*China's NDRC calls for more monetary easing, proactive fiscal policy:
Lot of focus in mainland media recently on the decline in Chinese private investment. The National Development and Reform Commission announced efforts today to tackle the issue with a key focus on lowering firms’ cost burdens and easing financing constraints. To that end, NDRC proposed for more interest rate and RRR cuts at the appropriate time, while encouraging the issuance of bonds. Urged proactive fiscal policy to be maintained, including the provision of tax breaks for emerging industry firms. Also proposed reducing red tape, intensifying efforts to reduce overcapacity and accelerating the project approval process. On housing NDRC called for greater efforts to reduce excess inventory, expand land supply and prevent rapid land price growth. Agency also said it is targeting a reduction of investment volatility.
*Yuan strength continues:
Yuan strengthened further Wednesday. PBoC fixed currency at 6.6195 vs 6.6451 on Tuesday and mid-point is now well up from 6.6860 on 25-Jul. Series of stronger fixings has coincided with a steep decline in the dollar against other major currencies in PBoC’s trade-weighted CFETS RMB Index. Fixings follow renewed appreciation in the offshore renminbi. USD/CNH has fallen 1.2% to 6.635 after peaking near 6.718 in mid-July. Reuters cited traders who attributed move to renminbi short covering amid an unexpected depreciation in the dollar. Prevailing view is that Chinese officials want stability ahead of September’s G20 leaders’ summit, and October when IMF is due to include yuan in its SDR basket. Market bets on further declines have diminished with Bloomberg noting the put-to-call premium on the yuan fell on Monday to its lowest since 11-Sep-2014.
*China seeks tighter rein on yuan-selling, capital flight:
Ahead of the yuan's inclusion into IMF's SDR basket in October, Chinese officials appear to be tightening controls over capital outflows. Nikkei said officials are said to be leaning heavily on window guidance on banks since June in order to exert tighter controls. Noted government is monitoring large-scale money transfers, while repaying foreign-currency denominated debt ahead of schedule has effectively been banned in Beijing. Many regions also urging companies to make overseas payments using foreign currency already on hand. China has already instituted a range of other measures to control outflows. This includes raising margin requirements to settle FX transactions, setting up a blacklist of rule violators, tackling underground bank transfers, and strengthening oversight of mainland insurance sales by overseas companie.
*What if central banks actually get it right?:
Amid heightened concerns that monetary policy may be increasingly pushing on a string, some worries that the biggest risk to markets may actually revolve around the potential for some policy success. Reuters pointed out that while central banks’ low rates and unconventional policy measures have managed to spark a lackluster expansion accompanied by some momentum in the labor market, they have failed to get much traction on wage growth or sustain consumer price inflation above 2% for any length of time. Added that financial market have stopped believing they will, with the duration of the skepticism seemingly the biggest takeaway. However, also noted that with investors now relying on equity for income and playing bonds for further capital gains, there could be meaningful shock of policy success on both asset classes.
*Oil bounces:
Oil bounced today as WTI crude settled 3.3% higher at $40.83 a barrel after recent retreat into bear market territory. Inventory data in focus. DOE data showed that gasoline stockpiles, which have been under meaningful scrutiny as of late, fell 3.3M barrels, much better than consensus expectations for a 200K-300K decline. However, DOE unexpectedly reported a 1.4M barrel build in crude stockpiles following the 1.3M draw in the API data out last night. In addition, distillates increased by 1.2M barrels, while consensus was for a 100K decline. Some credibility concerns behind bounce given potential short-covering dynamic following reports earlier in the week highlighting increasingly aggressive bearish positioning on the part of speculators. Also lingering concerns about supply resumptions and softening demand for both crude and products.
*Sectors mixed:
Sectors mixed. Some pockets of cyclical rotation as mostdefensive plays (REITs, utilities, consumer staples, telecom) ended lower. Energy best performer on oil bounce. DOE data showed inventory draw for closely watched gasoline stockpiles. Financials helped by well-received results from insurers GNW-US and AIG-US. Banking group better following rally in European names. Industrials a relative outperformer. Machinery, building materials and rails among standouts. Tech stronger. AAPL-US resumed post-earnings outperformance. Consumer discretionary a slight outperformer with a number of moving pieces, including in recently scrutinized retail space. Materials higher, but also failed to match tape. Industrial metals among standouts. Healthcare lower with some weakness in big pharma.
*ADP Private Payrolls slightly better:
ADP private payrolls increased 179K in July following a net upward revision of 17K to two prior months. Slightly ahead of 170K consensus. Release highlighted some underperformance vs 12-month average due to slowdown in small business hiring. However, also noted this trend partly a function of tight labor market. Pointed out that nation’s biggest problem may soon be lack of available workers. As usual, ADP report likely to take a backset to official BLS data out on Friday. Street looking for a 180K increase in nonfarm payrolls following outsized 287K gain in June that provided some meaningful reprieve for concerns about labor market slowdown and helped drive upgrade of Fed’s economic assessment in July statement last week. Unemployment rate expected to tick down to 4.8% from 4.9% last month, while average hourly earnings seen up 0.2%.
*ISM non-manufacturing index largely in line:
ISM non-manufacturing index slipped to 55.5 in July from 56.5 in June, just below the 56.0 consensus. Details mixed and no notable sequential changes. Activity ticked down to 59.3 from 59.5. New orders improved 60.3 from 59.9. Employment fell to 51.4 from 52.7. Prices pushed up to 55.5 from 51.9, higher for a fourth consecutive month. Release noted that 15 industries reported growth in July. Added majority of respondents’ comments reflected stability and continued growth for their respective companies, along with a positive outlook on the economy. Commentary highlighted themes such as Brexit challenges and uncertainty (finance and insurance), hot weather (accommodation and food services) and positive consumer spending (wholesale trade), oil price stabilization (mining). However, some mixed takeaways surrounding energy market dynamics.
*Retail steady, but still down big this week:
Mixed day for retail, though a lot of discussion about recent selling pressure. Follows post-Brexit outperformance that had seemingly been underpinned by pockets of cyclical rotation and some positive sell-side and back-to-school commentary. However, more cautious analyst notes have been getting some attention in recent days. Yesterday, Morgan Stanley pointed out summer rally has taken dept. store valuations back to five-year averages (or higher), but fundamentals still eroding. Also some focus on comments from Cleveland Research about a slowdown in July stores at M. In addition, Credit Suisse flagged softer comp/traffic at AKE-US as a potential negative read-through for JWN-US. Several apparel-leveraged names have also disappointed this week, including KATE-US. Lack of must have items, AMZN-US competition, consumer wallet share shift and weaker tourism the oft-cited headwinds for traditional retailers.
*Return to interest rate levels of 2011 could drive $3.8T of losses:
With continued worries that a global bond market bubble ($11.7T of sovereign securities trading with a negative yields as of 15-Jul) could be pricked either by a further erosion in central bank confidence or some credible traction in effort to combat a depressed growth/inflation environment, some focus on recent report by Fitch Ratings. Note that this year’s dramatic fall in yields on bonds issued by investment grade sovereigns has again raised risk that a sudden rate rise could impose meaningful market losses on fixed investment investors around the world. Pointed out that a hypothetical reversion of rates to 2011 levels for $37.7T worth of investment-grade sovereign bonds could drive losses of as much as $3.8T. Noted potential market losses would be greatest for holders of European sovereign bonds.
*Lockhart won’t rule out rate increase this year; keeping eye on asset valuations:
Atlanta Fed President Lockhart, who is not a current FOMC voter, told CNBC that at this point, he would not rule out a rate increase at September meeting or later this year. Noted that while situation may be a little ambiguous, he can imagine conditions that could justify tightening. Added that he would like economy to tell Fed it is “ok” to raise rates. Argued economy faring better than the 1.2% growth in Q2 GDP, highlighting strong consumer spending and drag from inventories. According to Reuters, Lockhart also expressed concern about what he referred to as relatively lofty valuations in financial markets. Noted that asset valuations are something Fed has to monitor. Added they particularly deserve watching because they are “relatively buoyant or relatively high”.
*Despite better metrics, earnings still weak:
Better sentiment surrounding Q2 earnings season has received a lot of attention in recent weeks, highlighted by an improvement in some widely followed metrics. According to FactSet, the blended S&P 500 earnings decline is (3.5%), better than the (5.5%) at the start of the quarter.. However, S&P 500 still on track for a fifth straight quarter of y/y declines in earnings. Weak corporate profit environment discussed in WSJ, though article really did not break much new ground. Noted companies worried about industrial production slowdown, sluggish overseas growth and tumultuous political climate. However, did highlight some better takeaways from results out of a number consumer-facing companies, as well as high-profile tech firms leveraged to mobile advertising and cloud computing.
*Biogen weaker, Twitter higher on fairly quiet day of M&A headlines:
Pretty quiet from an M&A perspective today. Reuters had latest article discussing how deal volumes likely to be subdued until UK clarifies when how it will negotiate exit from EU. However, there has been plenty of talk about post-Brexit deal resilience in recent weeks. BIIB-US a notable laggard after rallying over 9% on Tuesday (and was up over 4% Monday) on WSJ report company had drawn interest from both MRK-US and AGN-US. However, paper did say communications were informal and preliminary. Company said today that it has not received any formal interest from potential acquirers. TWTR-US up big after last week’s post-earnings selloff. Takeover speculation the driver despite sell-side skepticism. Rumors have suggested that Steve Ballmer and Saudi Arabia's Prince Al-waleed Bin-Talal (both shareholders) could take company private.
*NIESR sees 50/50 risk of UK recession:
UK think-tank the National Institute of Economic and Social Research (NIESR) out with August review. Cut GDP forecast in 2016 by 0.3% to 1.7% and 2017 by 1.7% to 1.0%. Sees 50/50 chance of a technical recession and thinks BoE will cut rates by 25 bp tomorrow and by another 15 bp in November and resume its QE program at some point before the end of 2016. Added economic slowdown will add ~£50B to the government’s borrowing plans for this parliament and push debt to more than 90% of national income, assuming Treasury does not announce any new fiscal stimulus measures. Also noted inflation likely to exceed 3% because of sterling's 10% plunge following Brexit vote. Highlighted uncertainty about effectiveness of monetary policy and likely pressure on government to act to boost economy if slowdown proved deeper than expected.
*European banks rally after recent losses:
European banking sector a notable outperformer following recent losses. Upside leadership driven by combination of a modest recovery in Italian names and corporate earnings. ING (INGA-NL) is one of the best performers after it reported a 27% rise in its Q2 earnings. Societe Generale (GLE-FR) results also positive, with Q2 net income €1.46B vs FactSet €1.37B and revenue of €6.98B vs FactSet €6.48B. Credit Agricole (ACA-FR) reported better Q2 revenue of €4.34B vs FactSet €4.27B, but missed slightly on the bottom line, with net income €818.0M ex-items vs FactSet €831.3M. Meanwhile, HSBC (HSBA-GB) higher despite reporting a 47% drop in Q2 pre-tax profit to $3.6B. However, it described the performance as reasonable in the face of considerable uncertainty. It said it would freeze payouts at current level of 8%. It also pledged to cut $280B of risk-weighted assets by 2017 and would scrap its plan to achieve ROE of 10% by end of 2017.
*ECB says smooth start to corporate sector purchase program:
An ECB economic bulletin reviewed the corporate sector purchase program until the middle of July. Overall it said the program had started smoothly, was well diversified across companies, sectors and euro area countries. Reiterated that the aim of the program was to strengthen the pass-through of monetary policy to the real economy. Of the €10.4B of nonbank corporate bonds purchased, 93% were made in the secondary market and 7% in the primary market, with trades largely of less than €10M due to less liquidity compared with the government bond market. Added that yields ranged between -0.3% to just above 3%, with just above 20% of purchases being made at negative yields. Noted that since the program was announced on 10-Mar there has been a significant contraction in yield spreads on non-financial corporations vs risk-free rate.
*Lacking stimulus traction, Japan needs to focus on structural reform:
Disappointment surrounding details of recently announced ¥28T stimulus package and BoJ decision to only expand ETF purchases has put some focus back on structural reform, the third arrow of Abenomics. Structural reform seen as crucial in terms of driving a credible recovery in Japan, but despite promises, Abenomics has meaningfully under delivered. Nikkei discussed the dynamic. Noted time-honored strategy favored by past governments no longer an option give soaring national debt and negative rates. Argued way to fix uncertainty that is restraining household spending is not by showering public with money, but by correcting over-burdened social security system and unfair taxation to provide clearer picture of the future. Added government also needs to show it is serious about workplace reform to increase flexibility of use of talent.
*Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA) & National Australia Bank Ltd. (NAB):
The big banks have rejected as unaffordable Turnbull government demands that they pass on Tuesday’s interest rate cut in full but have agreed they need to do a better job explaining themselves. The banks’ push-back came as former bank boss David Murray warned of a European-style banking system if banks kept having their returns stripped. By the close of trading on Wednesday, CBA shares fell 2 per cent, ANZ Bank dropped 1.9 per cent, NAB Bank shed 2.8 per cent and Westpac lost 2.5 per cent.
*Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank Ltd. (NAB) & Westpac Banking Corp Fully Paid Ord. Shrs (WBC):
Australia’s big four banks have poured almost four times as much money into the fossil fuel industry than the renewable energy sector since the landmark Paris climate accord in December, according to campaign group Market Forces. The four banks have lent $5.6 billion to the fossil fuel industry since the Paris summit, compared with $1.5 billion for renewables, the group finds. While lending to new coal projects has dwindled, billions of dollars are still being invested in the sector through corporate loans, refinancing for coal ports in Queensland and NSW, and lending for gas projects, according to Julien Vincent, executive director of Market Forces.
Lot of focus in mainland media recently on the decline in Chinese private investment. The National Development and Reform Commission announced efforts today to tackle the issue with a key focus on lowering firms’ cost burdens and easing financing constraints. To that end, NDRC proposed for more interest rate and RRR cuts at the appropriate time, while encouraging the issuance of bonds. Urged proactive fiscal policy to be maintained, including the provision of tax breaks for emerging industry firms. Also proposed reducing red tape, intensifying efforts to reduce overcapacity and accelerating the project approval process. On housing NDRC called for greater efforts to reduce excess inventory, expand land supply and prevent rapid land price growth. Agency also said it is targeting a reduction of investment volatility.
*Yuan strength continues:
Yuan strengthened further Wednesday. PBoC fixed currency at 6.6195 vs 6.6451 on Tuesday and mid-point is now well up from 6.6860 on 25-Jul. Series of stronger fixings has coincided with a steep decline in the dollar against other major currencies in PBoC’s trade-weighted CFETS RMB Index. Fixings follow renewed appreciation in the offshore renminbi. USD/CNH has fallen 1.2% to 6.635 after peaking near 6.718 in mid-July. Reuters cited traders who attributed move to renminbi short covering amid an unexpected depreciation in the dollar. Prevailing view is that Chinese officials want stability ahead of September’s G20 leaders’ summit, and October when IMF is due to include yuan in its SDR basket. Market bets on further declines have diminished with Bloomberg noting the put-to-call premium on the yuan fell on Monday to its lowest since 11-Sep-2014.
*China seeks tighter rein on yuan-selling, capital flight:
Ahead of the yuan's inclusion into IMF's SDR basket in October, Chinese officials appear to be tightening controls over capital outflows. Nikkei said officials are said to be leaning heavily on window guidance on banks since June in order to exert tighter controls. Noted government is monitoring large-scale money transfers, while repaying foreign-currency denominated debt ahead of schedule has effectively been banned in Beijing. Many regions also urging companies to make overseas payments using foreign currency already on hand. China has already instituted a range of other measures to control outflows. This includes raising margin requirements to settle FX transactions, setting up a blacklist of rule violators, tackling underground bank transfers, and strengthening oversight of mainland insurance sales by overseas companie.
*What if central banks actually get it right?:
Amid heightened concerns that monetary policy may be increasingly pushing on a string, some worries that the biggest risk to markets may actually revolve around the potential for some policy success. Reuters pointed out that while central banks’ low rates and unconventional policy measures have managed to spark a lackluster expansion accompanied by some momentum in the labor market, they have failed to get much traction on wage growth or sustain consumer price inflation above 2% for any length of time. Added that financial market have stopped believing they will, with the duration of the skepticism seemingly the biggest takeaway. However, also noted that with investors now relying on equity for income and playing bonds for further capital gains, there could be meaningful shock of policy success on both asset classes.
*Oil bounces:
Oil bounced today as WTI crude settled 3.3% higher at $40.83 a barrel after recent retreat into bear market territory. Inventory data in focus. DOE data showed that gasoline stockpiles, which have been under meaningful scrutiny as of late, fell 3.3M barrels, much better than consensus expectations for a 200K-300K decline. However, DOE unexpectedly reported a 1.4M barrel build in crude stockpiles following the 1.3M draw in the API data out last night. In addition, distillates increased by 1.2M barrels, while consensus was for a 100K decline. Some credibility concerns behind bounce given potential short-covering dynamic following reports earlier in the week highlighting increasingly aggressive bearish positioning on the part of speculators. Also lingering concerns about supply resumptions and softening demand for both crude and products.
*Sectors mixed:
Sectors mixed. Some pockets of cyclical rotation as mostdefensive plays (REITs, utilities, consumer staples, telecom) ended lower. Energy best performer on oil bounce. DOE data showed inventory draw for closely watched gasoline stockpiles. Financials helped by well-received results from insurers GNW-US and AIG-US. Banking group better following rally in European names. Industrials a relative outperformer. Machinery, building materials and rails among standouts. Tech stronger. AAPL-US resumed post-earnings outperformance. Consumer discretionary a slight outperformer with a number of moving pieces, including in recently scrutinized retail space. Materials higher, but also failed to match tape. Industrial metals among standouts. Healthcare lower with some weakness in big pharma.
*ADP Private Payrolls slightly better:
ADP private payrolls increased 179K in July following a net upward revision of 17K to two prior months. Slightly ahead of 170K consensus. Release highlighted some underperformance vs 12-month average due to slowdown in small business hiring. However, also noted this trend partly a function of tight labor market. Pointed out that nation’s biggest problem may soon be lack of available workers. As usual, ADP report likely to take a backset to official BLS data out on Friday. Street looking for a 180K increase in nonfarm payrolls following outsized 287K gain in June that provided some meaningful reprieve for concerns about labor market slowdown and helped drive upgrade of Fed’s economic assessment in July statement last week. Unemployment rate expected to tick down to 4.8% from 4.9% last month, while average hourly earnings seen up 0.2%.
*ISM non-manufacturing index largely in line:
ISM non-manufacturing index slipped to 55.5 in July from 56.5 in June, just below the 56.0 consensus. Details mixed and no notable sequential changes. Activity ticked down to 59.3 from 59.5. New orders improved 60.3 from 59.9. Employment fell to 51.4 from 52.7. Prices pushed up to 55.5 from 51.9, higher for a fourth consecutive month. Release noted that 15 industries reported growth in July. Added majority of respondents’ comments reflected stability and continued growth for their respective companies, along with a positive outlook on the economy. Commentary highlighted themes such as Brexit challenges and uncertainty (finance and insurance), hot weather (accommodation and food services) and positive consumer spending (wholesale trade), oil price stabilization (mining). However, some mixed takeaways surrounding energy market dynamics.
*Retail steady, but still down big this week:
Mixed day for retail, though a lot of discussion about recent selling pressure. Follows post-Brexit outperformance that had seemingly been underpinned by pockets of cyclical rotation and some positive sell-side and back-to-school commentary. However, more cautious analyst notes have been getting some attention in recent days. Yesterday, Morgan Stanley pointed out summer rally has taken dept. store valuations back to five-year averages (or higher), but fundamentals still eroding. Also some focus on comments from Cleveland Research about a slowdown in July stores at M. In addition, Credit Suisse flagged softer comp/traffic at AKE-US as a potential negative read-through for JWN-US. Several apparel-leveraged names have also disappointed this week, including KATE-US. Lack of must have items, AMZN-US competition, consumer wallet share shift and weaker tourism the oft-cited headwinds for traditional retailers.
*Return to interest rate levels of 2011 could drive $3.8T of losses:
With continued worries that a global bond market bubble ($11.7T of sovereign securities trading with a negative yields as of 15-Jul) could be pricked either by a further erosion in central bank confidence or some credible traction in effort to combat a depressed growth/inflation environment, some focus on recent report by Fitch Ratings. Note that this year’s dramatic fall in yields on bonds issued by investment grade sovereigns has again raised risk that a sudden rate rise could impose meaningful market losses on fixed investment investors around the world. Pointed out that a hypothetical reversion of rates to 2011 levels for $37.7T worth of investment-grade sovereign bonds could drive losses of as much as $3.8T. Noted potential market losses would be greatest for holders of European sovereign bonds.
*Lockhart won’t rule out rate increase this year; keeping eye on asset valuations:
Atlanta Fed President Lockhart, who is not a current FOMC voter, told CNBC that at this point, he would not rule out a rate increase at September meeting or later this year. Noted that while situation may be a little ambiguous, he can imagine conditions that could justify tightening. Added that he would like economy to tell Fed it is “ok” to raise rates. Argued economy faring better than the 1.2% growth in Q2 GDP, highlighting strong consumer spending and drag from inventories. According to Reuters, Lockhart also expressed concern about what he referred to as relatively lofty valuations in financial markets. Noted that asset valuations are something Fed has to monitor. Added they particularly deserve watching because they are “relatively buoyant or relatively high”.
*Despite better metrics, earnings still weak:
Better sentiment surrounding Q2 earnings season has received a lot of attention in recent weeks, highlighted by an improvement in some widely followed metrics. According to FactSet, the blended S&P 500 earnings decline is (3.5%), better than the (5.5%) at the start of the quarter.. However, S&P 500 still on track for a fifth straight quarter of y/y declines in earnings. Weak corporate profit environment discussed in WSJ, though article really did not break much new ground. Noted companies worried about industrial production slowdown, sluggish overseas growth and tumultuous political climate. However, did highlight some better takeaways from results out of a number consumer-facing companies, as well as high-profile tech firms leveraged to mobile advertising and cloud computing.
*Biogen weaker, Twitter higher on fairly quiet day of M&A headlines:
Pretty quiet from an M&A perspective today. Reuters had latest article discussing how deal volumes likely to be subdued until UK clarifies when how it will negotiate exit from EU. However, there has been plenty of talk about post-Brexit deal resilience in recent weeks. BIIB-US a notable laggard after rallying over 9% on Tuesday (and was up over 4% Monday) on WSJ report company had drawn interest from both MRK-US and AGN-US. However, paper did say communications were informal and preliminary. Company said today that it has not received any formal interest from potential acquirers. TWTR-US up big after last week’s post-earnings selloff. Takeover speculation the driver despite sell-side skepticism. Rumors have suggested that Steve Ballmer and Saudi Arabia's Prince Al-waleed Bin-Talal (both shareholders) could take company private.
*NIESR sees 50/50 risk of UK recession:
UK think-tank the National Institute of Economic and Social Research (NIESR) out with August review. Cut GDP forecast in 2016 by 0.3% to 1.7% and 2017 by 1.7% to 1.0%. Sees 50/50 chance of a technical recession and thinks BoE will cut rates by 25 bp tomorrow and by another 15 bp in November and resume its QE program at some point before the end of 2016. Added economic slowdown will add ~£50B to the government’s borrowing plans for this parliament and push debt to more than 90% of national income, assuming Treasury does not announce any new fiscal stimulus measures. Also noted inflation likely to exceed 3% because of sterling's 10% plunge following Brexit vote. Highlighted uncertainty about effectiveness of monetary policy and likely pressure on government to act to boost economy if slowdown proved deeper than expected.
*European banks rally after recent losses:
European banking sector a notable outperformer following recent losses. Upside leadership driven by combination of a modest recovery in Italian names and corporate earnings. ING (INGA-NL) is one of the best performers after it reported a 27% rise in its Q2 earnings. Societe Generale (GLE-FR) results also positive, with Q2 net income €1.46B vs FactSet €1.37B and revenue of €6.98B vs FactSet €6.48B. Credit Agricole (ACA-FR) reported better Q2 revenue of €4.34B vs FactSet €4.27B, but missed slightly on the bottom line, with net income €818.0M ex-items vs FactSet €831.3M. Meanwhile, HSBC (HSBA-GB) higher despite reporting a 47% drop in Q2 pre-tax profit to $3.6B. However, it described the performance as reasonable in the face of considerable uncertainty. It said it would freeze payouts at current level of 8%. It also pledged to cut $280B of risk-weighted assets by 2017 and would scrap its plan to achieve ROE of 10% by end of 2017.
*ECB says smooth start to corporate sector purchase program:
An ECB economic bulletin reviewed the corporate sector purchase program until the middle of July. Overall it said the program had started smoothly, was well diversified across companies, sectors and euro area countries. Reiterated that the aim of the program was to strengthen the pass-through of monetary policy to the real economy. Of the €10.4B of nonbank corporate bonds purchased, 93% were made in the secondary market and 7% in the primary market, with trades largely of less than €10M due to less liquidity compared with the government bond market. Added that yields ranged between -0.3% to just above 3%, with just above 20% of purchases being made at negative yields. Noted that since the program was announced on 10-Mar there has been a significant contraction in yield spreads on non-financial corporations vs risk-free rate.
*Lacking stimulus traction, Japan needs to focus on structural reform:
Disappointment surrounding details of recently announced ¥28T stimulus package and BoJ decision to only expand ETF purchases has put some focus back on structural reform, the third arrow of Abenomics. Structural reform seen as crucial in terms of driving a credible recovery in Japan, but despite promises, Abenomics has meaningfully under delivered. Nikkei discussed the dynamic. Noted time-honored strategy favored by past governments no longer an option give soaring national debt and negative rates. Argued way to fix uncertainty that is restraining household spending is not by showering public with money, but by correcting over-burdened social security system and unfair taxation to provide clearer picture of the future. Added government also needs to show it is serious about workplace reform to increase flexibility of use of talent.
*Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA) & National Australia Bank Ltd. (NAB):
The big banks have rejected as unaffordable Turnbull government demands that they pass on Tuesday’s interest rate cut in full but have agreed they need to do a better job explaining themselves. The banks’ push-back came as former bank boss David Murray warned of a European-style banking system if banks kept having their returns stripped. By the close of trading on Wednesday, CBA shares fell 2 per cent, ANZ Bank dropped 1.9 per cent, NAB Bank shed 2.8 per cent and Westpac lost 2.5 per cent.
*Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank Ltd. (NAB) & Westpac Banking Corp Fully Paid Ord. Shrs (WBC):
Australia’s big four banks have poured almost four times as much money into the fossil fuel industry than the renewable energy sector since the landmark Paris climate accord in December, according to campaign group Market Forces. The four banks have lent $5.6 billion to the fossil fuel industry since the Paris summit, compared with $1.5 billion for renewables, the group finds. While lending to new coal projects has dwindled, billions of dollars are still being invested in the sector through corporate loans, refinancing for coal ports in Queensland and NSW, and lending for gas projects, according to Julien Vincent, executive director of Market Forces.
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