Artificial intelligence (AI) is going to change investment management, writes Andrew Allentuck in The Globe and Mail. The increased adoption of AI will lead to more time for solving problems, thinking of new methodologies and fewer man-hours spent on data by asset managers and quants. By contrast, it will be bad news for stockbrokers and their business in "high-priced 'investments de jour'," which are more likely to be replaced by robo-advisers.
The US economy is under pressure due to lower-than-expected earnings from Home Depot and the impact of a long-running trade war, which could cause a recession if consumer spending slows. The S&P 500 index dropped 0.2%, the Dow Jones Industrial Average fell by 0.6%, while the Nasdaq Composite rose 0.3% in afternoon trading on Tuesday. Energy producers were among the heaviest weights on the market, while retailers, including Lowe's, fell on reports of disappointing earnings. Pressure is on other retailers, including Target and Walmart, to produce good results.
The US government is at risk of running out of cash in a matter of weeks, with officials warning that it may default on its bonds if a political dispute in Washington over raising the debt ceiling is not settled. While some Republicans in Congress have explored the possibility of the Treasury prioritising bond payments if a default is close, this has been discouraged by treasury secretary, Janet Yellen, who has warned that delay in making other payments would constitute a “default by another name”. A short-lived default could result in a 0.6% decline in GDP and 500,000 lost jobs. The [US] credit score would be trashed, leading to higher borrowing costs for decades, according to experts. For those buying protection via credit default swaps, an enormous payout could await as US bonds have faced a steep rise in interest rates since early 2022, leading to the value of swaps rising to record highs.
Failed bank execs see blame everywhere, except in the mirror
CNN
23-05-16 22:13
In Senate testimony, former executives of Signature Bank and Silicon Valley Bank (SVB) blamed "unprecedented" events for the collapse of the banks. Senate Banking Committee lawmakers were critical of the lack of risk mitigation and large pay packages at the banks, with Senator Sherrod Brown comparing SVB CEO Greg Becker's testimony to "my dog ate my homework". Becker denied he had done anything wrong and that SVB was a victim of misperception, social media panic, and a series of "unprecedented events". Lawmakers expressed outrage that large executive pay packages were not repaid after SVB's collapse.
Uncertainty over the US debt ceiling is set to continue as traders brace for April inflation data for the eurozone, with European markets predicted to open lower. UBS Group AG is poised to release its financial statement detailing the $17bn hit it took from the takeover of Credit Suisse Group AG. Meanwhile, BlackRock is requesting its staff return to the office at least four days a week as pandemic restrictions are lifted globally. The recession in Japan has lifted as the country rebounds post-pandemic to offset global economic challenges, while Warren Buffett increased his influence in Capital One Financial Corp.
On Tuesday, the Chinese yuan dropped to its lowest level to the US dollar this year, resulting in India's rupee falling. Non-deliverable forwards indicate that the rupee will open at around 82.28-82.30 to the US dollar compared with 82.2050 in the previous session. Resilient US economic data such as strong retail sales and control retail sales caused demand for the safe haven dollar to rise. The US Federal Reserve's continued push back against rate cuts that investors have priced in for later this year has also caused pressure on emerging currencies.
Asian markets were muted in early trade on 19 May, with the US debt ceiling talks and mixed economic data weighing on sentiment. MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.20% lower, while Australia's S&P/ASX 200 index was down 0.56%. However, Japan’s Nikkei spiked 0.68% higher, scaling above 30,000 for the first time since September 2021. Meanwhile, without an agreement on the looming U.S. debt default, in about two weeks, the government might not be able to pay its bills, with economists fearing the country will likely slide into a recession.
Home Depot's Q1 earnings came in weaker than expected, with a 2.3% decline in sales growth for products not including lumber. Same-store sales fell 4.5%, with CEO Ted Decker acknowledging that speculation over whether customers are reverting to pre-pandemic spending patterns was a problem for retailers. Consumer patterns may not "end or how quickly it goes" and Home Depot may have to give back growth it picked up during the pandemic, he said. The government's most recent retail sales report also showed "volatile" numbers as many large, mature retailers weighed up uncertainty over spending and growth patterns in the coming year. Meanwhile, falling rates and a weaker dollar helped emerging-market bonds and Treasuries over high-yield bonds, with SocGen recommending the abandonment of high-yield bonds completely to shift to emerging market bonds and Treasuries. However, Andy Brenner, head of international fixed income at NatAlliance, is positive on high-yield bonds as they've transformed in composition over the last decade, including companies like Ford and Kraft-Heinz.
The US Federal Reserve (Fed) is unlikely to change its main interest rate despite an anticipated recession, according to a Reuters poll of economic analysts. Of 116 polled, 60.8% forecast that the interest rate would remain steady at 5.00%-5.25% through to the end of 2023, while 14 respondents expected it to rise. Recent market predictions had suggested at least a 50 basis point cut would be seen by the end of Q3 2023. Although a majority of analysts also predicted a US recession in 2023, three-quarters did not expect an interest rate reduction.
The US Federal Reserve is expected to keep interest rates on hold despite a predicted recession this year, according to a poll of economists. A number of policy makers have said they will maintain or raise the federal funds rate, despite the 34 of 46 respondents who predicted a US recession in 2023. The uncertainty surrounding the ongoing debt limit crisis will increase the risk of a default, according to the poll.
Comments from Federal Reserve officials on high interest rates have impacted US markets, with bond yields and rate futures reacting to the news. Chicago Federal Reserve President Austan Goolsbee said on Tuesday that it was "too premature" to consider interest rate cuts. The New York Fed's John Williams also noted inflation remained high. Loretta Mester, President of the Cleveland Fed, stated that rates were not going to be put on hold yet. Meanwhile, US President Joe Biden has cut his trip to Japan short amid the ongoing debt ceiling crisis, with just two weeks to go before a US debt default.
Debt ceiling threat: Time to take this political football off the field
CNN
23-05-17 16:31
The debt ceiling debate in Washington should be abandoned to save US living standards, family budgets, and global financial stability, according to economics experts. Theoretically, the debt ceiling should work as a fiscal restraint during the budgeting process. But after near meltdowns in 2011, 2013 and recently, economists argue it is time to take the political football off of the field. The CEO of JPMorgan Chase, Jamie Dimon said last week that he would be in favour of getting rid of the debt ceiling. The Fed's former vice-chairman, Roger Ferguson, said the debt ceiling is an antiquated mechanism that should be scrapped.
Global debt rose to $304.9trn in Q1 2022, nearing a record, the Institute of International Finance said in a report. The world's debt pile increase by $8.3tn during that time. Last year in Q1 it surpassed $306.3tn. Emerging markets saw a 1Q record high, with $100.7tn of debt, or 250% of GDP. Such debt rose by 34% from 2019, led by Japan, the US, France and the UK. The IIF report also addressed leverage in the financial system, the growing cost of serviced debt due to rising interest rates, and liquidity problems caused by swift monetary tightening.
Former UK Chancellor Kwasi Kwarteng has refused to apologise for financial turbulence triggered during his time in office with Liz Truss. These results included raised mortgage rates amid market uncertainty caused by Kwarteng's mini-budget, which Truss's successor and Chancellor Jeremy Hunt moved to counteract. Kwarteng refused to apologise, instead calling for loyalty to the Tory party leader while suggesting cutting taxes in a careful but inventive way. Truss's brief time as prime minister came to an end after her budget reportedly cost British taxpayers tens of billions of pounds and resulted in Bank of England intervention to prevent pension fund collapse.
Angry lawmakers accuse Fed of inaction in insider trading investigation
CNN
23-05-18 00:49
Federal Reserve Inspector General Mark Bialek faced questions from Congressional lawmakers regarding possible insider trading by Fed officials in 2020, with accusations of inaction against the central bank. Bialek faced criticism over an ongoing investigation into trades made by heads of the Boston and Dallas Federal Reserve banks before and during the pandemic. Bialek said his investigation was limited by the need to conduct a "thorough, independent investigation." Senators expressed doubts over Bialek's ability to conduct independent investigations since he was appointed by members of the Fed's Board of Governors, whom he is tasked with investigating. Lawmakers have introduced bills for an independently appointed Inspector General in light of the SVB bank collapse in March.
The Federal Reserve’s internal watchdog, Mark Bialek, has testified with the Senate Committee on Banking, Housing and Urban Affairs, defending his unit's independence as well as its ability to investigate. However, the inspector general acknowledged that he has faced some criticism over the way that investigations of the central bankers' trading activities have been conducted. Fed insiders have meanwhile suggested that Bialek's role will come under increasingly close scrutiny following allegations of inappropriate trading activity by two regional bank leaders and the confirmation hearing of President Joe Biden's nominee to lead the SEC.
Central banks globally have been accused of failing to spot the degree to which inflation rates would rise and stick, despite record monetary and fiscal support. Almost all rate-setters failed to foresee inflation rising and then overestimated the pace of decline. Advanced economies are experiencing the most vigorous and enduring outbreak of inflation in a generation. The Bank of England is currently holding a “Festival of Mistakes” to celebrate lessons learnt from financial disasters of the past, instead of what some suggest should be more recent errors. Central bankers failing to identify soaring inflation have not only left themselves risking financial instability due to being forced to raise rates faster than is usual but threatened the credibility of institutions that rely on trust to steer the economy toward sustainable growth.
China's currency, the yuan, hit a multi-month low and fell through the critical seven per US dollar level, with pundits identifying the US Federal Reserves’ policy as the main contributor rather than domestic economic weakness. As doubts grow over China’s economic recovery, foreign investors have left markets and the currency has fallen by 4% since the end of January. Analysts from Nomura and Societe Generale have predicted that the yuan could drop to seven to the dollar soon. Additionally, the interest rate gap remains wide, causing some hedge funds to use yuan as a funding currency.
Japan's imports have fallen for the first time in over two years as the value of imports declined 2.3% YoY in April, largely due to a fall in commodity prices, including shipments of crude oil and liquid natural gas, helping to mitigate the impact of the global slowdown which is hitting exports. The decrease in imports will likely help to lessen the effects of the ongoing global slowdown in the face of interest rate hikes by central banks, while car shipments helped drive up Japan's exports up 2.6% YoY over the same period.
Dallas Federal Reserve Bank President Lorie Logan has claimed that she is worried that “much too high” inflation has not slowed enough to let the US Federal Reserve pause its interest-rate increase campaign in June. While acknowledging that future data readings could justify skipping a meeting, Logan asserted that inflation levels had yet to reach that point. The Federal Reserve will meet on 13 to 14 June.
