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Authored by Craig Wilson via The Daily Reckoning blog, Less than a month ago a handful of the world’s policy makers gathered in Washington at the International Monetary Fund (IMF), no surprising headlines were run - but an obscure meeting and a discreet report launched exclusive signals for the next global economic crisis. The panel, which included five of the most elite global bankers, was held during the IMF’s spring meetings to discuss the special drawing rights (SDR) 50th anniversary. On the surface the panel was a snoozefest, but reading beyond the jargon offers critical takeaways. The discussion revealed what global central banks are planning for a future crisis and how the IMF is orchestrating policy for financial bubbles, currency shocks and institutional failures. Why the urgency from the financial elites? In theApril 2017 “Global Financial Stability Report,” IMF researchers targeted the U.S corporate debt market and how extreme changes in its equity market has left the global economy at risk. While the report may have been missed by major financial news outlets, it was enough to give major concern to those paying attention.The IMF research report noted: “The [U.S.] corporate sector has tended to favor debt financing, with $7.8 trillion in debt and other liabilities added since 2010…” In another segment the IMF report said: “Corporate credit fundamentals have started to weaken, creating conditions that have historically preceded a credit cycle downturn. Asset quality—measured, for example, by the share of deals with weaker covenants—has deteriorated.” “At the same time, a rising share of rating downgrades suggests rising credit risks in a number of industries, including energy and related firms in the context of oil price adjustments and also in capital goods and health care. Also consistent with this late stage in the credit cycle, corporate sector leverage has risen to elevated levels.” This report together with the panel discussion highlights a very concerning trend. Jim Rickards, a currency wars expert and macroeconomic specialist, has identified the special drawing rights (SDR) as a class of world money that is a tool used to bailout central banks during crisis. World Money, The IMF and Signals for Economic Crisis World money was praised for its ability to be a catalyst for international loans during the IMF spring panel discussion. The panel discussion was moderated by Maurice Obstfeld, an established academic who serves as a Director of Research at the IMF. Obstfeld is connected, knows the right people, and can see the macroeconomic implications of SDRs. In his opening remarks Obstfeld identified, “There has been increasing debate over the role of the SDR since the global financial crisis. We in the Fund have been looking more intensively at the issue over whether an enhanced role for the SDR could improve the functioning of the international monetary system.” “The official SDR is something we are familiar with but is there a role for the SDR in the market or a market SDR? What is the SDR’s role for the unit of account?” Here’s the five most important signals from the world money panel, what they could mean for the international monetary system and the future of the dollar. 1. China Spars for the SDR Market Yi Gang, the Deputy Governor of the People’s Bank of China disclosed to the IMF panel that, “China has started reporting our foreign official reserves, balance of payment reports, and the international investment position reports.” “All of these reports, now, in China are published in U.S dollars, SDR and Renminbi rates… I think that has the advantage of reducing the negative impact of negative liquidity on your assets.” What that means in real terms is that China views the opportunity of being a part of the exclusive world money club as an opportunity to diversify away from the U.S dollar. The Bank of China official took that message even further saying that he hopes that China could lead in world money operations by integrating it into the private sector. “If more and more people, companies and the market use SDR as unit of accounts – that would generate more activity in the market with focus on the MSDR. [The hope would be] that they could create more products and market infrastructures that would be available for trade products to be denominated in SDR.” The People’s Bank of China official referenced how this trend was already underway. Just last year Standard Chartered bank began to maintain accounts in SDR’s. “In terms of the first and secondary markets they will develop fairly well.” Perhaps the most important segment that the Chinese official signaled was his reference that, “The Official Reserve SDR (OSDR) that allocation from the IMF is very important. [This allows] Central Banks to make the SDR an official asset, and easier for them to convert that asset into the reserve currency they need.” What that means is that China will become an even greater player in the world money market. Nomi Prins, an economist and historian stated when analyzing China’s economic positioning, “The expanding SDR basket is as much a political power play as it is about increasing the number of reserve currencies for central banks for financial purposes.” 2. Special Drawing Rights: The Case for Liquidity and Central Banks Jose Antonio Ocampo, one of the foremost scholars on international economics and a board member of the Central Bank of Colombia noted, “The main objective of SDR reform is actually… for it to be a major reserve asset for the international monetary system.” “First of all, it is a truly global asset. It is backed by all of the members of the IMF and it doesn’t have the problems that come with using a national currency as international currency. Second, it has a much better form of distribution of the creation of liquidity. Because it is shared by all members of the IMF… in that regard, it does serve as unconditional liquidity.” That means that IMF and institutional economists view the SDR as a potential way of financing not only national government loans, but markets. The most fascinating point that Ocampo made about the SDR was about the position of conditional reserves and what it could mean for more SDR reform. Conditional reserves reference the ability of central banks to borrow and repay loans in a timely manner with conditionality. “Countries that hold excess SDR’s should deposit them in the IMF. The IMF then could use those SDR’s to finance its lending. [This will reduce] the need to have quotas, borrowing arrangements and methods to finance IMF programs. Like any decent central bank in the world they could use their own creation of liquidity as a sort of financing of that central bank.” While the IMF has been a “central bank for central banks” this proposal would see the international monetary system shift entirely. Jim Rickards takes his analysis a step further showing that the liquidity and lending offer the IMF the ability to act during a crisis, as it did during the most recent global financial crisis. Rickards, The New York Times best-selling author, reveals, “The 2009 issuance was a case of the IMF ‘testing the plumbing’ of the system to make sure it worked properly. With no issuance of SDRs for 28 years, from 1981–2009, the IMF wanted to rehearse the governance, computational and legal processes for issuing SDRs.” “The purpose was partly to alleviate liquidity concerns at the time, but also partly to make sure the system works in case a large new issuance was needed on short notice.” 3. Elites Signaling the Blueprint Plan for World Money Mohamed El-Erian a former Deputy Director of the IMF and the Chief Economic Adviser at Allianz (affiliated with PIMCO) was the premier panelist to discuss the future blueprint plan of world money. El-Erian started out his discussion, “If the SDR is to play a really important role you cannot go through the official sector only today.” He outlined the current political landscape for world money saying, “The politics today do not favor delegating economic governance from national to multilateral levels. Yet the case for the SDR is very strong.” “It is not only about the Triffin Dilemma and [acting as] the official reserve, it’s because if you ask anybody do you want to reduce the cost of self-insurance, they’ll say yes. Do you want to facilitate diversification? They’ll say yes. If you ask anybody, do you want to make liquidity less reciprocal, they’ll say yes.” “The SDR helps address every one of these issues. So, it solves problems not just at the official level but it solves problems in the private sector.” To break that jargon down Jim Rickards offers, “In other words, the latest plan is for the IMF to combine forces with mega-banks, and big investors like BlackRock and PIMCO to implement the world money plan.” “El-Erian is ‘signaling’ other global elites about the SDR plan so they can prepare accordingly.” 4. The SDR Signals Death of the Dollar Catherine Schenk, a professor of International Economic History at the University of Glasgow, is one of the top scholars of economic relations. While speaking she took up the case of what the special drawing rights meant for the U.S dollar. Dr. Schenk when asked whether the international market could proceed without a “lender of last resort” she pressed, “Why would you use a relatively illiquid element when you have the U.S dollar?” “The U.S dollar has a lot of problems, some of it is unstable but the depth and liquidity of it in financial markets are unrivaled. The history of trying to create bond markets for other currencies or other instruments shows that it takes a long time.” She then elaborated later in the conversation the premise that, “What we are talking about with the market SDR is trying to turn it and add more facilities to turn it into money. That will take time. Having reluctant issuing, I am worried about how that market it going to be created.” As the dollar continues to have its issues what central banks like the Federal Reserve select to do matters significantly. Christopher Whalen pens, “Whether you look at US stocks, residential housing markets or the dollar, the picture that emerges is a market that has risen sharply, far more than the underlying rate of economic growth. This is due to a constraint in the supply of assets and a relative torrent of cash chasing the available opportunities.” Whalen then asks the bigger question and one that could specifically matter for the SDR when he notes, “What happens when this latest dollar super cycle ends?” How the competition for the top world reserve position unfolds between the SDR and U.S dollar will be answered in time. 5. World Money Becomes Central Bank Money During the final Q&A for the panel on the SDR’s, they were asked what the political climate looks like facing the issues of world money and the direction of political headwinds? In response Jose Antonio Ocampo said, “In the issue of liquidity, we still have a basic problem during a crisis – which is, how do you provide liquidity during crisis?” Ocampo, the Colombian central bank official disclosed, “My view is that it is a function for the SDR as central bank money, let’s say.” The SDR specialist took it further, “The real question is whether any of the major actors… and whether the U.S, either from the previous administration or the current administration, was willing [to politically act]?” He offered, “From the point of view of the U.S the use of SDR’s as a market instrument should be more problematic than the reforms of the SDR to be used as central bank money.” Under such circumstances the demand and confidence for the U.S dollar as a global reserve would be diminished. Jim Rickards summarizes, “By the time the final loss of confidence arrives, much of the damage will already have been done. The analytic key is to look for those minor events pointing in the direction of lost confidence in the dollar.” “With that information investors can take defensive measures before it’s too late.” As was confirmed by both the IMF report and the elite panel on special drawing rights, the U.S dollar is facing severe competition while undergoing a fiscal crisis. Rickards leaves a stark warning, “The U.S. is playing into the hands of these rivals by running trade deficits, budget deficits and a huge external debt.”
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Another day, another warnings about China's fading credit impulse (see here in February, and Pimco most recently), and market complacency about what the recent monetary tightening and drop in commodity prices in Chinese markets means for global markets, this time from Citigroup. In the latest note from Citi's cross-asset strategist, Jeremy Hale, titled simply enough "China: Caution Ahead", he highlights the long-standing trend lower in the EMRA, or Emerging Markets Risk Aversion Index (CIGMEMRA Index on Bloomberg) which is Citi's measure of aggregate risk aversion in developing countries, which in turn has led many investors to ask the bank whether "investors are getting complacent on EM." While Hale fails to answer directly, he does point out that while forward returns are mixed across the asset classes, "risky assets don’t usually fare that well when EMRA is low." In this context, China is key, and much of the peace of mind for investors has been based upon broad sympathy with the view that 2017 will be mainly a year of “steady boat” economic policy from the Chinese Authorities as we head into the 19th Party Congress this autumn. Hale notes that one potential factor that could threaten the "steady as she goes" status quo is the informal rule that China's leaders retire if they have reached the age of 68 when the congress takes place. If President Xi has the clout to get the age limit waived (not to yet be assumed) then the Xi-Wang duo could continue to run China for another five years, if not longer. As such, heading into the plenum, stability has been an EM positive. Politics and the 19th Congress aside, Citi notes that certain, more mundane Chinese macro indicators "are starting to wave red flags", among which: The Markit PMI is starting to turn over China's Inflation Surprise Index - a leading indicator to global inflation metric - has posted a recent sharp drop China's import trade has likewise tumbled after surging recently Chinese Iron Ore imports into Qingado port have plunged These are shown below: Adding another "red flag", Hale also notes that "some market commentators in recent weeks have highlighted that perhaps there is a major risk that consensus opinion is again overlooking the influence of China’s credit cycles, and thus perhaps overstating the potential contribution of future Chinese demand growth to the global outlook (Figure 4). And Citi’s EM strategists think that the recent macro-prudential tightening in China could possibly contribute to more negative spillovers in the coming months." While we have repreatedly demonstrated various iterations of this all important Chinese "credit impulse" in the past, the following chart of the 12M change in China's credit impulse, this time as created by Citi, deserves to be seen again: As a result, in order to assess the changes to the monetary backdrop in China, Citi’s China economists have created their very own Monetary Conditions Index (MCI, higher = looser monetary conditions, Figure 5). The Citi China MCI is calculated by using the weighted average of lending rates, M2 growth, and the REER. Interestingly, their caveat to just using a more mainstream credit cycle chart (like the Bloomberg one above) is that there are places where the credit growth deviates from indicators such as the PMI. Moreover, China’s credit system has gradually been moving from a bank loan denominated system to a more diversified financing model (Figure 5, bottom RHS). The most obvious observation in the chart above is the clear effect of the recent 2015 stimulus. "The MCI index rose sharply from all-time lows, but since November last year this has turned. Four consecutive months of declines in this MCI suggest liquidity conditions are starting to tighten." Next question: What happens if this tightening continues? To assess the historical impact of declines in the MCI and thus perhaps forecast as to what may be witnessed in coming quarters, Citi takes 4 previous turning points in the China MCI and then plot what materializes in each cycle and on average in the 24 months post local peak in the MCI. Citi's bottom line is hardly a surprise: "as we witness a turn to tighter monetary conditions, this tends to be quite bearish for the hard data as we show above (Figure 6). Across the board, on average, these charts suggest material downside risks to YoY growth in measures of domestic activity." Hale then breaks down the impact of China's slowdown across various asset classes, as follows: Broad FX: On average, both aggregate G10 and EM FX tend to soften around -6% vs the USD, within the first 9 months after a turn in the MCI, although different cycles vary to some degree thereafter. Rates: 10y UST yields on average tend to move sideways initially as the reflationary momentum fades. Around 8 months after the MCI turns, history shows that the 10y UST yields fall. Breaking this into its real and breakeven constituents shows the repricing lower in 10y breakevens is most evident (~- 40bps on average in 9 months), as likely disinflationary forces kick in from slowing demand growth. On average, curve implications are biased towards substantial flattening (on average ~20bps in 9 months) as the implication takes grip on the global outlook. Equities: Risky assets in EM (local) broadly hold up well until suffering on average a soft patch at around 5-6 months, seeing around a 5% correction in local terms. Credit: Here, risks to wider EM spreads are worth highlighting. Current CDX EM spread levels may be too tight by a significant magnitude. Widening of EM corporate spreads is evident in every historical period. Similarly in sovereign space, China CDS on average widens in the first 6 months after loose conditions peak. Both these historical developments are important for trades in our macro portfolio, as we discuss later. Commodities: Broader effects quite limited (Figure 11). More China centric commodities see downside risks mainly between 6-9m after the turn in the MCI. Given that’s where we are in the current period, the recent slides in copper and iron ore may not be surprising therefore. Any relationship to gold prices isn’t wholly evident The next question is should China slow, what - if anything - can the PBOC still do? If this MCI tightening persists and macro data follow, how can the PBoC react? More recently, as we have written before, China has focused more on fiscal policy and the RRR, rather than policy rate cuts (Figure 12, LHS). One reason for this is that the PBoC is probably cognisant that they are reaching their “zero bound” and that the room to maneuver in a crisis is becoming limited. As such they are likely preserving some fire power. Indeed, note how the current easing cycle has been much less aggressive (in magnitude and from a time perspective) than in some historic episodes (Figure 12, bottom, middle). As an aside, what this means is that China now has, by far, the highest real policy rates amongst the largest economies (they actually moved into positive territory again). Together with a still very rich currency, this exacerbates the headwinds for the domestic economy long term. Our hunch is that the PBoC will likely continue using the RRR to manage liquidity – and this is also our economists’ base case. And probably only in a sharper downturn are they likely to resort to policy rates cuts. * * * Hale's takeaway is predictable: "tighter monetary conditions in China, if sustained, may mean that the period of unexpectedly strong Chinese activity growth, which started in 2016 Q1, is coming to an end." Despite continuing to use higher money-market rates to discourage leverage, the PBoC have enough in their toolkit to ease liquidity conditions if needed. But investors should be warned that volatility may not be contained till the end of the autumn. Historically, on average, EM risk aversion has risen from this point in the MCI cycle (Figure 13). While the jury is still out (crashing commodities notwithstanding) whether China has indeed turned the monetary corner, Hale admits that "the implications for sovereign CDS are clearly negative and thus widening China CDS is one way to hedge portfolios/trade this theme." Citi's big picture conclusion is actually hardly a surprise, as it recaps what we have said and shown before: China's reflationary spark is fading, and it will now be up to Trump to provide the next global impetus for economic recovery. Admittedly, China’s contribution to the broader global recovery may be waning. Further legs to the global reflation theme may now rely even more so on the Trump administration’s ability to deliver on key campaign promises. As discussed in previous Weekly’s, we continue to hold an outright tactical long in 10y UST futures (with a stop on the 10y generic yield at 2.45%), which likely has a high delta to the data momentum that are showing signs of decline from post GFC cyclical highs. We continue to favour our 5s10s $ flattener too, which should also perform should China growth slowdown or Trump delay on tax reform/ fiscal stimulus. Finally, to all those who still harbor hope that the current administration has a chance of passing any laws that boost the US economy, it may be a good idea to hedge "just in case"... after all, with volatility record low across all asset classes, hedging has never been cheaper.
With everyone, including Pimco, now acknowledging what we said most recently in February, namely that China's credit impulse is the main, if not only variable, that determines the fate of global reflation ... ... the latest credit numbers released by the PBOC overnight very closely watched by macro traders around the globe in light of the ongoing liquidity discussions surrounding the deleveraging narrative. On the surface, the data wasn't particularly exciting, with new bank loan data surprising modestly on the upside, most likely the result of less stringent quantitative controls by the central bank instead of a sharp pickup in bottom-up demand from specific sectors. Specifically, new loans amounted to RMB1.1 trillion, above the 815BN expected, while the broader, Total Social Financing dipped from March's all time high of RMB2.12 trillion to 1.39 trillion, also slighly above the RMB1.15 trillion. This amounted to a 14.5% increase in TSF stock Y/Y, below the 14.8% in March, and another confirmation that China's credit is slowing down. Mortgage loan supply remained steady at RMB444 bn, little changed from the RMB450 bn in March, despite the property sector supposedly tightening (it would also explain why home prices have again rebounded in recent months). Overall M2 money supply fell as well, and at 10.5% Y/Y, down from 10.6% in March, it missed expectations of a 10.8% increase. What was most notable, however, was the "entrusted loans" category, (the broadest proxy for ‘shadow financing’) which confirmed China's recent crackdown on shadow banking, and posted the first contraction in a decade, going all the way back to 2007. From the ‘liquidity facilities’/market-ops perspective, 120B yuan was drained this week via reverse-repos, although the PBOC's medium-term lending facility conducted 459B of yuan loans (6m and 12m) against 410B of similar loans rolling-off this month, hence a net 49B injection of long-term liquifdity. And while shadow banking is now clearly in reverse as a result fo the government's crackdown, today's credit data, and the decision by the PBOC to inject liquidity via MLF, are likely to provide some reassurance to trader sentiment, which had abruptly turned quite negative in recent weeks. These developments clearly reflect policymakers’ changing views amid signs of stress in the financial markets and early signs of slowdown in the real economy, in a very politically important year. As Goldman adds, these concerns are also the concerns of market participants. Market participants didn't seem to react to the tightening at first, but in recent weeks (following weaker March credit data, declines in April PMIs, and further announcements by regulators) they appear to have become quite worried about the shift. The CBRC stated they would give 3-6 months to financial institutions to adjust for the tighter regulations and treat individual cases with flexibility after that. As a result, policymakers appear to have started to adjust their policy stance incrementally, which is best described as "mixed" instead of all round tightening. So today's data is not just about very near-term demand growth and policy stance, but also gives hints about the policy stance in much of the rest of the year. The MOF has not yet released information on April fiscal revenue and expenditure, though one would expect fiscal expenditure growth to have slowed after the exceedingly strong pace in March. This would represent a drag on broad money growth, though its certainly not the only one. The other likely driver was inter-financial institution products not included in RMB loans, which likely fell amid the tightening of financial regulations. Furthermore, as RBC notes, the hysterics on ‘will they/won’t they’ were further escalated overnight with headlines *CHINA'S MONETARY POLICY IS RELATIVELY TIGHT IN 2017: CHINA NEWS and *PBOC TO CONTINUE PRUDENT, NEUTRAL MONETARY POLICY. Why does all this matter? As RBC's Charlie McElligott writes in his daily note, the focus on the liquidity-/deleveraging- story continues to be two-fold. First is the ‘flow vs stock’ component of the debate—as it’s not the ‘absolute scale’ of the net injection or contraction at a point in time. Without question, the recent (quite MODEST) efforts to ‘tighten’ liquidity still by-and-large haven’t impacted credit expansion per se, as evidenced by the uptick in new loans noted above. But what the RBC analyst is fixated-upon is that concept of credit-/liquidity- “impulse,” as the ‘rate of change’ / directional trajectory moves to negative (panel 1 and most notably panel 3, which specifically is updated post the overnight data): Second is the rates-component of the tightening, which we are seeing displayed from overnight to 3m SHIBOR, to 1Y IRS to 10Y yields. Expect the PBoC will continue to use the Fed’s own tightening-efforts as air-cover for their own. Finally putting all elements of the reflation trade together, McElligott next looks at crude. Crude’s price-action is unch to small up (boosted now by Dollar’s hard fade post-weak data), with core CPI disappointing (esp relative to the PPI) and following the OPEC production-cut ‘compliance’ update. The OPEC release showed that despite aggregate ‘over-compliance’ (from an absolute ‘cut vs pledge’ perspective, north of 100%), only 5 OPEC nations are actually ‘in-compliance’ with the prescribed levels (Kuwait, Qatar, Saudi Arabia, U.A.E. and Venezuela are ‘over-compliant,’ while Algeria, Ecuador, Gabon and Iraq haven’t complied with the production-cut agreement this year—H/T Ryan Businski). I think part of the calculus now becomes at what point do you see splintering in both OPEC / non-OPEC participants following endless jawboning of ‘production cuts,’ which is now proving to be a ‘diminishing returns’ policy. There is a real ‘prisoner's dilemma’ developing if some of these countries are increasingly of the view that they're being denied vital revenues to maintain social order / state 'legitimacy by payoff' to citizens, due to the still rampant speculation that the original deal was a Saudi ‘holy grail’ gambit as it pertains to the Aramco IPO. Still, not even a surge in oil would be enough to offset a Chinese credit crunch, so keep a close eye on Beijing and the PBOC in particular: should April's collapse in entrusted lending spread to other loan categories, that will be it not only for the reflation trade of 2017, but may well unleash the next bout of global deflation out of China, which will then promptly flood the rest of the world.
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The forced deleveraging of China's WMP-driven excess was not helped overnight by disappointing trade data as both import and export growth slumped. April Imports grew at just 11.9% YoY (in USD terms), dramatically less than the 18.0% expectations and well down from March's 20.3% growth. April Exports grew at 8.0% YoY (in USD terms), less than half the growth of March (16.4% YoY) and well below the 11.3% expectations. Bad news also hit the energy space after Saudi officials desperately triued to talk up OPEC production cut deal extensions, China's trade data showed a collapse in oil demand in April (down almost 12%)... And the result was clear... As Bloomberg details, April trade data add to the impression of a deceleration in China's economy heading toward 2H. Export and import growth slowed, and missed expectations, despite a lower base for comparison. Trade data are volatile, but the latest numbers are consistent with signs of a slowdown from April business surveys. If the peak for 2017 growth is already in the past, China’s space for progress on a challenging deleveraging agenda will be limited. Diminished scope for higher interest rates will also add pressure for yuan weakness. This piled on the pressure across the entire China capital markets space with commodities (4 month lows), stocks (7 month lows), and bonds (22 month high yields) all tumbling further... The soaring cost of debt has created yet another vicious circle as China bond issuance has collapsed. In April, the number of aborted issues rose to 154, up from 94 in March, 32 in February and 31 in January. These signs of mounting stress in China’s $9.3tn bond market come less than a month after the country’s banking regulator, Guo Shuqing, was quoted as supporting a campaign to sort out chaotic practices, and threatening to resign if the banking system became “a complete mess”. As The FT concludes, April’s increase in cancelled bond issues continues a trend of collapsing bond issuance volumes in the first four months of the year: “The collapse in domestic bond issuance is a clear consequence of efforts to rein in shadow banking generally and wealth management products specifically,” said Gene Frieda, global strategist for Pimco, the US investment management firm. “This adds to an already sizeable credit tightening impulse baked into the cake for the second half of this year.” “The question now is not if China’s economy will slow, but rather how fast,” Mr Frieda added. As we noted previously, one wonders how long implied vol for the Yuan can decline (and spot remain stable)... And we know what happens after that.
Coming a time when traders and analysts are looking with growing concerns toward Beijing, riddled by deja vu memories of the China-induced near-bear market of 2016 when in a similar episode China's credit impulse tumbled - something which even Pimco highlighted earlier this week, when it reposted a chart first shown here in February... ... worries that not all may be well in China - for the second time in two years - grew this morning after the country's Finance Minister, Xiao Jie, unexpectedly skipped a summit conference with his Japanese and South Korean peers on Friday to attend an "emergency domestic meeting", a senior Japanese finance ministry official said quoted by Reuters. The official told reporters during a ministry press briefing that Xiao's absence was not related to any diplomatic matters, adding that Xiao was expected to attend the Japan-China finance dialogue in Japan scheduled for Saturday. He did not elaborate on the nature of the minister's emergency meeting. "I don't think this is rude," the official said, when asked about Xiao's absence. "I heard an emergency meeting was called and the Chinese finance minister had to attend," he said. "We can understand the situation. We don't see any deeper diplomatic meaning to this." While of secondary importance, at the meeting of the finance leaders they agreed to resist all forms of protectionism, taking a stronger stand than G20 major economies against the protectionist policies advocated by Trump. The senior Japanese finance official said he did not see any diplomatic implications from Xiao's absence, saying the minister was likely to arrive in Yokohama Friday evening. With the US taking an increasingly hardline stance on free-trade, Asia's mega exporters among which China, Japan and South Korea have been seeking to ringfence themselves and promote regional trade agreements. More details from Reuters: The trilateral meeting was held on the sidelines of the Asian Development Bank's annual gathering in Yokohama, eastern Japan. China's increasing presence in infrastructure finance and the threat that poses to Japan's economic influence in the area are expected to be a topic of debate at the conference. A Japanese Ministry of Finance official said the Chinese delegation was represented by its deputy finance minister and a senior official from the Chinese central bank at the trilateral summit where finance officials from the three countries met and pledged to resist protectionism. In an attempt to reduce the region's vulnerability to dollar swings, Japan also proposed forming $40 billion in bilateral currency swap arrangements with Southeast Asian nations that would allow it to provide yen funds in times of financial stress. "We agree that trade is one of the most important engines of economic growth and development, which contribute to productivity improvements and job creations," the finance leaders and central bank governors of the three nations said in a communique issued after their meeting. "We will resist all forms of protectionism," the communique said, keeping a line that was removed - under pressure from Washington - from a G20 communique in March when the group's finance leaders met in Germany. But back to Xiao's "emergency meeting" which took place just as prices of commodities traded in China plunged by the most in over a year, with iron ore falling limit down on Thursday, and then continuing to slide the next day, and with Chinese stocks falling to three-month lows as concerns about tighter financial regulations amid a crackdown on shadow banking weighed on banking shares. Speaking to Reuters, an official in the news department of China's Ministry of Finance said that Xiao had missed the trilateral meeting, which took place on Friday morning, but that he had departed for Japan in the afternoon. The ministry official did not say why Xiao missed the meeting, prompting speculation among some desks that following the sharp decline in local asset prices, one or more Chinese financial institutions could be in trouble again, due to the latest commodity turmoil. Anyone hoping for more clarity on what transpired at said meeting is urged not to hold their breath.
История этой статьи начинается с того времени, когда Трамп еще только готовился к своей инаугурации. В то время возникал неизбежный вопрос, чего ожидать от успешного миллиардера, с его «революционной программой», вставшего во главе ведущей страны мира в трудные для нее времена. Однако в то время серьезный экономический журнал, для которого готовилась эта статья, не принял […]
S&P futures rose on hopes a successful Republican healthcare vote on Thursday will unlock the Trump fiscal agenda, while European shares jumped to a 20 month high on signs Macron is poised to win Sunday's French election coupled with reassuring corporate results, including strong earnings from HSBC, even as Chinese and Australian stocks fell as commodities, and iron ore futures particularly, tumbled. Oil also declined while the Bloomberg Dollar spot index fell 0.1% in London morning trading, after gaining 0.4% Wednesday. It weakened against all but two of its Group of 10 peers. As reported overnight, Iron ore traded in China plunged limit down (-8%) in the afternoon session, with Rubber also limit down (7% lower), and steel rebar, coke, coking coal tumbling over 6% on concerns a crackdown on Wealth Management Products and shadow banking in general - in addition to the worst service sector PMI print in nearly a year - could result in a hard-landing for the Chinese economy (something both PIMCO and Kyle Bass warned about in the past 24 hours). Of note: the drop in iron ore prices was the biggest so far this year. Concerns about a crackdown of credit in China also dragged 10-yr treasury futures lower, down 0.44% at the close, while the 21st Century Business Herald reported that Chinese borrowing costs in April surged with the average coupon rate up near 200bp. Chinese worries however were lost on Europe, if only for the time being, after Europe reported a stronger than expected Service PMI print, rising to 56.4 from 56.0, beating expectations of 56.2, the 46th consecutive month of expansion and the highest reading since April 2011. Of note: Italy posted a nearly 10 year ago on its composite PMI category. Helping European risk sentiment, a poll showing Macron had outperformed far-right candidate Marine Le Pen in a televised debate sent short-term French bond yields to their lowest in five months, with encouraging euro zone data also helping the mood. The most recent Oddschecker data showed that the market now gives Macron a 90% probability of victory. Additionally, a flurry of stronger than expected earnings updates in Europe sent the STOXX 600 up 0.4% to its highest since August 2015, gaining for the day in a row, and included a smaller-than-feared fall in bank giant HSBC's profits which sent its shares up more than 3%. The Stoxx Europe 600 and FTSE 100 also headed higher. Oil and gas stocks were also up 1.1 percent following robust updates from both Statoil and Royal Dutch Shell, which rose 3 percent and 2.3 percent respectively. A rebounding European economy and a string of upbeat earnings are prompting firms from Morgan Stanley to Deutsche Asset Management to boost allocations to the region’s stocks. After trailing for most of last year, the Stoxx Europe 600 Index has outpaced the S&P 500 Index. "There are a number of things playing out at the moment. Traditionally in May there is a strong dollar effect and that is adding to the pressure on the commodity bloc," said Unicredit's head of FX Strategy Vasileios Gkionakis. "In Europe it is slightly different. There is what is going on with the French election and we have been seeing some strong data." “We see more value in Europe versus the U.S.,” Deutsche Asset’s global head of research Phil Poole said in an interview with Bloomberg TV’s Mark Barton. The investment arm of Deutsche Bank AG increased allocation to Europe in its multi-asset portfolios from the lowest on record in the past quarter, Poole said. “Valuations are attractive, the European economy is growing. We feel there’s too much optimism priced into the Trump stimulus program.” In the US, S&P 500 futures climbed on hopes Obamacare will get repealed giving a fresh boost to the Trump fiscal agenda and as investors awaited earnings reports from companies including Kellogg and Chesapeake. Futures on the S&P 500 Index expiring in June climbed 0.3 percent ot 6.75 to 2.390 at 6:40 am in New York. The benchmark hasn’t posted gains or losses exceeding 0.2% for six straight sessions, and has struggled to top a record last seen on March 1. Contracts on the Dow Jones Industrial Average added 52 points to 20,931 on Thursday. At the end of its two-day meeting, the Fed kept its benchmark interest rate steady, as expected, but downplayed weak first-quarter economic growth and emphasized the strength of the labor market, a sign it was still on track for two more rate increases this year. Futures traders are now pricing in a 72 percent chance of a June rate hike, from 63 percent before the Fed's statement, according to the CME Group's FedWatch Tool. Attention now turns to U.S. non-farm payrolls for March, due on Friday, after separate data showed private employers added 177,000 jobs in April. That was higher than expected but the smallest increase since October. After the dollar had risen across the board after the Fed's meeting on Wednesday, the dollar index which measures it against the top six world currencies, was modestly lower, erasing some gains. It was, however, well higher at 113.00 yen. The euro meanwhile drew some support from Macron's performance ahead of Sunday's election run-off, and was barely budged at $1.0876. In commodities, oil fell for a third session in four to leave it near its lowest since late March at $50.50 after the China services wobble and supply data had shown a smaller than expected decline in U.S. inventories. Bellwether industrial metal copper was also teetering near a four month low on what traders said was China-based selling and on expectations that two U.S. rate rises this year could curb interest in dollar-denominated metals. Iron-ore futures slid 5.3 percent. Copper futures dropped 0.4 percent extending Wednesday’s worst tumble since 2015. Oil declined 0.7 percent to $47.46 a barrel. "Later today there is a mass of U.S. data including key employment numbers, durable goods and factory orders and if these also fall below expectations it would be reasonable to expect another wave of selling," Kingdom Futures said in a note. Occidental, Regeneron, Activision Blizzard among companies reporting earnings. Factory orders and durable goods orders due. U.S. MARKETS Bulletin Headline Summary European equities trade modestly higher with Shell leading energy names higher EUR on the front foot as Macron clears TV hurdle, alongside firm Eurozone PMI figures Looking ahead, highlights include US trade balance, factory orders and a slew of ECB speakers Market Snapshot S&P 500 futures up 0.2% to 2,387.75 STOXX Europe 600 up 0.3% to 390.62 MXAP down 0.4% to 149.04 MXAPJ down 0.3% to 487.33 Nikkei up 0.7% to 19,445.70 Topix up 0.7% to 1,550.30 Hang Seng Index down 0.05% to 24,683.88 Shanghai Composite down 0.3% to 3,127.37 German 10Y yield rose 3.8 bps to 0.364% Euro up 0.3% to 1.0918 per US$ Brent Futures down 0.6% to $50.48/bbl Italian 10Y yield fell 4.4 bps to 1.967% Spanish 10Y yield fell 1.0 bps to 1.602% Sensex up 0.8% to 30,132.08 Australia S&P/ASX 200 down 0.3% to 5,876.37 Kospi up 1% to 2,241.24 Gold spot down 0.2% to $1,236.22 U.S. Dollar Index down 0.04% to 99.17 Top Overnight News China’s risk crackdown is rattling its municipal bond market, with yield premium over Chinese sovereign debt widening to a record In ultra-long Treasury debate, bond analysts find little to like, with strategists say stick with 10- and 30-year auction process as TBAC floats 20-year bond, 50-year zero coupons as alternatives Le Pen unleashed a barrage of attacks on Macron in TV debate as she tried to close a gap of some 20 percentage points in the only head-to-head debate of the French election campaign HSBC Shares Rise on Surprise Revenue Gain as Trading Tops Rivals Boeing to Start Production With JV Partner Tata This Year General Motors China April Vehicle Sales Fall 1.9% on Year Google Says Gmail Phishing Scam Affected Less Than 0.1% of Users Tesla Assures Model 3 on Time as Musk’s Cash Burn Continues WhatsApp Says Access Issue Fixed for Worldwide Users Shell Pumps a Torrent of Cash as Takeover, Cost Cuts Pay Off Big Beer Is Back as AB InBev, Carlsberg Beat Sales Estimates Facebook’s Social Network Fuels Growth as Ad Slowdown Looms Asian equity markets traded mostly lower after weakness across the commodities complex and as participants digested the latest FOMC which spurred expectations for a June hike. ASX 200 (-0.5%) declined as materials names felt the brunt of the losses in the metals complex, while Shanghai Comp. (-0.3%) and Hang Seng (-0.4%) were pressured as commodity prices in China slumped in which Dalian iron ore futures hit limit down shortly after the open. Downside was also attributed to recent deleveraging in shadow banking, an increase in Chinese short-term money market rates and after Caixin Services and Composite PMI data fell to 11-month and 10-month lows respectively. However, heading into EU trade, the Shanghai Comp staged a modest recovery. As a reminder, Japanese markets remained closed for Greenery Day. Top Asian News Asian Stocks Decline as Iron Ore Futures Tumble: Markets Wrap China Bonds Seen Extending Drop as PBOC Keeps Tight Rein on Cash China’s Belt-Road Plan May Top $500 Billion, Credit Suisse Says China H Shares Drop Most in Two Weeks Amid Deleveraging Concerns China’s Economy Shaping Up for Positive 2018, Rio Tinto Says Glencore Sees Trading Profit Boost, Enhancing Dividend Outlook Phone Betting Lifts Money Laundering Risk at Manila Casinos Australian Equity Movers: Corporate Travel, Fortescue, Eclipx Beijing Sandstorm Prompts Pollution Warning for Some 22 Million European bourses are higher this morning as price action has been dictated by the latest slew of large cap earnings. The energy sector outperforms amid gains seen in Shell after they announced profits beat analyst estimates, however FTSE 100 slightly lags its counterparts despite the upside in Shell and HSBC shares, with the index hampered by the upside in GBP, while retail names slip following poor results from Next. In fixed income markets, EGBs trade lower amid the upside in equities, alongside the fall out of the FOMC meeting last night, while various issuance from the likes of Spain and France also kept prices subdued with Bund lower by 45 ticks. Elsewhere, the German/French spread is tighter after polls suggested Macron produced a stronger performance than Le Pen in the TV Presidential debate. The French Presidential candidates conducted a live TV debate in which Macron was seen to have performed better, as an Elabe poll showed that 63% thought Macron won the debate vs. 34% for Le Pen with the rest undecided. Top European News U.K. Economy Rebounds in April With Unexpected Services Strength Euro-Area Growth Gathers Speed as Top Three Economies Converge BNP Stock Sale Managers Said to Be Left Holding Unsold Shares European Miners Drop to Lowest This Year as Iron Ore Tumbles Buyout Funds in ‘Shock’ as Swedish Tax Nightmare Becomes Reality Swiss Re Profit Drops to Lowest Since 2011 on Cyclone Claims SocGen Profit Drops After $1 Billion Libya Legal Settlement Siemens Is ‘Well-Advanced’ on Health-Care Unit Carve Out Rosneft Claims May Force Sistema to Give Up MTS Control: Citi Norges Bank to Raise Number of Policy Meetings, Publish Minutes In currencies, the Bloomberg Dollar Spot Index fell 0.1 percent as of 10:33 a.m. in London, after gaining 0.4 percent Wednesday. It weakened against all but two of its Group of 10 peers; the euro added 0.4 percent to $1.0927, while the pound gained 0.3 percent; the yen lost 0.1 percent to 112.75 per dollar. It has been a choppy session seen in FX this morning, and we can assume the modest excitement in the aftermath of the FOMC statement release has played out. The USD saw a very modest rally after traders focused on the pricing for a Jun hike on what was effectively a `stand pat' on policy, with the rate path still leaving room for 1 or 2 rate hikes this year. USD/JPY continues to run into resistance ahead of 113.00, and as Yellen and Co continually reiterate, constant data monitoring will determine the pace of rate move. As such, we may need a healthy jobs report tomorrow to see a sustained move above the figure, with techs pointing to resistance circa 113.25-30. USD/CHF has been notably quiet. EUR/USD is where the bulk of action is going through, and we see little sign of any defensive positioning ahead of this weekend's election run off in France. Indeed, the market is still pushing for a move on 1.0950, as traders seen keen to take advantage of any gap should Macron win this weekend as the polls are suggesting, and a little more so in the wake of last night's TV debate. In commodities, further losses in Copper today to the detriment of the AUD, but the 2017 range is still intact as the lower band at USD2.50-45 holds for now. No disputing that the China PMIs have been a major contributor to this weakness, and to metals across the board, whilst supply concerns have been a constant weight through the year so far. This has also been an issue dampening Oil prices, where we now see Brent testing the USD50.000 mark, while WTI grapples with range traders coming in ahead of USD47.00 amid hopes of a production cut extension into H1 as OPEC and non OPEC members have been talking of late. Safe haven demand for Gold is minimal and this is all down to the heightened expectations/polls pointing to a Macron win this weekend. If he does, then Gold heads lower still. We have dipped under USD1235 this morning. Silver holding above mid USD16.00's after recent slide. Looking at today’s calendar, we’ll get a first look at the Q1 nonfarm productivity and unit labour costs data, as well as the latest weekly initial jobless claims print, March trade balance, March factory orders and final revisions to the March durable and capital goods orders data. Away from the data there are a number of ECB speakers on the cards for today including President Draghi at 4.30pm BST when he is due to speak in Switzerland. Lautenschlaeger, Praet and Mersch are also due. Away from this, UK local elections are scheduled today with polls closing at 10pm BST. We should have an idea of some of the results early tomorrow morning and they are worth keeping an eye given the proximity to next month’s General Election. Earnings wise today the headliners are AB Inbev, BMW and Shell. US Event Calendar 7:30am: Challenger Job Cuts YoY, prior -2.0% 8:30am: Trade Balance, est. $44.5b deficit, prior $43.6b deficit 8:30am: Nonfarm Productivity, est. -0.1%, prior 1.3%; Unit Labor Costs, est. 2.7%, prior 1.7% 8:30am: Initial Jobless Claims, est. 248,000, prior 257,000; Continuing Claims, est. 1.99m, prior 1.99m 9:45am: Bloomberg Consumer Comfort, prior 50.8 10am: Factory Orders, est. 0.4%, prior 1.0%; Factory Orders Ex Trans, prior 0.4% 10am: Durable Goods Orders, est. 0.7%, prior 0.7%; Durables Ex Transportation, prior -0.2% 10am: Cap Goods Orders Nondef Ex Air, prior 0.2%; Cap Goods Ship Nondef Ex Air, prior 0.4% Db's Jim Reid concludes the overnight wrap On your long but fulfilling DB powered commute this morning the main stories overnight revolve around the FOMC, the final French Presidential TV debate and plans to avoid the imminent potential US government shutdown. Overnight we can also report the breaking news that House Republicans will today vote on the GOP health care bill. Majority Leader Kevin McCarthy said that the Republican bill will have the votes required to push through so we’ll see how that goes today. In terms of the Fed yesterday, as expected there were no real surprises to come from the decision to keep rates unchanged or out of the post meeting FOMC statement but there was just about enough for the market to ramp up the odds for another tightening next month. Indeed Bloomberg’s calculator (which overstates a little) now has the probability of a hike at 90% which compares to 67% this time yesterday. With regards to the statement itself the FOMC acknowledged the soft quarter for growth in Q1 and also softness in consumer spending but also emphasised the need to look through it and that the slowdown is likely to be transitory. There was a reference to fundamentals underpinning consumer spending remaining solid and the Committee generally sounded more upbeat on business fixed investment. On the labour market the Fed said that job gains were solid in recent months. The Committee also acknowledged the drop in core inflation in March and that while market-based measures of inflation compensation remain lower, survey-based measures of longer-term inflation expectations are little changed on balance. So all-in-all more of the same. Tomorrow’s Fedspeak could well be more interesting particularly for any snippets around the balance sheet. For now our US economists continue to expect the next rate hike to come in June with high conviction for this view. A few hours after the Fed and post the US close we then learned that the House had finally approved a $1.17tn spending bill by a majority of 309-118 votes, moving a step closer to avoiding a government shutdown this Saturday. The bill will now pass over to the Senate where it is expected that a vote will be held today. According to the WSJ the bill supposedly excluded a number of Trump’s top priorities including a smaller than expected increase in military spending. The other main event after the US close was the live French presidential debate which finished up at 10.30pm BST last night having been going for about 2 hours. In terms of the outcome a snap Elabe poll out just after the debate showed that Macron won by a score of 63% to 34% over Le Pen. As expected there were the usual fiery exchanges but nothing that really moved the dial. Instead the general feeling was that Macron solidified his position and lead. Le Pen was questioned intensely about her plans for a dual-currency regime for the franc and euro while the FT also summarised that Macron focused routinely on the contradictions and inaccuracies in Le Pen’s plan to exit the EU. Le Pen on the other hand spent a great deal of time portraying Macron as an elitist. The Euro traded in a tight range through much of the debate and finished up little changed compared to where it was when the debate started. With regards to markets yesterday, in what was another otherwise subdued day of price action, the most notable moves came in Treasuries following the FOMC. 2y and 10y yields ended the day up +3.6bps and +3.8ps respectively, although 30y yields ended up little changed with the US Treasury Borrowing Committee warning against possible issuance of long-dated bonds. The Greenback also firmed up with the Dollar index up about +0.45% versus this time yesterday. Gold and Silver sold off -1.48% and -2.14% respectively. Meanwhile price action in US equities remains incredibly dull. The S&P 500 did recover from Apple-driven heavier losses at the open but still finished down a small -0.13%. To put it in perspective the last six daily closing changes for the S&P have been -0.13%, +0.12%, +0.17%, -0.19%, +0.06% and -0.05%. It wasn’t much more exciting in Europe yesterday where the Stoxx 600 closed -0.04%. European credit did outperform however led by financials with Senior and Sub Fins iTraxx indices ending 1bp and 7.5bps tighter respectively. One asset class which did see a decent move yesterday was base metals with Copper (-3.48%) in particular suffering its biggest-one day decline since 2015 following bearish stockpiles data. That weakness in commodities coupled with further softening data in China this morning has seen most bourses in Asia edge lower in the early going. As we go to print the Hang Seng (-0.52%), Shanghai Comp (-0.25%) and ASX (-0.52%) are all in the red, although the Kospi (+0.57%) has gone against the grain. On that data, China’s Caixin services PMI in April declined 0.7pts to 51.5 which has left the composite reading at 51.2 versus 52.1 in March. The Aussie Dollar is also weaker this morning with the moves in commodities. Moving on. In terms of the economic data in the US yesterday the April ADP print came in more or less in line with the consensus at 177k (vs. 175k expected). That follows a slightly downwardly revised 255k in March. It’s worth adding that the consensus for Friday’s NFP is hovering around 190k at present. Away from that the headline ISM non-manufacturing for April rose a solid 2.3pts to 57.5 (vs. 55.8) which is a smidgen below the YTD high made in February. At the same time the services PMI was also revised up 0.6pts to 53.1. Interestingly in the details of the ISM, the new orders component rose to a new 12-year high of 63.2 however the employment component edged down another 0.2pts to a fairly low 51.4. Remember also that the employment component in the ISM manufacturing softened so that may sound some caution ahead of payrolls. In Europe yesterday the main report of note was the Q1 GDP print for the Euro area which revealed that the economy grew +0.5% qoq in Q1 which was in line with the market and one-tenth ahead of what our European team had pegged. Away from that, PPI in the Euro area was reported as falling -0.3% mom in March, while unemployment in Germany held steady at 5.8% in April. Before we look at the day ahead its worth noting that yesterday Puerto Rico officially filed for protection from its creditors in what is being called by numerous press outlets the largest debt restructuring filing by a local government or US state ever. According to Bloomberg the debt amount is around $74bn which the commonwealth is asking a federal court to force creditors to take losses on. Looking at today’s calendar, this morning in Europe the main focus will be on the final April PMI revisions where we’ll get the services and composite readings and also a first look at the data for the UK and periphery. Also due out this morning is money and credit aggregates data for the UK for March, and retail sales data for the Euro area. In the US this afternoon we’ll get a first look at the Q1 nonfarm productivity and unit labour costs data, as well as the latest weekly initial jobless claims print, March trade balance, March factory orders and final revisions to the March durable and capital goods orders data. Away from the data there are a number of ECB speakers on the cards for today including President Draghi at 4.30pm BST when he is due to speak in Switzerland. Lautenschlaeger, Praet and Mersch are also due. Away from this, UK local elections are scheduled today with polls closing at 10pm BST. We should have an idea of some of the results early tomorrow morning and they are worth keeping an eye given the proximity to next month’s General Election. Earnings wise today the headliners are AB Inbev, BMW and Shell.
It seems Kyle Bass' warning was extremely timely. The deleveraging of China's $4 trillion shadow banking system just accelerated massively as Bank Wealth Product Issuance crashes 15% month-over-month. With stocks and bonds already plunging, commodities joined the ugliness tonight with Dalian Iron Ore limit down (8%) at the open (not helped by tumbling auto demand). As Bloomberg reports, China April Bank Wealth Product Issuance Falls 15% M/m Number of wealth management products issued by banks fell to 10,038 from 11,823 in March, 21st Century Business Herald reports, citing citing Wind Info data. The decline came after regulator tightens regulation on macro-prudential assessment and interbank business. Among top ten banks by wealth product sales, nine sold less than previous month (with the Agricultural Bank coillapsing 48%) only Minsheng Bank issued more. And it's weighing on the economy al;ready as China PMIs are all plunging (with Caixin Services tonight) - Activity in China’s services sector grew at its weakest rate in 11 months, a survey sponsored by Caixin showed on Thursday, in a further sign the world’s second-largest economy is losing some steam. The Caixin China General Services Business Activity Index fell for the fourth straight month to 51.5 in April, down from 52.2 in March and the lowest since May 2016’s 51.2, according to the poll compiled by international information and data analytics provider IHS Markit. As Bass concluded so ominously: "What you see when the liquidity dries up is people start going down... and this is the beginning of the Chinese credit crisis." And that's what we are seeing... Commodities... Are following Bonds... And stocks... And as PIMCO noted earlier, the China credit impulse is now running in reverse... The question now is not if China slows, but rather how fast. Equally important perhaps is the extent to which commodity prices will correct lower, especially in light of the current enthusiasm about the potential strength of the global growth cycle. The impending slowdown in China could be compounded by ongoing government efforts to rein in shadow bank credit; the cost of policy mistakes rises once the credit impulse goes into reverse.
At the end of February, when we first reported that "The Global Credit Impulse Suddenly Collapsed To Negative", citing UBS data on China's credit impulse, we warned readers to ignore the sideshow that is Trumponomics, and focus entirely on monetary and credit developments out of China, especially since said developments were increasingly more concerning. Now, over two months later, the same warning is being echoed by none other than the firm which recently regained the title of the world's biggest active bond fund. In the company's blog, PIMCO's Gene Fried echoes everything we have said and write that following the defeat of the new U.S. healthcare bill, investors have begun to rethink the likely time frame and extent of the Trump administration’s other top priorities, such as fiscal stimulus. Equity markets stalled and bonds rallied as investors toned down their expectations for global reflation recently. None of this is horribly surprising, but by focusing so intensely on U.S. political developments, investors risk missing a silent shift in what has arguably been the strongest driver of global reflation in the last five years: Chinese credit. This driver is now moving sharply in reverse. China’s “credit impulse,” the change in the growth rate of aggregate credit to GDP, bears close watching: It has tended to lead the Chinese manufacturing Purchasing Managers’ Index (PMI) by a year (see Figure 1) and the U.S. Institute for Supply Management’s (ISM) manufacturing index by 14 months. The relevance of the Chinese credit impulse to global reflation cannot be overstated (see Figure 2). China’s massive credit stimulus starting in 2014 initially put a floor under commodity prices and emerging market (EM) growth. Then, the unexpected acceleration in Chinese real estate investment drove both commodity prices and volume demand higher. EM growth subsequently bounced, and with it, global trade volumes. The key driver of realized global reflation, then, has been China – not the promise of fiscal stimulus and deregulation that has helped boost confidence and other soft data in the U.S. When will China’s credit drop affect growth? The sharp downturn in the Chinese credit impulse starting in 2016 portends a material drag on Chinese growth in the year ahead. Looking back on the past three years, the Chinese credit impulse turned positive sometime between late 2014 and mid-2015. Given China’s exchange rate volatility in August 2015, it took longer than normal for credit to gain traction. The Chinese credit impulse peaked in March 2016 and slowed sharply after the second quarter. It is only now that the impact of that reduced stimulus should be felt. PIMCO has already factored credit-related drag into its Chinese growth outlook, but the decline in the credit impulse has been sharper and more extreme than many expected. The question now is not if China slows, but rather how fast. Equally important perhaps is the extent to which commodity prices will correct lower, especially in light of the current enthusiasm about the potential strength of the global growth cycle. The impending slowdown in China could be compounded by ongoing government efforts to rein in shadow bank credit; the cost of policy mistakes rises once the credit impulse goes into reverse. Expectations for slower Chinese growth cannot be separated from China’s overarching political desire to underwrite stability ahead of the 19th National Party Congress this autumn. Chinese growth is not likely to fall off a cliff between now and then, regardless of what happens to commodity prices. Just as a less hawkish Federal Reserve is the backstop to market volatility, the Chinese growth “put” ahead of the Party Congress is ultimately the backstop to EM- and commodity-related credit risk. Nonetheless, the complacency over China’s potential deceleration, combined with the greater likelihood that strong U.S. confidence indicators will now move more in line with the lackluster real economy data, suggest that some of the froth will come out of the most growth-oriented segments of the global markets.
06.03.2016 г. на ресурсе China Matters появилась публикация, очень точно нацеленная на нанесение репутационного ущерба Х.Клинтон в контексте предвыборной кампании в США Название статьи: «Ливия: хуже, чем Ирак. Прости, Хиллари». Ливийское фиаско может оказаться камнем преткновения в президентских притязаниях Хиллари Клинтон.
Новым президентом Федерального резервного банка Миннеаполиса стал бывший топ-менеджер инвестбанка Goldman Sachs и фонда облигаций PIMCO Нил Кашкари.
Вкладчики забирают свои деньги из американского фонда PIMCO . он потерял больше 20 миллиардов долларов. Так инвесторы реагируют на уход из компании одного из основателей Билла Гросса. А вот акции фонда Janus Capital, в который легендарный инвестор устроился на работу, стали пользоваться повышенным спросом. Как на этом заработать?
Pacific Investment Management Co. привлек средства клиентов, для того чтобы вложиться в "токсичные" активы, пишут западные СМИ со ссылкой на свои источники. Сейчас самое время для покупки "токсичных" активовТаким образом, Билл Гросс, глава PIMCO, одной из крупнейших в мире компаний по управлению активами, наконец сдался. Он стал, наверно, последним управляющим, который признал, что при доходности десятилетних трежерис в 2,5% покупать нужно акции, а не облигации. Многие коллеги по цеху уже давно сместили свои аппетиты в пользу более высокодоходных активов. Об этом свидетельствуют и последние данные по доходности, согласно которым самый большой фонд PIMCO уступает 70% своих конкурентов. Мало того, что Гросс изменил самому себе, так еще и активы для инвестиций, если верить источникам, выбраны самые что ни на есть "токсичные". Но обо всем по порядку. Речь идет о фонде Bravo II, в который было привлечено ни много ни мало $5,5 млрд. На данный момент он уже закрыт для новых клиентов. Так вот, эти деньги планируется вложить в банковский сектор США и Европы, но это будут не акции или облигации, это будут на самом деле "токсичные" активы, то есть те, от которых банкам в срочном порядке нужно избавиться. Иными словами, списать их со своих балансов. Commerzbank уже успел продать часть просроченных кредитовПо сути, это просроченные кредиты, выданные банками как на покупку жилья, так и на другие цели. Такого "добра" у европейских кредиторов, что называется, выше крыши. Недаром МВФ еще в 2012 г. обязал банкиров избавиться от этих "плохих" кредитов до 2014 г. По подсчетам валютного фонда, тогда объем "мусора" составлял порядка $4,5 млрд. Если взглянуть на календарь, то становится ясно - банки уже выбиваются из графика. Конечно, глупо полагать, что они еще не притрагивались к расчистке балансов, но найти достаточно покупателей на эти активы задача не из легких. Поскольку время на исходе, диктовать цену теперь будут исключительно покупатели. Банки же в свою очередь будут молить о покупке. И все же, это же "токсичный" долг, то есть кредиты, просроченные уже по нескольку раз. Как такой актив может стать хорошей инвестицией? Вероятно, может. Расчет делается на то, что цена, уплаченная за такие активы, ничтожно мала относительно ее номинала, а на фоне восстановления экономики есть шанс, что те безработные, которые и являются должниками, наконец найдут себе новое место на рынке труда и тогда "мертвый" кредит оживет. Платежи по нему быстро сделают такой долг прибыльным для держателя. Среди хедж-фондов есть даже специальная классификация для тех, кто занимается подобными инвестициями. Можно вспомнить, например, как фонд Марка Мобиуса вложился в бонды Греции практически на минимальных отметках. Заработок в итоге превысил 200%. Билл Гросс открывает новые идеиС поиском продавцов у PIMCO проблем возникнуть не должно. Предложение достаточно велико. Так, по информации The Wall Street Journal, Commerzbank в феврале продал свой портфель ипотечных кредитов, выданных в Испании за 710 млн евро. Британский RBS продал портфель кредитов под постройку коммерческой недвижимости хедж-фонду Varde Partners. А частная инвестиционная компания KKR из США совсем недавно завершила переговоры о покупки "токсических" активов у итальянских банков Intesa Sanpaolo и UniCredit. Остается вопрос, зачем PIMCO занимается несвойственной для себя работой? Ответ лежит на поверхности: из-за низкой доходности уже несколько месяцев подряд из фондов компании наблюдается отток средств. Для того чтобы наверстать упущенное, Билл Гросс и решился на этот поступок.