase & Co.’s indexes. Of 10 emerging markets with the worst-performing dollar debt in November, half are from Latin America. The IMF last month said it expected the region’s economy to rebound next year, expanding by 1.8% compared with 0.2% this year, but the latest developments rightly have investors questioning whether those forecasts need to be downgraded significantly.TOO LITTLE TOO LATEThe optimism in recent weeks that perhaps the U.S. and China were on the cusp of some trade detente has provided some support to the long-suffering agriculture market. One raw material that has done especially well is milk. Class III futures, which represent milk used to make cheddar cheese, are up about 45% in 2019 and heading for the best year since 2007. Prices are already the highest since 2014. Alas, the rally wasn’t enough to save top U.S. milk processor Dean Foods Co., which has filed for Chapter 11 bankruptcy protection. Dean says it’s the largest U.S. processor of fresh fluid milk and other dairy products, but the company has been squeezed by fierce competition and shrinking profit margins, according to Bloomberg News’s Lydia Mulvany and Katherine Doherty. This is potentially significant from a political standpoint. Dairy is especially important to Wisconsin, where Dean Foods has operations. It’s a state Trump narrowly won in the last election and one many political scientists say he needs to hold on to if he hopes to win a second term in 2020. But the struggles of such a high-profile agriculture company could have a large number of those voters questioning whether Trump’s trade strategy is the right one for their industry.TEA LEAVESNow on to Jerome Powell. The Federal Reserve chair begins two days of Congressional testimony on Wednesday, providing lawmakers with an update on where the central bank sees the economy going. It won’t be an easy discussion. Although the U.S. stock market continues to set records, the Federal Reserve Bank of Atlanta’s widely followed GDPNow index, which aims to track the economy in real time, suggests growth of just 1% this quarter. The markets and the economy have clearly diverged. And while there is always the chance for a surprise, Powell will most likely repeat what he said on Oct. 30 after the Fed cut interest rates for the third time since July, which is that monetary policy and the economy are in a good place and that it would require a “material reassessment” of the outlook to justify additional monetary easing.DON’T MISS Even the Fed's Own Research Shows Rates Are Too High: Tim Duy Low Returns Stoke Investor Appetite for Risk: Barry Ritholtz Nobel Winners Offer an Antidote to Donald Trump: Mark Whitehouse Millennials on Cusp of Middle Age Missed Their Boom: Noah Smith Matt Levine’s Money Stuff: If You Own Everything, Why Merge?To contact the author of this story: Robert Burgess at email@example.comTo contact the editor responsible for this story: Daniel Niemi at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Some half of all jobs worldwide - or 800 million total jobs - could be at risk of becoming obsolete by 2035 due to the rise of automation. That’s the assessment from a new report written by Bank of America Merrill Lynch analysts.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.Germany through the worst of its downturn, peace in the trade war and green shoots for the global economy next year.It’s what investors have long dreamed of. Now, they’re starting to believe it.Confidence in Germany’s economy has risen to a six-month high, while a Bank of America survey showed a record surge in optimism about the global outlook. Stocks have rallied and the U.S. 10-year yield is back up near 2%, after recession fears drove it well below that level this summer.Part of the uptick may reflect hopes that the U.S. and China are closer to a trade accord, while economic surveys are offering signs that the manufacturing-led slowdown has troughed. More recently, there’s been news that the Trump administration may delay a decision to slap tariffs on European cars -- a welcome development for Germany’s auto industry.The improvement in the ZEW -- which dropped to a near eight-year low over the summer -- comes just two days before data are expected to show Germany sank into a technical recession in the third quarter. But that’s effectively old news, and the improvement in forward-facing indicators means many are looking past it.Growth in Europe’s largest economy will probably resume this quarter, though remain at a very sluggish pace well into 2020.But the sense of hope is helping global equities, with the S&P 500 and Germany’s DAX among indexes near record highs. Benchmark Treasury yields have risen 25 basis points this month, setting them toward a break above 2%. Capturing the mood, the Bank of America survey also said investors sold more defensive stocks, such as utilities and staples, while turning to assets sensitive to the economic cycle, like value shares, financials and equities in the euro area.“Of course, it is early days. The hard data is still bad,” said Florian Hense, an economist at Berenberg. “But if genuine economic data start to confirm the message from markets and financial analysts, we can usually be reasonably confident that better times are ahead again.”The outlook is murky in parts. Not least because of the U.K. election next month and the ongoing, though reduced, risk of a no-deal Brexit. U.S. President Donald Trump, who speaks in New York later, could also derail the optimism if he pushes back on hopes about the chance of a U.S.-China trade deal.Any near-term relief on auto tariffs don’t necessarily mean a change the broad trend of trade tensions that will continue to weigh on global growth, according to HSBC global chief economist Janet Henry. HSBC sees the U.S. expansion slowing to 1.7% in 2020, below the 1.8% Bloomberg consensus.“We are operating in a different world of ongoing de-globalization trends,” she said on Bloomberg TV on Tuesday. “The bigger picture is going to be with us in the coming years.”To contact the reporter on this story: Fergal O'Brien in Zurich at email@example.comTo contact the editors responsible for this story: Craig Stirling at firstname.lastname@example.org, Michael Hunter, Sid VermaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Major Hong Kong banks spent their morning telling employees to commute carefully, and by afternoon began urging them to consider going home as police lobbed tear gas at protesters on the streets outside.“Your safety is our top priority,” HSBC Holdings Plc wrote to staff around lunchtime, inviting them to use their judgment in leaving and noting the firm will remain open. “Please take laptops home if you are able to work remotely.”Most of the city’s major investment banks and other financial firms tried to operate normally, though some lenders closed branches near flareups as a precaution, after the death of a student fueled a surge of unrest. For much of Hong Kong, the morning presented one of the tensest commutes in months as demonstrations closed some subway stations. As employees arrived at JPMorgan Chase & Co.’s main offices, police in riot gear could be seen gathering across the street.Pro-democracy demonstrations escalated further after an officer shot two protesters. By lunch, television footage showed workers in business suits and skirts covering their faces and flocking into the Landmark Mall in Central -- an area flanked by bank towers -- to escape tear gas. Meantime, banks sent workers fresh waves of emails urging them to be careful.Bank of America Corp. and Goldman Sachs Group Inc. also gave employees the option of heading out, and UBS Group AG is planning a similar move, according to people with direct knowledge of the internal conversations.“Ongoing public events are impacting travel and may continue in the coming days,” HSBC said in its message to staff. “You are encouraged to make plans to leave the office early and under safe conditions if you foresee disruption to your commute.”BNP Paribas SA promised workers it would monitor the situation and alert them to new developments. Employees there can confer with managers to decide what to do.“Continue to exercise care and caution whilst traveling to or around our office premises,” the bank cautioned them in a memo. “Please also remember to carry your laptops to and from work on a daily basis.”\--With assistance from Bei Hu.To contact the reporters on this story: Alfred Liu in Hong Kong at email@example.com;Cathy Chan in Hong Kong at firstname.lastname@example.orgTo contact the editors responsible for this story: Jun Luo at email@example.com, David ScheerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The Financial Industry Regulatory Authority said Bank of America's Merrill Lynch unit will pay at least $4 million and two Raymond James units will pay $8.03 million, after failing to ensure that financial advisers properly took fees into account when recommending investments in so-called 529 savings plans. FINRA said the supervisory failures caused Merrill and Raymond James customers, especially those with young children many years away from college, to incur higher fees than they should have.
(Bloomberg) -- For all its political woes and still-stale economy, Brazil is standing out to investors as an unlikely island of stability as trouble brews across Latin America.Money managers from Pacific Investment Management Co. and BlackRock Inc. are among those bullish on the nation’s assets. The main reason is the extensive reform agenda of the government, which after successfully overhauling a burdensome pension system now plans to tackle everything from a notoriously complicated tax system to a bloated state structure. The central bank has added to the optimism by slashing interest rates to a record as inflation runs below the target.Listen to the Speaking of EM podcast on Brazil here.It’s a very different picture elsewhere in the region, which has been engulfed by growing political turmoil. Over the past few weeks, Chile and Ecuador declared states of emergency amid violent protests, Argentina tightened capital controls after the election of Alberto Fernandez, Peru’s President shut the congress, and clashes erupted in Bolivia after Evo Morales was elected for a fourth term as president.“Brazil is certainly standing out,” said Axel Christensen, the chief strategist for Latin America at BlackRock in New York. The prospect of tax, federal and administrative reforms, combined with low rates, are all boosting investor appetite for the country, he said.The upbeat mood is clear in asset moves, which have mostly shrugged off the infighting in the ruling party and controversies surrounding President Jair Bolsonaro. The Brazilian real was the best performer in the region last month and stocks are trading at an all-time high. The main exchange-traded fund dedicated to the country’s stocks, the $9.4 billion iShares MSCI Brazil ETF, just had its biggest monthly inflow this year, and country’s risk as measured by five-year credit default swaps is at the lowest level since 2013 -- a time when Brazil’s debt was still rated investment grade.“While Brazil is no stranger to political turmoil, its political class has started to understand the need to shield the economic agenda from political noise,” said Ismael Orenstein, a money manager at Pimco in Newport Beach who’s overweight Brazil’s local assets. “We are also starting to see some green shoots on the activity and credit side that make us more positive on the outlook for economic growth and assets such as the currency and corporate credit.”This week, Brazil’s government announced a series of economic measures, with officials outlining plans to halt minimum wage increases, decentralize the budget and resume privatization of the utility Eletrobras. The country is also holding what may be the world’s priciest-ever sale of oil prospects.After years of growth disappointments, some analysts are becoming more bullish on Brazil’s economy, saying 2020 is the year the country will finally deliver a positive surprise. They are betting record low borrowing costs will boost lending and consumer spending, and the conclusion of the pension reform after years of debate will give foreign investors more confidence to put money in the country.Progress in the reform agenda, low inflation and monetary easing are already lifting confidence levels and this could indicate a sustained recovery in economic activity, Bank of America Merrill Lynch economists led by David Beker wrote in a Wednesday report. They recently revised up their growth forecast for next year to 2.4% from 1.9%, above the market median of 2%.“Getting pension reform passed is going to be big in the short and long term, and the government still seems serious and optimistic about plans to privatize more assets,” said Brendan McKenna, a currency strategist at Wells Fargo Securities LLC in New York.His optimism doesn’t spread to all the rest of the region. McKenna says he has become more worried about Chile, as the cancellation of the Apec Summit in Santiago “admits some type of defeat,” while Argentina is “still a mess.” He’s more bullish on Colombia, where he says the economy is doing relatively well and inflation is low and somewhat stable.In Mexico, meanwhile, bearish views are mounting. Morgan Stanley on Wednesday recommended taking profit in the country’s assets as the risk of a fiscal slippage, unlikelihood of a growth pick up, heavy positioning and stretched valuations mean the returns are no longer compensating the risk. They said at current prices they prefer to hold Brazil’s sovereign bonds over Mexico’s, especially in the 10 to 30 year space.“Brazilian assets have further upside, mainly due to the impact of lower rates, privatization and micro economic reforms,” said Gustavo Medeiros, the deputy head of research at Ashmore Group Plc in London. “It won’t be a straight line, but the case for a sustainable rebound on earnings and subsequently investment and GDP growth is there.”(Adds economic measures and oil auction in seventh paragraph, analysts comments in ninth and 12th paragrahs.)To contact the reporter on this story: Aline Oyamada in Sao Paulo at firstname.lastname@example.orgTo contact the editors responsible for this story: Carolina Wilson at email@example.com, Julia Leite, Philip SandersFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The public platform, IBM's first industry-specific cloud, is designed to meet the high regulatory, security and resiliency standards required of the financial services industry. "By setting a standard that addresses the concern of hosting highly confidential information, we aim to drive the public cloud to a safety level that is unmatched,” said Cathy Bessant, chief operations and technology officer of Bank of America. Bank of America has focused on its internal cloud computing capabilities.
The Zacks Analyst Blog Highlights: Bank of America, Fannie Mae, JPMorgan, Citigroup and Wells Fargo
Banks' worries will likely ease as the HUD issues a MOU with the DOJ for the appropriate use of the False Claims Act in relation to violations by FHA-insured mortgage lenders.
Bank of America today announced that it is accelerating the move from its current U.S. minimum hourly rate of pay of $17 to $20 by the end of the first quarter of 2020, more than a year earlier than originally planned. “As part of our commitment to being a great place to work, we are saying thank you, and sharing our success with our teammates who serve our clients and communities every day,” said Sheri Bronstein, chief human resources officer at Bank of America. Bank of America is committed to supporting a competitive rate of pay, and has made regular increases to its minimum wage over many years.