*Growing risks around China's wealth management products:
China’s wealth management products (WMPs) resembling risks seen in US subprime ABS before crisis. Bloombergcites China Central Depository & Clearing Co, showing WMP holdings were CNY23.5T, or 35% of China’s GDP, in 2015, up from CNY7.1T three years earlier. Highlighting market’s interconnectedness, interbank holdings of WMPs rose to CNY3T as of December, from CNY496B a year earlier, while up to 85% of products may have been bought by other WMPs. China International Capital showed WMPs the biggest investors in Chinese corporate debt. Article added one bad investment by one WMP could infect other WMPs. Notes at least 10 Chinese companies have defaulted on onshore bonds this year, while China’s corporate bond market endured its largest loss in 16 months in April.
*Majority of economists expect negative economic consequences from Brexit:
The Observer over the weekend cited results from a Ipsos MORI poll which found 88% of 600 economists surveyed believed Brexit would most likely damage Britain’s growth prospects over the next five years. 82% believed there would probably be a negative impact on household incomes with 61% expecting a rise in unemployment. Poll also found 57% of respondents believed a leave vote would cut GDP by more than 3% over the next five years, while only 4% of this group expected it to have a positive effect over the longer-term. Around 72% of respondents anticipated a leave vote would most likely have a negative impact on growth for 10-20 years. Economists mainly blamed the negative economic consequences on the loss of access to the single market (67% of respondents), and increased uncertainty leading to reduced investment (67%).
*Majority of companies say low interests don't affect willingness to invest:
Bloomberg highlighted concerns around the effectiveness of a prolonged period of low interest rates. It cited Swedish debt collector Intrum Justitia’s 2016 European Payment report, which found ~84% of 9,440 companies it surveyed said low interest rates hadn't affected their willingness to invest, which was up from 73% a year earlier. Bloomberg argued that signs of stalling investment mark a blow the ECB’s hoping to revive growth via negative rates and QE. The survey also identified another threat to growth, namely late payments. Some 33% of respondents said they regard not being paid on time as a threat to overall survival while 25% said they are likely to cut jobs if clients pay late or not at all.
*USD/JPY boosted by hawkish leaning Yellen:
Largely hawkish takeaways from Fed Chair Yellen’s comments Friday that a rate increase may be justified this summer. Resulted in big USD/JPY hitting 1-month high and commodity currencies. Also sparked selloff in US Treasury’s Friday. EU bonds tracking moves. Yellen said if growth continues to pick up and labor market improves then appropriate to gradually and cautiously raise rates over time. Added for the moment, growth looks to be picking up but still some labor market slack. Expects 2% inflation over next couple years. Noted US economy has made great deal of progress but output has been remarkably slow. Fed’s Bullard (voter) meanwhile said he wants to wait until June meeting to decide on policy. Sees markets as prepared for a possible hike and would not expect a major market impact if happens.
*Japan said to delay sales tax hike, consider another extra budget:
Japan’s government to delay next year’s sales tax hike and accompany it with extra budget. Reuters, citing official briefed on meeting, reports Abe will delay by two-and-a-half years to October 2019. Separate Nikkei piece adds Japan will seek second supplementary budget worth ¥5-10T ($45.3-90.6B). Abe to submit proposal to parliament in special session after July upper house election. Budget to allocate money for public works along with jobs growth measures, funded by expected tax revenue increases and issuance of deficit bonds. Abe's fiscal push being met with opposition. Nikkei reports Japan's main opposition party finalizing plan to submit no-confidence vote in Abe, arguing sales tax delay signifies failure of Abenomics. However article noted coalition has numbers to reject vote.
*Japanese retail sales better, Aussie company profits contract:
Japanese April retail sales flat m/m after revised 1.5% increase in March. Better than consensus for 0.6% decline. Yearon-year sales fell 0.8% after March’s 1.0%, narrower than 1.2% decline expected. Lower fuel sales again drove decline while METI noted earthquake impact was limited. Separately Australian company profits fell 4.7% q/q in Q1 against expectations for 0.5% increase. Also wider than Q4’s 2.8% drop. Largest quarterly decline since Q2 2014, driven by sharp drop in mining and manufacturing profits. Conversely Q1 inventories rose 0.4% q/q against consensus for flat read and rebounded from Q4’s 0.4% decline. Driven by increase in mining inventories. Also, new Aussie home sales contracted 4.7% m/m in April after 8.9% increase in March.
*France’s GDP revised upwards but consumer spending remains damp:
France Q1 final GDP grew 0.6% q/q vs preliminary 0.5%. Better than 0.5% growth expected by consensus. Business investment increased by a revised 2.4%, well above the previous estimate of 1.6%. Stronger-than-expected increase offset a slight downward revision in household consumption spending to 1.0% from 1.2%. Foreign trade continued to be a drag growth, with exports unchanged (0.2) and imports rising by a revised 0.6%. Overall, positive release for President Hollande as he moves into campaign mode for the presidential election next year after his labor reforms continue to receive wide public backlash, sparking strikes and protest. On the downside, April consumer spending (0.1%) m/m vs consensus +0.1% and prior +0.2%, reflecting a decline in spending on energy and durable goods – in particular cars – as well as food products.
China’s wealth management products (WMPs) resembling risks seen in US subprime ABS before crisis. Bloombergcites China Central Depository & Clearing Co, showing WMP holdings were CNY23.5T, or 35% of China’s GDP, in 2015, up from CNY7.1T three years earlier. Highlighting market’s interconnectedness, interbank holdings of WMPs rose to CNY3T as of December, from CNY496B a year earlier, while up to 85% of products may have been bought by other WMPs. China International Capital showed WMPs the biggest investors in Chinese corporate debt. Article added one bad investment by one WMP could infect other WMPs. Notes at least 10 Chinese companies have defaulted on onshore bonds this year, while China’s corporate bond market endured its largest loss in 16 months in April.
*Majority of economists expect negative economic consequences from Brexit:
The Observer over the weekend cited results from a Ipsos MORI poll which found 88% of 600 economists surveyed believed Brexit would most likely damage Britain’s growth prospects over the next five years. 82% believed there would probably be a negative impact on household incomes with 61% expecting a rise in unemployment. Poll also found 57% of respondents believed a leave vote would cut GDP by more than 3% over the next five years, while only 4% of this group expected it to have a positive effect over the longer-term. Around 72% of respondents anticipated a leave vote would most likely have a negative impact on growth for 10-20 years. Economists mainly blamed the negative economic consequences on the loss of access to the single market (67% of respondents), and increased uncertainty leading to reduced investment (67%).
*Majority of companies say low interests don't affect willingness to invest:
Bloomberg highlighted concerns around the effectiveness of a prolonged period of low interest rates. It cited Swedish debt collector Intrum Justitia’s 2016 European Payment report, which found ~84% of 9,440 companies it surveyed said low interest rates hadn't affected their willingness to invest, which was up from 73% a year earlier. Bloomberg argued that signs of stalling investment mark a blow the ECB’s hoping to revive growth via negative rates and QE. The survey also identified another threat to growth, namely late payments. Some 33% of respondents said they regard not being paid on time as a threat to overall survival while 25% said they are likely to cut jobs if clients pay late or not at all.
*USD/JPY boosted by hawkish leaning Yellen:
Largely hawkish takeaways from Fed Chair Yellen’s comments Friday that a rate increase may be justified this summer. Resulted in big USD/JPY hitting 1-month high and commodity currencies. Also sparked selloff in US Treasury’s Friday. EU bonds tracking moves. Yellen said if growth continues to pick up and labor market improves then appropriate to gradually and cautiously raise rates over time. Added for the moment, growth looks to be picking up but still some labor market slack. Expects 2% inflation over next couple years. Noted US economy has made great deal of progress but output has been remarkably slow. Fed’s Bullard (voter) meanwhile said he wants to wait until June meeting to decide on policy. Sees markets as prepared for a possible hike and would not expect a major market impact if happens.
*Japan said to delay sales tax hike, consider another extra budget:
Japan’s government to delay next year’s sales tax hike and accompany it with extra budget. Reuters, citing official briefed on meeting, reports Abe will delay by two-and-a-half years to October 2019. Separate Nikkei piece adds Japan will seek second supplementary budget worth ¥5-10T ($45.3-90.6B). Abe to submit proposal to parliament in special session after July upper house election. Budget to allocate money for public works along with jobs growth measures, funded by expected tax revenue increases and issuance of deficit bonds. Abe's fiscal push being met with opposition. Nikkei reports Japan's main opposition party finalizing plan to submit no-confidence vote in Abe, arguing sales tax delay signifies failure of Abenomics. However article noted coalition has numbers to reject vote.
*Japanese retail sales better, Aussie company profits contract:
Japanese April retail sales flat m/m after revised 1.5% increase in March. Better than consensus for 0.6% decline. Yearon-year sales fell 0.8% after March’s 1.0%, narrower than 1.2% decline expected. Lower fuel sales again drove decline while METI noted earthquake impact was limited. Separately Australian company profits fell 4.7% q/q in Q1 against expectations for 0.5% increase. Also wider than Q4’s 2.8% drop. Largest quarterly decline since Q2 2014, driven by sharp drop in mining and manufacturing profits. Conversely Q1 inventories rose 0.4% q/q against consensus for flat read and rebounded from Q4’s 0.4% decline. Driven by increase in mining inventories. Also, new Aussie home sales contracted 4.7% m/m in April after 8.9% increase in March.
*France’s GDP revised upwards but consumer spending remains damp:
France Q1 final GDP grew 0.6% q/q vs preliminary 0.5%. Better than 0.5% growth expected by consensus. Business investment increased by a revised 2.4%, well above the previous estimate of 1.6%. Stronger-than-expected increase offset a slight downward revision in household consumption spending to 1.0% from 1.2%. Foreign trade continued to be a drag growth, with exports unchanged (0.2) and imports rising by a revised 0.6%. Overall, positive release for President Hollande as he moves into campaign mode for the presidential election next year after his labor reforms continue to receive wide public backlash, sparking strikes and protest. On the downside, April consumer spending (0.1%) m/m vs consensus +0.1% and prior +0.2%, reflecting a decline in spending on energy and durable goods – in particular cars – as well as food products.
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