(Bloomberg) -- It’s not just Japanese banks that are feeling the squeeze from the Bank of Japan’s negative interest rates, their employees are too.The latest data compiled by Tokyo Shoko Research, a private firm, shows that average wages in the construction industry are now 16% higher than the salaries of banking and insurance staff, with the gulf widening as bankers’ pay falls.The average wage at 102 listed Japanese banks and insurance firms has edged down by 1.4% since 2016, when the BOJ introduced negative rates, making the industry the worst performer among 10 surveyed in a report released Monday. Pay at all companies in the survey grew 2.9% over the same period.The figures are another indication that pressure on bank profits partly attributable to the BOJ’s negative interest rate policy is forcing financial institutions to keep a tight lid on costs. Putting more pressure on bank profitability is one reason why the central bank is reluctant to add to its already massive easing program unless absolutely necessary.Profits at all sizes of banks from credit unions to the megabanks fell in the fiscal year ended in March, according to a BOJ report last week. Governor Haruhiko Kuroda has pledged to carefully monitor the side effects of easing on banks as he continues with stimulus to achieve a 2% inflation target.While Kuroda has acknowledged that ultra-low rates are hurting profitability at commercial banks he has also flagged the impact of Japan’s aging and shrinking population and a decreasing number of regionally based companies on the profits of local banks in particular.Average pay in the construction sector has increased 8.7% to 7.49 million yen ($69,461) since 2015 amid buoyant construction demand thanks to the Olympic games next year and rising number of foreign tourists, the report showed.To contact the reporter on this story: Toru Fujioka in Chantilly at email@example.comTo contact the editors responsible for this story: Malcolm Scott at firstname.lastname@example.org, Paul Jackson, Henry HoenigFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Australia’s back-to-back interest-rate cuts are helping check the currency, Reserve Bank official Christopher Kent said, while quantitative easing is still “pretty unlikely” even as traditional policy ammunition wanes.In a response to questions after a speech at Bloomberg’s Sydney headquarters on Tuesday, Assistant Governor Kent said the exchange rate transmission from rate cuts has been “broadly working as you would expect.” The Australian dollar is being supported by “a welcome” increase in commodity prices and other major banks turning dovish.“That doesn’t mean the reductions in the cash rate here have not had their effect on the exchange rate in the normal way, it’s just that there have been other forces,” said Kent, who oversees financial markets. “You could say well, absent reductions in the cash rate, the Aussie dollar might have been higher.”The RBA cut interest rates to a fresh record low of 1% this month as it tries to reinvigorate a slowing economy. While policy makers acknowledge the impact of easing diminishes as interest rates moves lower, they maintain it still supports growth by giving more money to mortgage holders and via the exchange rate, which should weaken if other factors determining its level were held equal.In the past month, the currency has risen about 1.5% against the U.S. dollar. The price of iron ore, Australia’s biggest export, surged more than 60% this year, and bets have firmed on the Federal Reserve and European Central Bank providing more stimulus to their economies. The Fed is expected to cut rates for the first time in a decade later this month.Traders are pricing in about a 70% chance of the RBA cutting rates by another quarter percentage point by year’s end.With Australia’s cash rate at 1% -- the same level as the Fed’s when it began QE -- talk of the RBA turning to unconventional monetary policy has increased. Kent today repeated the central bank’s mantra of recent times: “we’re a long way away from something like that,” he said. But he also made clear policy makers aren’t burying their heads in the sand.“It’s prudent for us as good central bankers to be thinking about these things, and what we’ve been doing of course is looking at what others have done, and their experience and what we can learn from that,” Kent said. “In most cases these were policies that were started in the depths of the financial crisis when the credit system was quite impaired. That’s not the sort of thing I think people have at the back of their minds here.”He said tailoring policies to “your own economic circumstances” and “the unique circumstances of your financial system” were important lessons the bank had drawn.Across the Tasman, New Zealand’s central bank is taking another look at its strategy for unconventional monetary policy as its official cash rate looks set to plumb fresh record lows. “This year the Reserve Bank has begun scoping a project to refresh our unconventional monetary policy strategy and implementation. This is at a very early stage,” the RBNZ said in response to an Official Information Act request for work on non-standard policy measures.Kent earlier delivered a speech that fleshed out the RBA thinking behind adjustments to its guaranteed source of liquidity to banks. This in part reflects changes in Australia’s bond market, where the number of “buy and hold” offshore investors has declined in recent years.The central bank estimates lenders can lift holdings of local bonds and pay more to use the facility. Changes were announced in June and start next year. The facility was set up to help banks comply with international safeguards brought in after the 2008-9 financial crisis.The move comes as foreign central banks’ holdings of Australian general government debt appear to have peaked as a proportion of the market. Central banks held $174 billion of Australian dollar assets at the end of last year, International Monetary Fund data show. That’s 27.8% of the total general government debt on issue as tracked by the Bank for International Settlements, down from 28.6% at the end of the third quarter of 2018.\--With assistance from Garfield Reynolds.To contact the reporters on this story: Michael Heath in Sydney at email@example.com;Sybilla Gross in Sydney at firstname.lastname@example.orgTo contact the editors responsible for this story: Malcolm Scott at email@example.com;Nasreen Seria at firstname.lastname@example.orgFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Deposits in Lebanese banks are expected to recover from a dip in the first five months of 2019 as customer optimism returns after approval of the state budget, the chairman of the Association of Banks in Lebanon said on Monday. Salim Sfeir said deposits had fallen to $176 billion at the end of May from $179 billion at the end of December. "The banks are liquid enough, the banks are optimistic that they will be able to give the leverage needed to the economy to take off again," said Sfeir, who is also chief executive officer of Bank of Beirut.
The S&P 500 index pared early gains to tread water on Monday, as investors awaited key central bank meetings for direction on the path of interest rates and earnings from marquee names including Facebook and Amazon that are set to report this week. Shares of Boeing Co fell 1.3% after rating agency Fitch revised its outlook on the planemaker to "negative' from "stable", pressuring the blue-chip Dow index, while the tech-heavy Nasdaq was lifted by chipmakers. "Markets are struggling to hold early gains as investors start to fret about key upcoming central bank meetings.
The Zacks Analyst Blog Highlights: Atlantic Power, American Water, KB, Kinross Gold and Royal Gold
(Bloomberg) -- If you thought U.S. bank earnings were worrisome, wait for the Europeans.As top Wall Street banks warn of zero Treasury yields and falling income from lending, their European peers have been dealing with negative rates for half a decade, with an end looking increasingly far off. The drought has left them without a cushion to fall back on when income from trading dries up, as it did in the first half, and it’s one reason why once-mighty Deutsche Bank AG just announced the most radical cuts yet to its investment bank.The second quarter will probably provide more evidence how damaging zero or negative rates are for an industry that at its core depends on clients paying to borrow money. Revenue at eight of Europe’s top lenders is set to decline 2.7% on average from a year earlier, according to filings and analyst estimates. That compares with a 0.5% gain for the top U.S. peers, many of which still managed to post record earnings after nine interest rate increases by the Federal Reserve since late 2015.“The focus for European banks is really on revenue,” said Jonathan Tyce, an analyst at Bloomberg Intelligence. “Rates are set to go down, which means lower loan loss provisions, but that doesn’t make up for the loss in revenue. All this keeps bringing you back to costs.”Here’s a guide to what investors will be looking for when the top lenders start to report on Tuesday:SwitzerlandUBS Group AG (July 23) will give investors a first look into European bank earnings. It has indicated that trading conditions improved from what CEO Sergio Ermotti called “one of the worst” first quarters in recent history. The world’s largest wealth manager is less dependent on trading revenue that peers, but trade worries and market swings still affect how much money it attracts from rich clients. Attention will also be focused on the business of advising on deals as well as stock and bond issuance after a poor run and last year’s departure of rainmaker Andrea Orcel.Credit Suisse Group AG (July 31), the second-largest Swiss bank after UBS, is coming off a strong first quarter that showed CEO Tidjane Thiam’s painful three-year restructuring is bearing fruit. But after the surprise loss of a key wealth management executive, Iqbal Khan, investors will be looking at whether the growth momentum in a key pillar of the bank will continue. The main trading unit, which managed to outperform peers in the first quarter, will have to show that it wasn’t just a one-off.Swiss banks could disappoint, should Julius Baer Group Ltd. be any guide. The lender said on Monday that it saw net new money in the first half hurt by the exits of some clients, as it purges risky accounts, and by a wider application of negative interest rates to large cash holdings.GermanyDeutsche Bank (July 24) unveiled its biggest overhaul in decades this month, including a plan to exit its underperforming stock trading business. The move was partly driven by low interest rates and the company now assumes that European short-term rates will rise to just 0% in 2021. Deutsche Bank also offered insight into second-quarter earnings with a 5.9% slide in revenue. Costs and profit figures fell short of expectations, even before the bank said it expects 3 billion euros of restructuring charges in the period. Deutsche Bank says about 75% of the investment banking businesses it wants to keep will have a top five market position, and the release this week will give investors a glimpse of how they’re holding up.Commerzbank AG (Aug. 7) explored a merger with Deutsche Bank earlier this year, but talks fell apart. That didn’t make the bank’s challenges go away: Germany’s second-biggest listed lender is one of the banks hit hardest by the European Central Bank’s rate policy because it holds a large amount of deposits and is heavily reliant on lending income. Commerzbank plans a strategy update this fall after scrapping several financial goals earlier this year. The company is seen as a takeover target because it offers a foothold in Europe’s largest economy. While negative rates should accelerate consolidation, a lack of confidence within the industry is now the biggest impediment to necessary cross-border mergers, according to Casper von Koskull, the CEO of Nordea Bank Abp.FranceBNP Paribas SA (July 31) seemed poised to benefit from Deutsche Bank’s woes after striking a preliminary agreement to take on the hedge fund and electronic trading clients of the German lender’s equities business. But transferring balances is said to be difficult, and investors will be looking for updates on the transaction. They will also want evidence that BNP’s existing equities-trading business is turning the corner after embarrassing losses late last year. Analysts at JPMorgan Chase & Co. expect a 26% drop in equities revenue in the second quarter from a year earlier.Societe Generale SA (Aug. 1) is shrinking parts of its investment bank and cutting 1,600 jobs globally in an attempt to boost profitability. Investors will keep a close eye on the bank’s capital buffer, which has been among the weakest of the region’s large lenders. Analysts at JPMorgan say SocGen should reduce its dividend by two-thirds to ease concern about a possible capital shortfall by 2021. CEO Frederic Oudea has said he’s comfortable he can meet the capital goals while maintaining his dividend policy.Natixis SA (Aug. 1) has had its own string of issues to contend with. After losses from exotic derivatives and a slump at the bank’s fixed-income unit, last quarter brought a meltdown at one of its boutique asset management businesses. London-based H20 Asset Management suffered $9 billion of redemptions after it emerged that one of its funds invested substantial amounts in the debt of a controversial German financier. Investors will want to see evidence that flows at Natixis’ broader asset management business are resilient, according to Bloomberg Intelligence.ItalyLow rates haven’t been all bad. In Italy, banks have been able to draw some benefit from lower funding costs from long-term rates as well as help in reducing a mountain of bad debt, though low short-term rates are still a burden on income. UniCredit SpA (Aug. 7) is taking steps to put itself in a stronger financial position as CEO Jean Pierre Mustier prepares a growth plan to follow a three-year cleanup. Italy’s biggest bank by assets is now emerging as one of the few firms in position to consolidate, and is among lenders said to have been interested in a potential takeover of Commerzbank. Mustier, in an interview published over the weekend, told Milano Finanza that the new business plan will have organic growth as “precondition.” Investors will be looking for any update on the options the CEO is eyeing.U.K.While trading revenue at Barclays Plc’s (Aug. 1) investment bank fared better than its U.S. rivals earlier this year, the picture for the second quarter looks bleak. JPMorgan analysts have predicted a 22% slump in equity revenue. The analysts also see “negative implications” for the U.K. economy from Brexit. A scandal dating back several years related to the sales of payment protection insurance will probably continue to hurt earnings at most British banks.HSBC Holdings Plc (Aug. 5) investors will be looking to see whether Europe’s largest lender was able to keep revenues growing at a faster pace than costs, after the bank hit the key target in the first quarter. Several hundred jobs are being cut in the global banking and markets division and poor trading performance could see HSBC trim this year’s $4 billion investment budget. Shareholders are also looking for signs of management is returning excess capital, for example in the form of buybacks.SpainBanco Santander SA (July 23) is less dependent on its home market than competitors after expanding in regions like Latin America. Still, Europe plays a big enough role to drag on earnings, and it’s the focus of much of a cost drive that includes thousands of job cuts. Of the group’s largest units, the U.K. looks the most vulnerable, with Keefe, Bruyette & Woods forecasting a 36% drop in net income.That’s putting a spotlight on the bank’s capital strength. Chairman Ana Botin has argued the lender can operate with smaller capital buffers because it doesn’t engage in volatile trading like the big investment banks. Botin may also face more questions about the botched hiring of Orcel, the former UBS investment banker who is now suing Santander after the Spanish lender withdrew its job offer.(Adds Julius Baer in eighth paragraph, Nordea in 10th, Mustier in 14th.)\--With assistance from Fabio Benedetti-Valentini, Sonia Sirletti, Patrick Winters, Stefania Spezzati, Harry Wilson and Charlie Devereux.To contact the reporter on this story: Nicholas Comfort in Frankfurt at email@example.comTo contact the editors responsible for this story: Dale Crofts at firstname.lastname@example.org, Christian Baumgaertel, Ross LarsenFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- The U.S. Federal Reserve is poised to put interest rates on a new, downward trajectory in its efforts to support an increasingly fragile economy. The move is long overdue, but it’s crucial that officials and the public recognize the risks.Although Fed officials meet at least eight times a year to deliberate over monetary policy, they change the direction of interest rates much less frequently. The past fifteen years can be divided into three distinct phases (with a few short “wait and see” gaps): tightening from June 2004 through August 2006, easing from September 2007 through December 2012, and tightening again from June 2013 to December 2018. The Fed didn’t move at every meeting in these periods, but the overall tilt of policy was clear.Now, the central bank has reached another turning point. At their next meeting on July 31, officials are very likely to respond to persistently low inflation and global trade risks by cutting interest rates for the first time in more than 10 years. On its own, such a move is of little importance to the economy. But if history is any guide, it will mean that the Fed is highly unlikely to be willing to raise rates for the next twenty-five to fifty meetings. That is a big deal.If it makes the switch to easing, the Fed will be signaling a great deal of confidence that inflation will remain subdued for the next couple years or even longer. Personally, I think that’s right. But it’s important to recognize that this view is largely grounded in a “the next few years will look like the past few years” approach to forecasting. That approach is often correct, but not always!Another question is how far the Fed will go. I’m expecting nothing more dramatic than a quarter percentage point cut at next week’s meeting. As I noted, the central bank prefers to change direction only rarely: If it wants to avoid getting into a position where it will suddenly have to raise rates, its steps downward will have to be smaller. I think a second quarter-point cut will come later this year, probably in December.Given the significance of next week’s decision, how the Fed makes and communicates it matters a lot. The policy-making Federal Open Market Committee has convened eleven times under Chairman Jerome Powell, but only once has a member dissented. That degree of consensus is somewhat troubling: Is the Fed really hearing all possible perspectives on a rather complicated economic situation? I would hope and expect that one or two members will dissent if the committee decides to lower rates. The move certainly presents inflationary risks, and the public should know about them.I’ll be glad to see the Fed finally beginning to ease. As early as 2015, when I was still president of Federal Reserve Bank of Minneapolis, I suggested that an interest rate cut would be appropriate. I hope that it won’t be too late, and that Fed officials keep their eyes wide open to what could go wrong.To contact the author of this story: Narayana Kocherlakota at email@example.comTo contact the editor responsible for this story: Mark Whitehouse at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Narayana Kocherlakota is a Bloomberg Opinion columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
The Reserve Bank of India's future policy action will depend on incoming economic data after a series of moves this year that Governor Shaktikanta Das says are equivalent to 100 basis points of interest-rate cuts. In one of his first interviews with media since taking office seven months ago, Das said he sees signs of recovery in growth and that the central bank's switch to an accommodative stance in June in itself amounts to a 25 basis-point cut. The RBI cut interest rates by a cumulative 75 basis points since February. “Effectively, the rate cut has been 100 basis points if you take into account the change in stance,” Das said ahead of the next Monetary Policy Committee meeting that begins
Some lenders ramp up closing costs to buy down your interest rate, while others that advertise low or no closing costs offer higher interest rates in exchange. Looking at multiple good faith estimates (GFEs) side by side lets you compare rate and closing cost scenarios to pick the best one for your situation. It generally makes sense to pay higher closing costs for a lower interest rate when you plan to keep the mortgage for many years, as your interest rate savings eventually surpass the higher closing costs.
(Bloomberg) -- A rapid deterioration in Singapore’s economic data has fueled speculation the central bank will ease monetary policy. The result may be higher interest rates and bond yields.Bets the Monetary Authority of Singapore will adjust policy have intensified after government reports over the past month showed the economy unexpectedly shrank 3.4% in the second quarter and exports slumped 17.3% in June. The trade-reliant economy has suffered amid escalating tensions between the U.S. and China.The data caused a jump in the three-month swap-offer rate, one of the nation’s benchmark interest rates that reflects the cost of borrowing in Singapore dollars. The gauge rose for four days after the GDP data even as borrowing costs in the rest of the world fell. The rate had previously surged in January 2015 when the MAS eased policy, and again in April 2016 when it stopped seeking currency appreciation.The counter-intuitive relationship between monetary policy and borrowing costs is due to how Singapore’s central bank seeks to guide the economy. Instead of using interest rates to adjust liquidity, MAS does so through adjusting the currency against an undisclosed basket.In the absence of central bank control, interest rates are typically dependent on those overseas, particularly in the U.S. They also move based on expectations for whether the local currency is expected to strengthen or weaken.“We are now looking for the MAS to ease policy in October” due to deteriorating growth and slowing inflation, said Irene Cheung, a senior Asia strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Given easing in currency policy, Singapore rates will likely be supported even though lower U.S. rates will exert downward pressure.”Any weakness in inflation numbers due this week may add to easing bets. Core inflation probably slowed to 1.2% last month, which would be least since March 2017, according to a Bloomberg survey before the data is released Tuesday. The gauge has dropped from as high as 1.9% in December amid stuttering local growth and the U.S.-China trade war.Whereas most central banks review policy eight to 12 times a year, MAS only does so twice: in April and October. Given the rapidly worsening economic environment, ING Groep NV says local policy makers may feel compelled to make an unscheduled adjustment.“Talk of an off-cycle policy adjustment, before the next scheduled semi-annual review in October, has gained traction,” Prakash Sakpal, an economist at ING, wrote last week in a research note. “We continue to expect easing either this month or next.”Below are key Asian economic data and events due this week:To contact the reporter on this story: Masaki Kondo in Tokyo at email@example.comTo contact the editors responsible for this story: Tan Hwee Ann at firstname.lastname@example.org, Nicholas Reynolds, Nasreen SeriaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Negative interest rates have created a European banking industry that’s ripe for consolidation, according to the chief executive officer of the biggest Nordic bank. But bankers have lost their nerve, so the mergers aren’t happening.Casper von Koskull, the CEO of Nordea Bank Abp, says a lack of confidence within his industry is now the “biggest impediment” to the cross-border mergers he says are needed.Negative interest rates “should actually accelerate” consolidation, he said in an interview. But the “much larger question” now facing the industry is one of insecurity, in part due to a tougher regulatory environment, he said.Nordic banks have been dealing with negative rates since 2012, when Denmark’s central bank first introduced the tool to defend the krone’s peg to the euro. Sweden’s Riksbank went below zero a few years later, after a bout of deflation.In the euro area, the European Central Bank is signaling interest rates will be held lower for longer, weighing on banks’ ability to generate income from lending, leaving them without a cushion to fall back on when income from trading dries up. Over the next few weeks, earnings from some of Europe’s largest banks are set to offer a peek into the negative-rates abyss. That, combined with several waves of stricter financial regulation, has created a banking environment that von Koskull warns is too fragmented.Trying to MergeIn Germany, Deutsche Bank AG and Commerzbank AG in April shelved talks to combine, citing execution risks. Since then, M&A speculation around Commerzbank has touched on names including ING Groep NV and UniCredit SpA. Much of the logic behind such mergers centers on a goal to reduce costs. A particular focus is technology, as banks begin to face competition from big tech firms like Apple Inc., Amazon.com Inc. and Alphabet Inc.’s Google.Nordea, itself a product of mergers between roughly 300 Nordic banks over two centuries, held preliminary talks with Dutch authorities in 2016 about joining forces with ABN Amro Group NV. The talks didn’t lead anywhere. There’s no scope for Nordea to take part in major moves over the next three years, von Koskull said earlier this year.Nordic banks had for years been widely regarded as some of Europe’s strongest, best capitalized and safest. But the sector now looks increasingly beleaguered, with scandals also playing a prominent part. Last year, one of the worst performing financial stocks in Europe was Danske Bank A/S. This year, it’s Swedbank AB.ScandalsDanske is dealing with the fallout of a vast money-laundering scandal. But a more recent embarrassment stems from its decision to overcharge retail investors. The Danish financial regulator hinted that negative rates probably played a role in tempting the lender to offer a product on which it could charge fees that compensate for interest rates below zero.“Negative rates actually do hurt bank business models,” von Koskull said. “As such, in an industry like in Europe where we have overcapacity, consolidation would be very natural, particularly domestic consolidation, but also cross-border consolidation.”Nordea, which is the biggest Nordic bank by assets, signaled on Thursday it may need to start scaling back its shareholder rewards in an effort to adapt to the tougher environment. The market responded by driving its shares down as much as 7.4%. Nordea also published second-quarter total operating income that fell short of even the lowest analyst estimates, in part as sub-zero rates continue to weigh on interest income.(Adds upcoming European bank earnings in 5th paragraph.)\--With assistance from Nejra Cehic and Manus Cranny.To contact the reporter on this story: Kati Pohjanpalo in Helsinki at email@example.comTo contact the editors responsible for this story: Tasneem Hanfi Brögger at firstname.lastname@example.org;Niklas Magnusson at email@example.comFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Expectations that the European Central Bank and Federal Reserve will cut interest rates boosted stocks globally, while the pound sagged on worries that likely new prime minister Boris Johnson would lead Britain into a no-deal exit from the European Union. MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.15%. Japan's Nikkei rose 0.95%.
The markets have priced in a 25-basis point Federal Reserve rate cut on July 31. The source of volatility this week for Aussie and Kiwi traders will be whether there will be a 50-basis point rate cut. There are no Fed speakers scheduled this week so traders are going to have a hard time determining the chances of the more aggressive half-percentage point rate cut. Therefore, brace yourself for a potential choppy, two-sided trade.