ANZ announces major banking takeover

MELBOURNE, Australia - Australian banking giant ANZ announced Monday a Aus$4.9 billion (US$3.3 billion) deal to swallow regional lender Suncorp Bank -- one of the biggest takeovers in the sector for more than a decade.

The takeover of the Queensland-based lender would push ANZ up one spot to make it the nation's third-largest mortgage provider.

But critics warned the deal -- reportedly the largest in Australian banking since 2008 -- would cut competition and concentrate the power of Australia's big four banks, if regulators allow it to go ahead.

ANZ chief executive Shayne Elliott described it as a "cornerstone investment" and a show of confidence in Queensland.

"We know there will rightly be questions from government and regulators about the competition aspects of this transaction," Elliott said in a statement.

"As the smallest of the major banks, we believe a stronger ANZ will be able to compete more effectively in Queensland offering better outcomes for customers," he added.

Rival Queensland lender Heritage Bank's chief executive Peter Lock warned that the takeover of Suncorp Bank would "simply increase the power of the major banks in Australia".

ANZ said it planned to raise Aus$3.5 billion to pay for the deal by offering extra stock to existing shareholders. The balance would be financed with existing capital.

The bank said trading in its shares in Australia and New Zealand had been suspended until Thursday to give institutional investors time to act on its offer.

The takeover, which is subject to approval by the Australian federal treasurer and competition regulators, was expected to be wrapped up in the second half of 2023, it said.

Agence France-Presse

German prosecutors raid Deutsche Bank in 'greenwashing' probe

German prosecutors raided Deutsche Bank offices in Frankfurt on Tuesday as part of a probe into allegations that the financial institution was marketing investment products as "greener" than they actually were.

Investigators were carrying out raids "on suspicion of investment fraud" at the offices of the bank and its asset management subsidiary DWS, Frankfurt prosectors said in a statement.

The searches related to "greenwashing accusations" at DWS, Deutsche Bank said in a statement.

DWS said it would "work together with all relevant regulators and authorities", according to the statement.

The accusations were based on "statements made by a former DWS employee" who became a whistleblower for US securities regulators in 2021, the prosecutors said.

Investigators had found "sufficient indications" that ESG (environmental, social and governance) standards were only taken into account "in a minority of investments" contrary to information in DWS's "sales prospectus", they said.

The probe was targeting "as yet unknown" employees at DWS, prosecutors said.

The asset manager is already under investigation by federal prosecutors in the US on suspicion of lying about the scale of their green investments.

ESG products have become a major asset class as financial institutions seek to bring their portfolios in line with global climate targets.

US securities regulators last week put forward proposals to tighten disclosure requirements on the rising number of ESG investments.

Seeking to address the problem of "greenwashing", the Securities and Exchange Commission said the measure was meant to avoid cases where a fund "could exaggerate its actual consideration of ESG factors."

Agence France-Presse

Car dealers reeling from virus urge banks to loosen auto loan requirements

MANILA - An auto dealers' group said Monday that strict bank requirements for auto loans are hurting their business as they try to recover from almost 3 months of lockdown. 

The Philippine Automotive Dealers Association (PADA) said its members had no revenue during the enhanced community quarantine that shut showrooms. 

Auto dealers that reopened are finding it more difficult to sell cars as banks have become stricter in assessing and approving auto loans, said PADA president Willy Tee Ten. 

“We’d like to request sana that banks become more lenient when it comes to allowing buyers to loan from the banks,” Ten said in an interview with Teleradyo. 

“Kung di nila pautangin yung buyer wala rin kaming benta,” he said. 

(If they won’t give loans to buyers, we won’t be able to sell anything.)

Despite getting no revenue during the lockdown, auto dealers still needed to pay their rent, including accumulated interest on their dues, as well as the salaries of their employees. Ten said auto dealers also needed to pay banks for loans made to acquire their inventory, which they are now struggling to sell. 

Ten estimated that the auto dealership industry directly employs around 35,000 workers. 

In an interview last month, Ten said that his firm, Autohub Group of Companies, which sells brands such as Mini, Rolls Royce, Lotus, and Piaggio, had to lay off some workers because of the impact of the lockdown on the business. 


BANGKO SENTRAL: NOT OUR CALL

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said that it couldn't force banks to loosen their requirements for loan approval. 

Diokno said that while he understands the concerns of auto dealers, banks also need to make sure that their loans will get repaid by carefully screening applicants. 

“Hindi namin pwedeng i-pwersa yung bangko, diskarte ng bangko yan,” Diokno said in another interview on Teleradyo. 

(We can’t force banks, it’s their call.)

Diokno said the central bank implemented several measures to encourage banks to increase lending. He pointed to the 125 basis-point cut in the BSP’s key rate, as well as the 200 basis-point cut in banks’ reserve requirement. 

Philippine banks have ample capital and are well-positioned to withstand possible shocks from the pandemic because of low bad loan ratios, he said.

news.abs-cbn.com

LIST: Philippine banks extending payment due dates to help Filipinos in time of COVID-19

MANILA - Major banks in the Philippines have announced a 30-day extension for credit card, mortgage, and loans for eligible customers to help Filipinos during the Luzon-wide COVID-19 lockdown.

SECURITY BANK

• Payments for credit card, home, personal, auto, business mortgage or business express loans are extended by 30 days for qualified customers
• Eligible customers are those with current payment status and with a payment due date of March 16 to April 14 

BANK OF THE PHILIPPINE ISLANDS

• A 30-day grace period will be given to qualified customers for credit card and other types of loans "to help ease the burden during these trying times," the bank said.
• Eligible customers will be notified

UNIONBANK

• Qualified customers will be given a 30-day payment extension from the original due date with no late fees
• Fees for Instapay transactions are also waived until April 14

EASTWEST BANK

• Payments for credit card, auto, home, personal and mortgage loans will be extended for 30-day for eligible customers
• Qualified clients will be notified

source: news.abs-cbn.com

Global stocks, oil plunge as Fed virus move fails to ease fears

LONDON - Stock markets and oil prices went into freefall Monday as interest rate cuts and fresh stimulus measures by central banks failed to lift confidence, with analysts warning that the Federal Reserve may have reached the limits of its power to fend off recession as the coronavirus spreads.

Brent North Sea oil plunged more than ten percent to a four-year low, as a price war between major producers Saudi Arabia and Russia added to sliding crude demand caused by the virus.

The euro surged one percent against the dollar after the Fed on Sunday slashed borrowing costs to almost zero -- its second emergency cut in less than two weeks. 

The US central bank also unveiled a massive asset-buying programme, similar to measures put into place during the global financial crisis more than a decade ago.

The Bank of Japan joined in on Monday, saying it would ramp up its bond-buying programme.

New Zealand's central bank also slashed rates to record lows in an attempt to cushion the economic blow, while the People's Bank of China has injected vast sums into financial markets to ease liquidity worries.

In joint action coordinated with the European Central Bank, Bank of England, Bank of Japan, Bank of Canada and the Swiss National Bank, the Fed moved to counteract global "dollar funding pressures" according to its boss Jerome Powell.

But traders were left unimpressed, with the virus showing no sign of letting up, while the head of the World Health Organization chief Tedros Adhanom Ghebreyesus said it was impossible to tell when it would peak globally.

With G7 leaders set to hold crisis videoconference talks later Monday, IMF chief Kristalina Georgieva called Monday for global governments to work together to provide massive spending as in the 2008 financial crisis to help the economy withstand the damage from the coronavirus pandemic.

Trading was halted on Wall Street just after the opening bell, with the Dow dropping nearly 10 percent. 

In afternoon trading in Europe, Paris 10.7 percent, Milan 10.9 percent, Madrid 11.3 percent, Frankfurt 9.5 percent and London 7.9 percent.

Airlines and tourism groups were the biggest fallers after slashing capacity, with TUI down by nearly a third and British Airways-parent IAG crashing 28 percent.

The car sector also slid as carmakers Fiat Chrysler and Peugeot-Citroen said they were halting production.

"While these (central bank) moves may go some way to easing any potential blockages in the plumbing of the financial markets, they won't adequately compensate for the upcoming economic shocks that are about to come our way," said CMC Markets analyst Michael Hewson.

The scale of the crisis was laid bare by data showing Chinese industrial production for January and February shrank 13.5 percent, the first contraction in around 30 years.

Meanwhile, manufacturing activity in New York state fell to its lowest level since 2009, according to the New York Federal Reserve Bank's monthly industry survey.

Equity markets continue to be whipsawed by the disease, which has now infected almost 170,000 people and killed more than 6,000 with several countries going into lockdown as Europe becomes the new epicentre of the outbreak.

ASIA MELTDOWN

Sydney's stock market led losses in Asia-Pacific, tumbling 9.7 percent in its worst daily drop on record, while Manila shed nearly eight percent and Bangkok and Mumbai dropped more than five percent.

Hong Kong, Singapore, Taipei and Jakarta all lost more than four percent. Wellington and Seoul were more than three percent off.

Shanghai tumbled 3.4 percent after the release of the industrial production data, which came a week after news that Chinese exports had collapsed.

Tokyo ended 2.5 percent lower, after a rally sparked by the Bank of Japan's support measures announcement fizzled.

The broad retreat followed a tumultuous week that saw some stock markets suffer their worst days in decades and in some cases their worst ever.

And experts said there was a concern that the Fed might be running on empty with regards to further action.

Sunday's move "raises the question of whether the Fed has anything left in the tank should the spread of the virus not be contained", said Kerry Craig at JP Morgan Asset Management.

"Our view is that the drag on the services sector from social distancing policies and shock from the fall of the oil price on the energy sector will be enough to tip the US into recession, but not necessarily a long one."

source: news.abs-cbn.com

Global central banks pull out all stops as coronavirus paralyses economies

SYDNEY - The US Federal Reserve and its global counterparts moved aggressively with sweeping emergency rate cuts and offers of cheap dollars to help combat the coronavirus pandemic that has jolted markets and paralysed large parts of the world economy. 

The coordinated response from the Fed to the European Central Bank (ECB) and the Bank of Japan (BOJ) came amid a meltdown in financial markets as investor anxiety deepened over the difficulty of tackling a pathogen that has left thousands dead and put many countries on virtual lockdowns.

The Fed moved first on Sunday, cutting its key rate to near zero in a move reminiscent of the steps taken just over a decade ago in the wake of the financial crisis.

The U.S. decision triggered emergency policy easings by central banks in New Zealand, Japan and South Korea, with Australia also joining with a liquidity injection in a coordinated move aimed at stabilising confidence as the pandemic threatened a global recession.

"The virus is having a profound effect on people across the United States and around the world," Fed Chair Jerome Powell said in a news conference after cutting short-term rates to a target range of 0% to 0.25%, and announcing at least $700 billion in Treasuries and mortgage-backed securities purchases in coming weeks.

The Reserve Bank of New Zealand (RBNZ) slashed rates to a record low as markets in Asia opened for trading this week, while Australia's central bank pumped extra liquidity into a strained financial system and said it would announce more policy steps on Thursday.

Later, the Bank of Japan too eased policy in an emergency meeting, ramping up purchases of exchange-traded funds (ETFs) and other risky assets to combat the widening economic fallout from the coronavirus epidemic.

Neighbouring South Korea stepped in as well with a 50 basis point rate cut in a rare inter-meeting review on Monday.

"I don't think we have reached a limit on how deep we can cut interest rates," BOJ Governor Haruhiko Kuroda said.

"If necessary, we can deepen negative rates further," he added.

"We can continue to pump ample liquidity into the market."

MARKETS RATTLED

The measures did little to calm market nerves though, as Asian shares and U.S. stock futures plummeted, underscoring the fears the health crisis might prove much more damaging to the global economy than initially anticipated.

France and Spain joined Italy in imposing lockdowns on tens of millions of people, while the United States saw school closings, runs on grocery stores, shuttered restaurants and retailers, and ends to sports events.

"Market reactions to each surprise monetary policy easing have been sell first and ask questions later," said Selena Ling, head of treasury research and strategy at OCBC Bank in Singapore.

"The more unprecedented measures by the Fed and other central banks, the more investors worry if (they) know something we don’t... fear remains the crux of the problem here as market players remain unconvinced that monetary policy easing and liquidity injections will solve an essentially healthcare crisis."

Five other central banks cut pricing on their swap lines to make it easier to provide dollars to their financial institutions, ramping up efforts to loosen gummed up funding markets and calm credit markets. They also agreed to offer three-month credit in U.S. dollars on a regular basis and at a rate cheaper than usual.

The move was designed to bring down the price banks and companies pay to access U.S. dollars, which has surged in recent weeks as a coronavirus pandemic spooked investors.

However, analysts say flooding banks with cash at near-zero rates won't help fix dislocations in credit markets caused by fear of lending to businesses with mounting losses, which in turn fuels distrust among banks.

Moreover, analysts at major banks and ratings agencies are predicting a marked downturn in the world economy, and some say a recession is unavoidable.

"We believe that financial markets stress could ultimately be the proverbial 'straw that breaks the camel’s back’, and hence, we continue to monitor these very closely," Fitch Solutions said in a note on Monday, adding its forecasts were subject to "downside risks."

"While we expect to see more major central banks cut interest rates further in a bid to support growth...there are limits to how low they can go."

The People's Bank of China (PBoC), which has rolled out powerful stimulus measures since the outbreak began in the country's Hubei province late last year, was a bit of an outlier as it kept its rates steady, though analysts expected a cut later this week.

(Additional reporting by Winni Zhou and Tom Westbrook; Editing by Shri Navaratnam)

ECB pumps up bank lending, bond buys to cushion virus impact

FRANKFURT AM MAIN, Germany - The European Central Bank on Thursday followed other major central banks with a flurry of measures to cushion the impact of the coronavirus, including increased bond purchases and cheap loans to banks, but surprised observers by leaving key interest rates unchanged.

Policymakers agreed a new round of cheap loans to banks, known as long-term refinancing operations (LTROs) "to provide immediate support to the euro area financial system," a spokesman said.

They also eased conditions on an existing "targeted" LTRO program, aiming to "support bank lending to those affected most by the spread of the coronavirus, in particular small- and medium-sized enterprises."

And the ECB will pile an extra 120 billion euros ($135 billion) of "quantitative easing" asset purchases this year on top of its present 20 billion per month.

The "quantitative easing" (QE) scheme will include "a strong contribution from the private sector," the ECB said, as room to buy government debt while respecting self-imposed limits has grown tight.

On top of the monetary measures, the ECB's banking supervision arm said it would allow banks to run down some of the capital buffers they must build up in good times to weather crises.

Its teams supervising individual lenders may provide more flexibility to institutions under their remit, such as giving them more time to patch up shortfalls in their risk management, while a broader range of assets will count towards the watchdog's capital requirements.

President Christine Lagarde will be on the spot to explain the measures to journalists at a 2:30 pm (1330 GMT) press conference.

Stock markets had plunged again early Thursday on President Donald Trump's announcement that travelers from much of Europe would be barred from entering the US, after a Monday rout triggered by an oil price war combining with virus fears.

Losses on European stock indices deepened after the ECB's announcement, with analysts citing disappointment at its decision to leave the key interest rate untouched.

But they also said that the scope for the central bank to lift the markets' mood was always going to be limited.

"We do not think the ECB will be able to change investor sentiment... What matters for the economy is the trajectory of the virus itself and the measures which national authorities take to contain it," Andrew Kenningham of Capital Economics commented.

- Paying banks to lend -
Ahead of Thursday's meeting, analysts had highlighted tweaks to the ECB's bank lending scheme in particular as a critical tool for virus response.

"Bravo!" Pictet Wealth Management analyst Frederik Ducrozet tweeted after the statement, hailing the ECB's "bold decisions".

Ducrozet noted that under the changes to the TLTRO program, lenders that loan the cash they get from the central bank on to the real economy will enjoy an interest rate potentially as low as -0.75 percent.

At 0.25 percentage points below the rate the ECB charges on banks' deposits in Frankfurt, the difference represents an effective subsidy to the financial system.

Meanwhile, the central bank dispensed with what many expected would be a purely symbolic interest rate cut of just 0.1 or 0.2 percentage points.

The US Federal Reserve last week and Bank of England on Tuesday had space to cut interest rates by half a percentage point each to ease financial conditions.

But the ECB's already-negative deposit rate robbed it of that option.

"Forget rates," Allianz chief economist Ludovic Subran tweeted ahead of the meeting.

"All eyes (are) on real measures to immunize the financial system" such as changes to the bank lending schemes and supervisory rules.

Later Thursday, Lagarde will likely reinforce the ECB's long-standing call on governments to do more with their fiscal powers to buttress the eurozone economy.

In a conference call Tuesday with European heads of government, the former International Monetary Fund (IMF) head "drew comparisons with past crises" like the 2008 financial crisis, a European source told AFP.

Such past trials were overcome by central banks and governments working in concert.

In mid-February, Lagarde reiterated that "monetary policy cannot, and should not, be the only game in town" to stimulate the economy.

Italy on Wednesday announced 25 billion euros of support to its economy and the European Union has also mobilized up to 25 billion euros.

Chancellor Angela Merkel even signalled Wednesday that Germany could abandon its balanced-budget dogma.

source: news.abs-cbn.com

Asia shares try to find a floor after COVID-19 triggers free fall

SYDNEY -- Asian markets were set for a fraught session on Tuesday after Wall Street suffered its biggest one-day loss since the 2008 financial crisis, piling pressure on policy makers globally to short-circuit the panic.

Speculation of more central bank rate cuts and possible fiscal stimulus did see US Treasury yields edge up from historic lows, and oil prices paused after the steepest fall since the 1991 Gulf war.

"The collapse in oil prices and associated credit concerns for producers has added another negative layer to a market already on its knees over the COVID-19 outbreak," said Rodrigo Catril, a senior FX strategist at National Australia Bank.

"Talk of coordinated fiscal and monetary support is getting louder," he added, noting US President Donald Trump was promising "major" steps to support the economy.

E-Mini futures for the S&P 500 were at least trying to steady, rallying 1 percent in Asia after an early slide.

Nikkei futures also came off lows, though they were still 600 points below Monday's cash close.

Wall Street had been on the brink of a bear market with all the major indices down almost 20 percent from their all-time peak, which amazingly were touched just 13 sessions ago.

The Dow fell an eye-watering 7.79 percent, while the S&P 500 lost 7.60 percent and the Nasdaq 7.29 percent. All 11 major sectors of S&P 500 ended the session deep in the red, with energy and financials taking the worst hit.

Energy stocks led the losses globally after Brent crude futures closed down 24 percent as markets braced for a price war between Saudi Arabia and Russia.

US crude inched up 92 cents to $32.05 on Tuesday, though that followed a 24 percent plunge overnight.

Headlines on the coronavirus were no better with Italy ordering everyone across the country not to move around other than for work and emergencies, while banning all public gatherings.

CENTRAL BANK CIRCUIT BREAKER

Such has been the conflagration of market wealth, that analysts assumed policy makers would have to react aggressively to prevent a self-fulfilling economic crisis.

"Without a circuit-breaker, there is a risk the volatility tightens global financial conditions and weakens economies," said Kim Mundy, an international economist at CBA.

"Because of the risks, we expect central banks to cut policy interest rates further as well as use other, unconventional, monetary policy tools."

The US Federal Reserve on Monday sharply stepped up the size of its fund injections into markets to head off stress.

Having delivered an emergency rate cut only last week, investors are fully pricing an easing of at least 75 basis points at the next Fed meeting on March 18, while a cut to near zero was now seen as likely by April.

Britain's finance minister is due to deliver his annual budget on Wednesday and there is much talk of coordinated stimulus with the Bank of England.

The European Central Bank meets on Thursday and will be under intense pressure to act, even though rates there are already deeply negative.

Bonds have charged ahead of the central banks to essentially price in a global recession of unknown length. Yields on 10-year US Treasuries reached as low as 0.318 percent - a level unthinkable just a week ago - and were last at 0.54 percent.

The dive in yields and Fed rate expectations has put an end to a multi-year uptrend for the dollar, to the benefit of the Japanese yen, euro and Swiss franc.

The dollar was huddled at 102.48 yen, having shed 2.8 percent overnight in the largest one-day drop since late 2016. Chart support was put around 101.20 but was unlikely to stop a retreat to the next major bear target at 100.00.

The euro was lording it at $1.1430, after climbing 1.4 percent on Monday to the highest in over 13 months at $1.1492.

Gold was restrained to $1,668.20 per ounce amid talk some investors were having to sell to raise cash to cover margin calls in stocks and other assets.

source: news.abs-cbn.com

Asian banks brace for bad loans spike as virus batters region's economies

Asian banks are bracing for a rough ride in the coming 6 months as the coronavirus epidemic disrupts businesses across the region, likely prompting a spike in bad loans and ultimately dealing a blow to their bottom lines.

Lenders from DBS, Singapore's biggest bank, to HSBC, the largest of 3 currency-issuing banks in Hong Kong, have warned in the past 2 weeks that they will have to set aside additional provisions for loan losses in the first quarter " a risk they say is short term and manageable.

China's biggest banks are not scheduled to update their guidance for 2020 until next month, but credit ratings agency S&P Global Ratings has forecast that the peak questionable loan ratio for China's 285 trillion yuan ($40.5 trillion) banking sector "may almost double" in a worst-case scenario.

"We have also seen it can take years to restore standards in (non-performing loan) recognition, and in the quality of the financial statements, once such standards are loosened," S&P analyst Ryan Tsang said in a research note. "We see a risk that companies may exploit relaxed standards to drag out repayments for years."

HSBC, which counts Hong Kong as its largest market and has made a big bet on growth in the Greater Bay Area, said last week it expects about $600 million of provisions for additional loan losses if the coronavirus outbreak drags on into the second half of the year " its worst-case scenario.

"There will be revenue impact, which will become progressively more acute, if the coronavirus was to continue beyond the next month to six weeks," Ewan Stevenson, the HSBC chief financial officer, said on a conference call on February 18. "We think that the Q1 impact, as we sit here today, is probably rangebound in the order of about $200 million to $500 million relative to our previous planning assumptions."

DBS said it expected credit costs " the amount set aside for bad loans " to increase by 4 to 5 basis points for the year.

Credit ratings agency Moody's Investor Service said on Tuesday that non-performing loan (NPL) ratios at DBS and its Singapore rivals Oversea-Chinese Banking Corporation and United Overseas Bank were likely to rise to 1.6 percent to 1.7 percent this year as a result of economic disruptions from the outbreak, from 1.5 percent at the end of 2019.

Economists have warned China's economic growth, which was already slowing, could dip to as little as 4.4 per ent in 2020 and weigh on the regional economy. China's gross domestic product (GDP) grew at 6.1 percent last year, its slowest pace in 29 years.

Standard Chartered said the coronavirus could potentially affect 42 percent of China's GDP because of its effects on the electronics, automobile, construction, retail, transport, accommodation, catering, real estate and recreation sectors.

"There is ample evidence that the outbreak has taken a heavy toll on these sectors," Wei Li, the bank's senior China economist, said in a research note Friday.

The People's Bank of China and other financial regulators have urged banks to lend more to support struggling businesses, with the central bank saying a "small increase" in NPLs would be "tolerated" to get companies back to work as soon as possible. Banks in Hong Kong and Singapore also have announced measures to support struggling small businesses and retail customers, including interest-only payments on mortgages and commercial loans.

Paul McSheaffrey, a partner at accountancy firm KPMG said banks in Hong Kong were likely to see higher impairment provisions as support measures are rolled out.

"Those loans may not actually be bad. The principal could be repaid, but the fact that it's delayed and that there's a separate agreement with the borrower will cause a perception of higher risk and that will be a higher provision," McSheaffrey said. "We will undoubtedly see some losses and higher losses coming through, particularly in Hong Kong and China."

To be sure, banks' balance sheets in the region are relatively robust. NPL ratios at lenders in China and other economies hit hard by the outbreak, including Hong Kong, Japan, South Korea and Singapore, are some of the healthiest in the region.

China's NPL ratio was 1.8 percent at the end of the first quarter 2019, the latest set of data available, while Hong Kong's NPL ratio was 0.6 percent and Singapore's was 1.3 percent, according to the International Monetary Fund.

By comparison, the NPL ratio in India, the third-largest economy in the region behind China and Japan, was 8.9 percent at the end of last year's first quarter and 0.9 percent in the United States.

The bulk of the coronavirus cases are in mainland China, followed by South Korea and Japan. Singapore has the biggest number of confirmed cases in Southeast Asia with 90 afflictions at last count, more than the 81 confirmed cases and two fatalities in Hong Kong.

A JPMorgan analyst said investors should remain constructive on the financial sector as bank stock valuations remain attractive, balance sheets are robust and the industry is likely to benefit from improving economic conditions in the second half of the year.

"Our base case view is the virus outbreak will not derail the economic activity for more than a few months," JPMorgan analyst Mslav Matejka, said in a research note on Monday.

For the moment, many banks are forecasting the coronavirus outbreak to be a temporary drag on the region's economy, with several citing their experience during the severe acute respiratory syndrome (SARS) outbreak in 2003 as a potential template.

DBS said the outbreak was likely to affect it for one quarter as it did during Sars. "Even if it was double that, it would imply an incremental credit cost of $250 million to $300 million. The general allowances that we have built up over the past year have been robust," Piyush Gupta, the DBS chief executive said, on a conference call on February 13.

Still, the epidemic comes at a challenging time for Asia's banks. Margins are already being pressured by easing monetary policy by central banks in the region and a slowdown in global growth following the US-China trade. Several markets, including Hong Kong and Singapore, also are expected to see the debut of new virtual banks that could further cut into profits this year.

"That downward pressure will continue to bite," Andrew Gilder, EY's Asia-Pacific banking and capital markets leader, said. "I don't see markets in this region going to negative rates, so there's only so low (policymakers) can go. But, the market demands a lower rate on the cost side. If the deposit rates are floored at zero in the region, the borrowing rate for the bank's customers isn't and can continue to go down a bit. That squeezes the margin."


Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.

Asian shares buoyed by US jobs, trade talks in focus

TOKYO -- Asian shares edged higher on Monday after data showed the US unemployment rate dropped to the lowest in almost 50 years, easing concerns of a slowdown in the world's largest economy.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.25 percent. Japan's Nikkei stock index rose 0.29 percent, while Australian shares were up 0.48 percent.

US Treasury yields inched higher as Friday's data on the US jobs market suggests the Federal Reserve may not need to cut interest rates further.

Sentiment toward the US economy deteriorated sharply last week after disappointing data on manufacturing and services suggested the trade war was taking a toll, and more rate cuts would be needed to avert a potential recession in the world's biggest economy.

The modest increase in US jobs has eased some of these concerns, but traders warn that downside risks loom large on the horizon. The US unemployment rate fell to 3.5 percent in September to reach the lowest since December 1969. Non-farm payrolls also grew in September, but slightly less than expected.

The focus will shift to the next round of US-China trade negotiations expected in Washington on Oct. 10-11 to see if the two sides can end a bruising year-long trade war that has hurt global growth and raised the risk of recession.

"Moderate job growth and subdued inflation in the United States is a positive for stocks," said Shusuke Yamada, head of FX and Japan equity strategy at Merrill Lynch Japan Securities in Tokyo. "However, the dollar is a little soft heading into US-China trade talks. I see some scope for yen gains, but it is not likely to be a big move higher."

US stock futures, fell 0.35 percent in Asia on Monday after the S&P 500 ended 1.4 percent higher on Friday.

In currency markets, the yen gained slightly and the yuan slipped after Bloomberg reported that Chinese officials are signalling they are increasingly reluctant to agree to a broad trade deal pursued by US President Donald Trump.

The yuan weakened about 0.20 percent in offshore trade to 7.1285 yuan per dollar. There is no onshore trading as Monday is the last day of China's holiday break.

The United States and China have slapped tariffs on each other's goods as part of a long-running dispute over Beijing's trading practices, which Washington says are unfair.

Central banks around the world have been easing policy to offset the negative impact from the trade war.

The Fed has already lowered interest rates twice this year, but a strong jobs market suggests further rate cuts may not be necessary.

The yield on benchmark 10-year Treasury notes rose to 1.5187 percent compared with its US close of 1.5140 percent on Friday.

Worries about political instability in Hong Kong could hurt market sentiment after China's army took the unusual step of issuing warnings to anti-government protesters in Hong Kong over the weekend.

Four months of often violent protests against Chinese rule has pushed the former British colony to the brink of recession and posed a serious challenge to Beijing's control of the city.

Spot gold, an asset that is often bought during times of uncertainty as a safe-haven, rose 0.26 percent to $1,508.19 per ounce.

The yen, also considered a safe-haven asset edged slightly higher to 106.78 versus the US dollar and gained to 72.20 per Australian dollar.

US crude dipped 0.34 percent to $52.63 a barrel as worries about oversupply regularly weigh on oil futures prices.

source: news.abs-cbn.com

World stock markets rally on hopes for stimulus, trade progress

NEW YORK -- Global stocks rallied Monday on rising optimism about stimulus measures in China and Germany as investors welcomed more conciliatory signs in the long-running US-China trade war.

Germany's central bank, the Bundesbank, warned that Europe's biggest economy could enter a recession in the third quarter, a statement that further fueled expectations that a stimulus program would be coming.

Market watchers also expect further stimulus measures by China to boost growth and are confident Federal Reserve Chair Jerome Powell will communicate dovish direction at a big central bank gathering at the end of the week in Jackson Hole, Wyoming.

Analysts also cited the Trump administration's decision to delay by 90 days a ban on US companies doing business with Huawei, seen as a conciliatory step in the running US-China trade fight and coming on the heels of statements from US President Donald Trump and other top administration officials emphasizing efforts to revive talks with Beijing.

"The market is looking at the positives out there," Manulife Asset Management's Nate Thooft told AFP, adding that the low trading volumes in the sleepy August period have sharpened market swings in recent sessions.

Major US indices gained more than one percent after European and Asian bourses earlier also finished solidly higher.

Germany's DAX index jumped 1.3 percent in spite of the downcast report from the central bank.

"The economy could contract again slightly" this summer, Germany's central bank said in its monthly report, following a 0.1-percent decline in gross domestic product (GDP) in the second quarter.

"According to data currently available, industrial production is expected to shrink markedly in the current quarter as well."

As US-China tensions intensify, economists have urged Berlin to fork out cash to avoid a recession, but Chancellor Angela Merkel's government has previously said things were not yet bad enough to warrant loosening the purse strings.

On Sunday, German Finance Minister Olaf Scholz hinted at a potential intervention, stating that Germany could "fully face up to" a new economic crisis.

"It is sometimes important, when things change completely, for example, for us to have enough strength to react," he said during an open house day at government offices.

China has meanwhile announced an interest rate reform that it said would lower borrowing costs for companies.

"The week is off to a pleasant start, with traders seemingly buoyed by Chinese lending rate reforms and the prospect of German fiscal stimulus," said Oanda analyst Craig Erlam.

KEY FIGURES AROUND 2015 GMT (4:15 a.m. Tuesday in Manila)

New York - Dow: UP 1.0 percent to 26,135.79 (close)

New York - S&P 500: UP 1.2 percent at 2,923.65 (close)

New York - Nasdaq: UP 1.4 percent at 8,002.81 (close)

London - FTSE 100: UP 1.0 percent at 7,189.65 (close)

Frankfurt - DAX 30: UP 1.3 percent at 11,715.37 (close)

Paris - CAC 40: UP 1.3 percent at 5,371.56 (close)

EURO STOXX 50: UP 1.2 percent at 3,369.19 (close)

Tokyo - Nikkei 225: UP 0.7 percent at 20,563.16 (close)

Hong Kong - Hang Seng: UP 2.2 percent at 26,291.84 (close)

Shanghai - Composite: UP 2.1 percent at 2,883.10 (close)

Euro/dollar: DOWN at $1.1078 from $1.1090 at 2100 GMT Friday

Pound/dollar: DOWN at $1.2134 from $1.2149

Euro/pound: UP at 91.30 pence from 91.29 pence 

Dollar/yen: UP at 106.66 yen from 106.38 yen

Brent North Sea crude: UP 1.9% at $59.74 per barrel

West Texas Intermediate: UP 2.4% at $56.21 per barrel

source: news.abs-cbn.com

Asia stocks nurse losses, bonds hold huge gains

SYDNEY -- Asian shares were heading for weekly losses on Friday as conflicting messages on the Sino-US trade war only added to worries for the global economy, while talk of aggressive central bank stimulus drove bond yields to fresh lows.

US President Donald Trump said on Thursday he believed China wanted to make a trade deal and that the dispute would be fairly short.

Beijing on Thursday vowed to counter the latest tariffs on $300 billion of Chinese goods but called on the United States to meet it halfway on a potential trade deal.

With no settlement in sight, investors chose discretion over valor. MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.17 percent, to be down 1.4 percent for the week.

Japan's Nikkei fell 0.5 percent, making a loss of 1.8 percent on the week, while commodity-exposed Australia was heading for a weekly drubbing of 2.7 percent.

E-Mini futures for the S&P 500 did rise 0.24 percent, but were still off 2.2 percent on the week so far. Overnight, the Dow rose 0.39 percent, while the S&P 500 0.25 percent and the Nasdaq dropped 0.09 percent.

The spectacular rally in bonds remained the main investor focus. Yields on 30-year paper hit an all-time low of 1.916 percent to be down 27 basis points for the week, the sharpest such decline since mid-2012.

That meant investors were willing to lend the government money for three decades for less than the overnight rate.

Such is the gloom that surprisingly strong US retail sales came and went with no impact on the bond rally.

Analysts have cautioned that the current bond market is a different beast than in the past and might not be sending a true signal on recession.

"The bond market may have got it wrong this time, but we would not dismiss the latest recession signals on grounds of distortions," said Simon MacAdam, global economist at Capital Economics.

"Rather, it is of some comfort for the world economy that unlike all previous U.S. yield curve inversions, the Fed has already begun loosening monetary policy this time."

CAVALRY COMING

Indeed, futures imply a one-in-three chance the Federal Reserve will chop rates by 50 basis points at its September meeting, and see them reaching just 1 percent by the end of next year.

There were plenty of other signs the cavalry were coming. European Central Banker Olli Rehn on Thursday flagged the need for a significant easing package in September.

Markets are keyed for a cut in the deposit rate of at least 10 basis points and a resumption of bond buying, sending German 10-year bund yields to a record low of -0.71 percent.

"Notions that the package will include a revamped QE program also saw a sharp rally in Italian, Spanish and Portuguese debt," said Tapas Strickland, a director of economics at National Australia Bank.

"If the ECB undertakes such substantive stimulus, it is unlikely to do so alone given the upward pressure it would put on the US dollar."

Mexico overnight became the latest country to surprise with a cut in rates, the first in five years.

Canada's yield curve inverted by the most in nearly two decades, piling pressure on the Bank of Canada to act.

All the talk of ECB easing knocked the euro back to $1.1108 and away from a top of $1.1230 early in the week. That helped lift the dollar index up to 98.164 and off the week's trough of 97.033.

The dollar could make little headway on the safe-haven yen, though, and faded to 106.08 yen.

The collapse in bond yields continued to make non-interest paying gold look relatively more attractive and the metal held firm at $1,524.90, just off a six-year peak.

Oil prices were trying to bounce after two days of sharp losses. Brent crude futures added 23 cents to $58.46, while U.S. crude rose 33 cents to $54.80 a barrel.

source: news.abs-cbn.com

Going negative? As trade war rages, central banks ponder radical steps

TOKYO/WELLINGTON -- Negative interest rate policy - an unconventional gambit once only considered by economies with chronically low inflation such as Europe and Japan - is becoming a more attractive option for some other central banks to counter unwelcome currency rises.

In Asia, central banks in economies as diverse as Australia, India and Thailand have stunned markets by cutting aggressively rates in response to the broadening fallout from the US-China trade war.

The Reserve Bank of New Zealand (RBNZ) - considered a pioneer in central bank policymaking circles since it adopted inflation-targeting nearly 3 decades ago - floated the possibility of negative rates last week as it, too, slashed rates by a bigger-than-expected 50 basis points and sent its currency tumbling to 3-1/2-year lows.

The fact such controversial tools are being more widely contemplated underscores the dilemma central banks across the world face, as the global slowdown forces them to go to extremes in shielding their economies from a strengthening currency.

The Sino-American tariff war has hurt global supply chains and manufacturing activity, slowing growth in export-reliant Asian economies and prodding some central banks to cut rates in the hope of giving exports a boost via a weaker currency.

That, in turn, has stoked fears of a cycle of competitive devaluations and prompted some policymakers to think about more radical tools.

"The RBNZ are clearly hitting things on the front foot. We are globally in a central bank easing cycle," said Stuart Ive, a Wellington-based currency and bond dealer at OM Financial.

"It's not that the RBNZ's on their own here. Everyone else is looking at exactly the same thing."

But a closer look at Europe and Japan – where negative rates are in place – shows the performance has been mixed at best.

EXCHANGE RATE PRESSURES

Until recently, adopting such unconventional policy measures had been a remote idea for most central banks in fast-growing Asia, where generally higher rates gave ample room for cuts during a downturn.

Indeed, before the Federal Reserve's shift late last year to a dovish monetary policy stance, even cutting rates too quickly was considered risky as it could trigger a massive capital outflow.

But trade tensions and volatile markets are forcing some Asian economies, particularly those reliant on trade, to look at ways to keep a spike in their currencies from hurting exports.

A negative rate policy appears a useful tool to this end, as it helps widen the interest-rate gap with the United States and so keep their currencies from appreciating against the dollar.

"I think the big way in which negative rates work is simply taking pressure off the exchange rate," said Michael Reddell, a Wellington-based economist and former senior RBNZ official.

On that measure, the policy has brought some success in Europe. Since the European Central Bank (ECB) adopted negative rates 5 years ago, the euro has lost just over a sixth of its value against the greenback.

But the Bank of Japan's (BOJ) experience paints a different picture. The yen-weakening effect of its announcement was short-lived. In just five months, the yen rose nearly 20 percent against the dollar.

The impact on growth and inflation has been even more mixed.

In the euro-zone, average corporate borrowing costs slipped to 1.6 percent in June from 2.8 percent at the time the ECB adopted negative rates in June 2014. Although economic growth initially boomed, it is now close to stagnating, having increased just 0.2 percent quarter-on-quarter in April-June. Inflation, which the ECB wants to keep below but close to 2 percent, hit a 17-month low of 1.1 percent in July, missing the target since 2013.

The benefits have also been questionable in Japan, where years of heavy money-printing had already pushed rates near zero. Bank lending rates, which were at 0.80 percent when the BOJ adopted negative rates in January 2016, stood at 0.75 percent in June.

Japan's economy grew a meager 0.4 percent quarter-on-quarter in the April-June period, slower than 0.7 percent in the first 3 months of 2016. Annual core consumer inflation stood at 0.6 percent in June, remaining distant from the BOJ's 2 percent target.

COLLATERAL DAMAGE

The biggest impediment to adopting negative rates could be the strain they inflict on financial institutions' margins.

The damage has been pronounced in Japan, where commercial banks have made little progress diversifying businesses beyond traditional lending. Intense competition in the overcrowded industry has forced many banks to lend at near-zero rates.

The BOJ warned in April that nearly 60 percent of regional banks could suffer net losses a decade from now if corporate borrowing keeps falling at the current trend.

The political backlash could also be unforgiving.

The BOJ came under criticism not just from banks but from the public, as households mistakenly thought they could be charged for their bank deposits.

Officials at the Federal Reserve have also taken a dim view of negative rates as politically unpopular and likely ineffective.

"There's no consensus among central bankers on the pros and cons of unconventional steps like negative rates. The relationship between negative rates and currency moves is also unclear," said Sayuri Shirai, a former BOJ board member who is currently professor at Japan's Keio University.

"What's clear is that the negative impact on the banking sector is huge, while the effect in boosting aggregate demand appears to be small."

source: news.abs-cbn.com

Asia stocks inch up as fresh China-US trade worries cap gains

TOKYO -- Asian shares caught the tail of a Wall Street rally on Friday, helped by China's better-than-expected export figures but fresh concerns about Sino-US trade ties are likely to limit gains in the region.

Weighing on risk appetite was a report from Bloomberg that Washington is delaying a decision about licenses for US firms to restart trade with Huawei Technologies. That sent US stock futures down as much as 0.6 percent in early Asian trade. They were last quoted 0.4 percent lower on the day.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2 percent but was on track to lose 2.3 percent for the week.

Japan's Nikkei average advanced 0.6 percent, while Australian stocks stood flat and South Korean stocks gained 1.0 percent.

On Wall Street, the S&P 500 registered its largest one-day percentage gain in about two months on Thursday, with the Dow and the Nasdaq also climbing more than 1 percent.

However, that optimism was dented by the Bloomberg report, which has reinforced concerns the deterioration in US-China relations will place additional strain on an already fragile global economy.

"The news about Huawei triggered the rise in the yen," said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo. "This is a reminder that the US-China trade dispute remains a risk, and this risk is not receding."

The yen strengthened as much as 0.4 percent against the dollar to 105.70 yen on a fresh worries triggered by a Bloomberg report.

US data pointed to a robust labor market as the number of Americans filing applications for unemployment benefits unexpectedly fell last week, allaying some worries about a recession and helping Treasury yields rise.

Benchmark 10-year Treasury yields closed 2.4 basis points higher at 1.715 percent after hitting 1.595 percent on Wednesday, which was their lowest level since October 2016.

The offshore yuan was stable versus the dollar in early trade but could be closely watched as traders assess the latest developments in the rapidly escalating trade war between the United States and China.

"The US-China trade war is very serious. My hope is that the United States and China can find enough to agree on so that they can contain the push-and-shove that occurs when the emerging power meets the dominant power. The alternative is not pleasant," said veteran investor Dan Fuss, vice chairman of Loomis Sayles.

"I think the rate cuts by the Asian central banks were in response to the weakening business environment due to the trade wars. The Fed is influenced by the same things and that will probably cause a further rate cut here."

Central banks in New Zealand, Thailand and India stunned financial markets on Wednesday with a series of surprising interest rate cuts and pointing to policymakers' dwindling ammunition to fight off a downturn.

On Thursday, the Philippine central bank joined the bandwagon and cut its key policy rates, whilst keeping the door open for further easing.

Oil jumped more than 2 percent on Thursday on expectations that falling prices could lead to production cuts.

Brent crude rose 0.4 percent to $57.63 per barrel and US West Texas Intermediate (WTI) crude climbed 0.5 percent to $52.79.

Spot gold held near the more than six-year peak touched Wednesday, rising 0.3 percent to $1,505.20 an ounce as investors sought the safety of the precious metal.

source: news.abs-cbn.com

Asia stocks paralyzed, bonds electrified by recession risk

SYDNEY -- Asian shares braced for more volatility on Thursday as eye-catching easings by central banks stoked fears of global recession, driving US yields to near-record lows and lifting gold past $1,500 for the first time since 2013.

Spot gold was last at $1,503.56 per ounce, having been as far as $1,510. The precious metal has surged 16 percent since May as the worsening Sino-US trade dispute sparked a rush to safe havens.

"Financial markets are raising risks of recession," said JPMorgan economist Joseph Lupton.

"Equities continue to slide and volatility has spiked, but the alarm bell is loudest in rates markets, where the yield curve inverted the most since just before the start of the financial crisis."

Early Thursday, Asian share markets were wobbly, as investors tried to find their footing after enduring a string of heavy losses. MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.03 percent, having shed 8 percent in less than two weeks.

Japan's Nikkei inched up 0.1 percent, and away from seven-month lows. E-Mini futures for the S&P 500 lost 0.13 percent.

There was much relief that Wall Street had managed a late come back overnight, so that the Dow ended with a loss of just 0.09 percent having been down 500 points at one stage. The S&P 500 tacked on 0.08 percent and the Nasdaq 0.38 percent.

Stocks had initially been pressured by the flight to bonds. Yields on US 30-year bonds dived as deep as 2.123 percent, not far from an all-time low of 2.089 percent set in 2016.

Ten-year yields dropped further below three-month rates, an inversion that has reliably predicted recessions in the past.

The latest spasm began when central banks in New Zealand, India and Thailand surprised markets with aggressive easings, while the Philippines is expected to cut later Thursday.

FED TO THE RESCUE?

"The decision by these APAC central banks to "go hard and early" has provided further fuel to concerns of a global recession," said Rodrigo Catril, a senior FX strategist at National Australia Bank. "This also means that the Fed will need to come to the rescue."

Chicago Fed President Charles Evans signaled on Wednesday he was open to lowering rates to bolster inflation and to counter risks to economic growth from trade tensions.

Futures moved to price in a 100 percent probability of an Fed easing in September and a near 30 percent chance of a half-point cut. Some 75 basis points of easing is implied by January, with rates ultimately reaching 1 percent.

Dire data on German industrial output stoked concerns Europe might already be in recession and pushed bund yields deeper into negative territory.

All of which fueled speculation that the major central banks would also have to take drastic action, if only to prevent an export-crimping rise in their currencies.

The Bank of Japan would be under particular pressure as its yen has gained sharply from the flood to safe havens, leaving it at 106.10 per dollar from 109.30 just a week ago.

The euro has also bounced to $1.1217, from a two-year trough of $1.1025, while the US dollar index has backtracked to 97.595, from a recent peak of 98.932.

New Zealand's dollar was still picking up the pieces after sliding as much as 2.6 percent on Wednesday when the country's central bank slashed rates by a steep 50 basis points and flagged the risk of negative rates.

The kiwi was huddled at $0.6447 having shed 1.3 percent for the week so far.

Oil prices were attempting a recovery as talk that Saudi Arabia was mulling options to halt crude's descent helped offset a build in stockpiles and fears of slowing demand.

Brent crude futures climbed $1.20 to $57.43, though that followed steep losses on Wednesday, while US crude rose $1.23 to $52.32 a barrel.

source: news.abs-cbn.com

As Wall Street rallies to fresh highs, investors are uneasy

Bad news is cheered. Good news makes investors nervous. Welcome to Wall Street.

The S&P 500 rose above 3,000 for the first time in its history Wednesday, with gains that continued early Thursday.

The most recent jump began after Federal Reserve chair, Jerome Powell, suggested the nation’s central bank was worried about the economy. Just days earlier, strong data on the job market had the opposite effect for stocks.

This counterintuitive reaction to the news is a phenomenon that’s explained by expectations for interest rates. The weakening outlook for the economy means, in all likelihood, borrowing costs are coming down — and in the right circumstances, this can be good for stocks.

If that all sounds familiar, there is good reason. Those same conditions were in place for much of 2012 to 2015, when the S&P 500 rose nearly 45 percent.

That climb earned itself a nickname, the TINA market. It stands for There Is No Alternative, which simply means that because central banks around the world were holding rates so low, investors had little choice but to buy American stocks.

Lower interest rates made returns on government bonds around the world less appealing and drove investors to seek returns in the stock market. At the same time, the US economy was performing better than much of the rest of the world, and US stocks were seen as less speculative bets than those in other countries. These are more or less the same circumstances investors face today.

Here’s a look at why the return of the TINA market could keep the bull market going, and what could be different in 2019.

The stock market is climbing even though there’s plenty to worry about

Any of the following could arguably derail the decade-long economic expansion and the rally: the seemingly never-ending trade war between China and the United States, a slowing global economy and simmering geopolitical tensions that could escalate into a full-blown conflict.

A recession would wreak havoc on corporate profits and would cause investors to flee riskier assets such as stocks.

But a downturn in the United States is not imminent — employment and economic data make that clear. Investors have become convinced that the Fed will act aggressively to lower rates to keep the expansion going. In the futures market that investors use to bet on the Fed’s decisions, nearly 90 percent expect at least two rate cuts by the end of 2019, and 53 percent anticipate at least three.

That signaled an abrupt U-turn for Fed policymakers, whose seeming determination to continue raising rates caused a market meltdown at the end of last year.

It’s good news that investors are not particularly optimistic

The decade-long bull market has racked up record highs and broken through one milestone after another. Each instance has been met with skepticism. And that does not seem to have changed this year.

The percentage of individual investors who say they expect American stocks to rise over the next six months has remained below its historical average for nine straight weeks, according to the American Association of Individual Investors’ weekly survey.

Bank of America Merrill Lynch called its June survey of fund managers its most bearish since the financial crisis.

The rates on long-term government bonds have declined this year, as well as the expectations of bond investors for inflation over the next five years. That indicates there is significant concern about the strength of the economy in the coming years.

“You are not seeing the party hats going on the floor of the New York Stock Exchange,” said JC O’Hara, the chief market technician at MKM Partners. “The average investor has a healthy degree of skepticism. They are very aware of the signs that an economic slowdown is taking place. But in a TINA market, where are they going to put their money?”

The lack of exuberance surrounding the rally may be a reason to think it can keep going. Investor sentiment is often viewed as a contrarian indicator: When optimism is high, it can indicate that investors are ignoring risks and plowing money into stocks on the belief they can only go up. Conversely, if investors become too pessimistic, it can indicate the market has hit a bottom.

Right now, investors are more neutral. That means a rate cut, along with better than expected corporate results and economic data, could inspire the skeptics to buy and keep the rally going.

Not everyone is convinced that there are more gains to be had

“The market continues to believe we have this ‘Goldilocks’ situation. That stocks can continue to make new highs and a lot of assets can all perform well together,” said Andrew Sheets, a strategist at Morgan Stanley. “But there are a number of reasons we believe that this is not 2013 or 2015 or even the late 1990s, another period when the Fed cut and the markets did quite well.”

For one, Wall Street’s expectations for earnings remain too high, Sheets said.

When companies reported first-quarter results, they seemed reluctant to lower the financial forecasts for the year ahead. But since then, trade talks aimed at reaching a deal between China and the United States, which many believed was imminent as recently as the end of April, have broken down, and the economic data has weakened. That means that when companies start reporting second-quarter results, they are likely to issue forecasts that reflect a more difficult 12 months ahead, Sheets said.

Also, a number of economic measures looked more stretched than they did five years ago when the labor market was still strengthening and consumer confidence was improving, Sheets said.

It’s true that the US economy is still adding jobs, but at a slower pace than it did last year or even earlier this year, and consumer confidence is high but not improving.

Even if this is the return of the TINA market, how long can the run continue?

Sheets is not expecting a sharp downturn. After stocks have gained 19 percent this year, he and his colleagues at Morgan Stanley, are skeptical the market can continue to march higher.

But in a market that has primarily been fueled by the prospect for interest rate cuts, there is good news for investors: When the Fed starts cutting rates, stocks typically rally for the year that follows.

“If you look at all the initial rate cuts since 1954, they have tended to push the markets higher over the next 12 months,” said Audrey Kaplan, the head of global equity strategy at the Wells Fargo Investment Institute.

According to her research, the S&P 500 gained about 14 percent on average the year after the Fed’s first cut. The gains have come in 13 out of the 16 instances.

Investors have spent much of the past decade counting on the Fed to keep the bull market going, and the central bank has delivered what investors hoped for. What investors have to grapple with now, is how long this will continue.

“This has been called the most unloved bull market in history, but it will be the most highly anticipated bear market whenever the next one comes around,” O’Hara said. “Whether that is today, tomorrow, a month from now or a year, that is the question right now.”


2019 New York Times News Service

source: news.abs-cbn.com