Baltic Dry Index. 1185 +18 Brent Crude 67.48
Businesses and households
react to lower rates by investing and spending more. Lower rates also support
the prices of housing and financial assets such as stocks and bonds.
Jerome Powell
This week it’s all about how the newbie at the Fed
handles himself in his Congressional testimony on Tuesday and Thursday, and
assuming no blunders on Tuesday, dressing up the month end stock indexes to
deliver the Great Vampire Squid bonuses.
Below, a bevy of experts talk up their book, while
betting on Powell.
In central banking as in diplomacy, style, conservative
tailoring, and an easy association with the affluent count greatly and results
far much less.
John Kenneth
Galbraith.
February 26, 2018 / 12:43 AM
Asian shares mostly firmer, dollar loses early edge
SYDNEY
(Reuters) - Asian shares made guarded gains on Monday as investors braced for
an event-packed week headlined by U.S. inflation data and the first House
testimony by the new head of the Federal Reserve.
Spread betters also pointed to a stronger start for Europe and FTSE
futures were already 0.5 percent higher.
But sentiment was fragile, with the dollar reversing its early rise and
safe-haven bonds firming as E-Mini futures for the S&P 500 turned flat.
MSCI’s broadest index of Asia-Pacific shares outside Japan crept up 0.6
percent, with most bourses in the green.
Japan’s Nikkei led with an increase of 1.3 percent, while Chinese blue
chips added 0.7 percent.
China’s ruling Communist Party on Sunday set the stage for President Xi
Jinping to stay in office indefinitely, with a proposal to remove a
constitutional clause limiting presidential service to just two terms in
office.
Investors initially took heart from Friday’s rally on Wall Street which
saw the VIX volatility index end at 16.49 percent, far below the 50 percent
peak touched at the height of market turmoil in early February.
The mood has calmed partly thanks to expectations the Federal Reserve
will stay gradual in its tightening, a measured outlook underlined by the
central bank in a governors’ report released on Friday.
Investors also seem to be wagering that Fed Chairman Jerome Powell will
stick to that script at his first appearance before the House on Tuesday,
followed by testimony to the Senate on Thursday.
“Powell will be highly cognizant of the spike in risk aversion in late
January and will be keen not to rock the boat too greatly,” argued Chris
Weston, chief market strategist at broker IG.
“Futures markets on Friday were pricing in less implied policy
tightening from the Fed in the years ahead, suggesting traders are not
expecting Powell to signal a more aggressive response.”
More
Bond Traders Step Back From 3% to Watch Powell Navigate Fedspeak
By Brian Chappatta
25 February 2018, 05:00 GMT
Bond traders came the closest in four years to a 3
percent yield on the 10-year Treasury note. Whether it breaches that level
may be determined by how new Federal Reserve Chairman Jerome Powell handles the
limelight.Powell, who took over from Janet Yellen this month, will speak before the House Financial Services Committee on Tuesday and the Senate Banking Committee two days later, in what’s known as the Humphrey-Hawkins testimony. It’ll be the first time since Powell was sworn in that bond traders get a chance to parse every word from the new Fed leader, as they did with his predecessors.
Now, a fair amount is scripted -- the Fed released its Monetary Policy Report on Feb. 23 -- and as a former member of the central bank’s board of governors, Powell has had years to hone the craft of Fedspeak that’s largely kept volatility at bay. He has also long been viewed by some as Yellen 2.0. TD Securities strategists “expect nothing new,” while the BMO Capital Markets simply says “yawn.”
But with an economy that the Fed says may already be beyond full employment, inflation showing signs of life, and fiscal stimulus on top of that, it may be a struggle for Powell to tamp down the optimism when in the Congressional hot seat.
“He’s going to try to emphasize continuity, gradualism, but I think it’s
going to be hard for him not to sound a little bit hawkish, given the backdrop
both in terms of inflation and in terms of growth,” David Riley, head of credit
strategy at BlueBay Asset Management, said in an interview on Bloomberg
Television.
Some strategists are already bracing for a more aggressive Fed and for
further bond-market losses ahead, even though the benchmark 10-year
Treasury yield fell on a weekly basis for the first time all
year. One-time month-end flows and re-balancing may have contributed to
the market’s rebound in the latter part of last week, which sent the 10-year
yield to 2.87 percent. It reached a four-year high of 2.9537 percent on
Wednesday after the Fed released minutes of its most recent policy meeting.
More
Finally, little by
little the tide is going out. But which experts will get the bet right?
If economists could
manage to get themselves thought of as humble, competent people on a level with
dentists, that would be splendid.
John Maynard Keynes
February 24, 2018 / 9:33 PM
Bank of England's Ramsden sees case to raise rates sooner than he thought
LONDON (Reuters) - The Bank of England might need to raise
British interest rates somewhat sooner than Deputy Governor Dave Ramsden had
expected if wage growth picks up early this year, according to a newspaper
interview released on Saturday.
Ramsden was one of two policymakers who opposed the BoE’s decision in
November to raise interest rates for the first time in a decade, but appears to
have shifted his stance somewhat in comments published by the Sunday Times
newspaper.
Earlier this month the central bank said interest rates might need to
rise somewhat sooner and by somewhat more over the next three years than
policymakers had expected in November, due to a strong global economy and signs
wages are rising faster.
“We all will keep a close eye on what happens through the early part of
this year to see if that (BoE) forecast of wage growth picking up to 3 percent
is realised,” Ramsden was quoted as saying by the Sunday Times.
“But
certainly relative to where I was, I see the case for rates rising somewhat
sooner rather than somewhat later.”
Economists polled
by Reuters expect the BoE to raise interest rates to 0.75 percent from 0.5
percent by May, and financial markets price in a high chance of a further rate
rise to 1 percent before the end of 2018.
More
Morgan Stanley Takes on Goldman, Buffett With Bullish Bond Call
By Adam Haigh and Wes GoodmanThe sell-off in Treasuries, that began in earnest in September and ramped up in January, is ending, according to Morgan Stanley strategists. Not so for Goldman Sachs Group Inc., which is running its models through a scenario in which yields on 10-year notes hit 4.5 percent -- though it expects that number to be closer to 3.25 percent by the end of this year. Warren Buffett cautioned over the weekend that bonds can lift risk levels in portfolios as inflation eats away at returns.
There’s a lot at stake following the six-month rout in the $14 trillion U.S. government bond market that helped trigger jitters in global equities after years of gains. While record levels of short positioning in Treasury futures may augur the next leg down as the risk premium for holding longer-dated notes climbs, it’s far from a given that tighter U.S. monetary policy will drive ever higher yields after an almost 1 percentage point jump in the 10-year yield.
“We think the bell has tolled for the best of the bear market in longer-duration bonds,” wrote the Morgan Stanley team, led by Matthew Hornbach, global head of interest-rates strategy. “We like the long end.”
----Bond-market veteran Bill Gross has said a mild bear market in bonds was confirmed last month and Ray Dalio, manager of the world’s largest hedge fund, says the bull run seen over the past 30 years is over.
More
Goldman Says Stocks May Plunge 25% If 10-Year Yield Hits 4.5%
By Joanna Ossinger
If the 10-year U.S. Treasury yield hits 4.5 percent by
year-end, the economy would probably muddle through -- stocks, not so much,
according to Goldman Sachs Group Inc.
Goldman’s base-case scenario calls for a 10-year yield of 3.25 percent
by the end of 2018, though a “stress test” out to 4.5 percent indicates such a
move would cause stocks to tumble, economist Daan Struyven wrote in a note Saturday.
He also said the economy would probably suffer a sharp slowdown but not a
recession.
“A rise in rates to 4.5 percent by year-end would cause a 20 percent to
25 percent decline in equity prices,” the note said.
While a recent drop in stocks may have been fueled by concerns tied to the 10-year yield approaching 3 percent, many strategists have said they felt equities could continue to rise until reaching 3.5 percent or 4 percent.
READ: Market’s Red Line for Yields Isn’t Where Most People Think
A 20 percent to 25 percent drop in stocks, as measured from the S&P 500’s Jan. 26 peak close of 2,872.87, would take the gauge to a range of approximately 2,155-2,298. It closed on Friday at 2,747.30 after dropping as low as 2,581 on Feb. 8 at the apex of the recent volatility-fueled meltdown. If this scenario did play out with Goldman’s numbers, stocks would have a long way further down to go.
Stronger productivity growth
would tend to raise the average level of interest rates and, therefore, would
provide the Federal Reserve with greater scope to ease monetary policy in the
event of a recession.
Janet Yellen
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.
Today, more on the VW dirty killer diesel scandal, that runs and runs
and runs. If you want to get even with VW deliberately polluting American and
European cities air, causing harm to legions of vulnerable people forced into
breathing in the pollution, just have your tort attorneys bring up Hitler, his
death wagons, and VW gassing laboratory monkeys. VW folds.
Is Interserve the next Carrillion?
Worry is the interest paid by
those who borrow trouble.
George Washington
Volkswagen Settles U.S. Emissions Lawsuit After Nazi Comparisons
By Chris Dolmetsch and Andrew M Harris
24 February 2018, 18:16 GMT Updated
on 24 February 2018, 19:36 GMT
Volkswagen
AG’s U.S. unit agreed to settle a lawsuit over the company’s marketing of
clean-emissions vehicles, resolving a fight over consumer fraud claims days
before it was scheduled to go to trial.The suit was dismissed on Friday by Fairfax County, Virginia, Circuit Court Chief Judge Bruce D. White on agreement of the parties, according to a copy of the filing provided by Michael Melkersen, lawyer for plaintiff David Doar, owner of a 2014 Jetta. The trial was to begin Feb. 26. Volkswagen Group of America Inc. is based in Herndon, Virginia.
Reuters reported the news Friday. Volkswagen declined to comment.
The trial was one of three scheduled for the first half of this year over claims that Volkswagen deceived customers with the rigging of emissions controls to perform differently when being tested than they do on the road. Melkersen has other cases filed in the same Fairfax County court.
Volkswagen has incurred about $30 billion in expenses since admitting in 2015 that it installed software on about 11 million diesel cars that allowed the vehicles to detect when they were being tested in laboratory conditions, seeking to boost sales of "clean diesel" automobiles that would conform to more strict emissions standards and appeal to consumers with environmental concerns. Two of its executives were sent to prison.
The carmaker had sought to delay the consumer-fraud trials because of comments made by Melkersen, including remarks in a Netflix documentary where he compared emissions testing on monkeys to the Nazi use of poison gas in World War II. Through an intermediary, Volkswagen funded research on the effects of the vehicles’ emissions on laboratory monkeys, according to a segment on the first episode of the Netflix series "Dirty Money."
Volkswagen said it couldn’t defend the consumer-fraud lawsuits “in an atmosphere in which pretrial publicity has connected it directly with Hitler and the Holocaust and other horrors counsel has alleged.”
Interserve crisis grows as debt talks stumble
Ben Marlow24 February 2018 • 9:00pm
Interserve is struggling to put together a crucial debt refinancing
deal after the collapse of Carillion spooked its lenders.
The troubled British outsourcer, which cleans the London Underground and
manages the Ministry of Defence’s UK estate, is racing to raise fresh funding
from a syndicate of eight banks by the end of March.
However, some of Interserve’s main creditors suffered big losses when Carillion
went under. Write-downs on lending to Carillion stand at about £1bn across the
banking industry, dampening the appetite to provide financial support for the
troubled outsourcing sector.
Sources close to the talks say Interserve has been desperately unlucky
– its rescue plan was presented to the banks the day after Carillion went into
liquidation.
----The company employs around 80,000
staff worldwide, including 25,000 in the UK, providing cleaning, security,
probation, healthcare and other vital services.
The uncertainty raises the prospect it will
have to plug a funding gap via other sources. Bankers say it may be forced to
turn to shareholders, though that could be difficult because its shares have
sunk in value.Or the company may try to raise additional capital privately, though again that could be challenging given its strained finances. Interserve’s banks include Barclays, Lloyds, RBS, Mitsubishi UFG, Sabadell and HSBC.
Of those, Lloyds lost £108m on Carillion, RBS took an £187m charge on the construction industry, Barclays reported a £127m impairment, and HSBC took a hit of several hundred million pounds.
Net debt at Interserve rose from £274m in 2016 to £513m at the end of 2017 and some analysts forecast it will reach £600m by the end of this year.
The company is hoping to persuade its main creditors to agree to provide new borrowings of between three and five years. The extent of Interserve’s problems emerged via a September profit warning.
The following month, the company warned on profits again and said it was in danger of breaching its financial covenants. Lenders agreed to provide £180m of additional short-term funding until the end of March
More
An investment in knowledge
pays the best interest.
Benjamin Franklin
Technology Update.
With events happening fast in the
development of solar power and graphene, I’ve added this section. Updates as
they get reported. Is converting sunlight to usable cheap AC or DC energy
mankind’s future from the 21st century onwards?
BP Forecast: Shared, Autonomous EVs Will Help Drive to Peak Oil Before 2040
BP’s latest Energy Outlook forecasts a peak in oil demand for the first time—while renewables will grow even faster than previously expected.
Julia
PyperFebruary
21, 2018
BP's latest Energy Outlook sees peak oil on the horizon for the first time -- driven by the rise of shared and autonomous electric vehicles.
Under the Evolving Transition (ET) scenario, which assumes that policies and technology continue to evolve at a speed similar to that seen in recent past, oil demand slows and eventually plateaus in the late 2030s.
At the same time, the total passenger vehicle fleet will nearly double to 2 billion cars by 2040 -- including more than 320 million EVs, up from roughly 3 million today. This represents a significant increase over previous forecasts.
In the ET scenario, there are nearly 190 million electric cars by 2035, which is nearly double the 100 million EVs forecast in the base case of last year’s Energy Outlook. The stock of electric cars is projected to increase by an additional 130 million in the subsequent five years, reaching the total of 320 million cars by 2040.
Several other energy research groups have upped their EV forecasts in recent years. However, BP's latest projection ranks among the most ambitious.
By the end of BP's forecast period, the number of EVs will have grown to around 15 percent of the total car fleet. But the number of EVs doesn't tell the whole story. When it comes to understanding the future energy mix, it also depends on how vehicles are used.
In a divergence from previous reports, BP examined vehicle kilometers traveled while powered by electricity to account for the combined impact of vehicle electrification, shared mobility and autonomous driving. EVs are expected to supply the vast majority of shared, autonomous transportation due to lower maintenance costs and lower emissions profile.
Because they're used with much higher intensity, EVs will account for 30 percent of passenger vehicle kilometers by 2040, up from just 2 percent in 2016. According to BP chief economist Spencer Dale, the average EV will be driven about 2.5 times more than an internal combustion engine (ICE) car.
"This higher share reflects the importance of EVs in shared mobility, where the lower costs per km of EVs make them more competitive than ICE cars, as shared-mobility cars are used much more intensively," the report states. "In particular, the sharp fall in the cost of car travel associated with fully autonomous cars, which start to become available in the early 2020s, leads to a substantial increase in shared mobility (and use of EVs) in the 2030s."
More.
Interest
rates are the most important prices in the economy, according to Nobel laureate
F.A. Hayek, because they reflect the collective time preference of individuals
to consume either now or later. Accordingly, interest rates co-ordinate
allocation of capital across the economy by signalling to businesses whether
they should invest. Distortions in interest rates can cause “clusters of
errors” in which large swathes of businesses unwittingly miscalculate at the
same time.
More
The monthly Coppock Indicators finished January
DJIA: 26,149 +282 Up. NASDAQ: 7,411 +310 Up. SP500: 2,824 +212 Up.
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