Argentina has begun the process of reorganising its towering debts, after falling into a technical default that hit bond prices and the currency on Friday. Buenos Aires announced on Wednesday that it would postpone $7bn of payments on its short-term local bonds for up to six months while it pushes for a “voluntary reprofiling” of $50bn of longer-dated debt mostly owned by foreign investors. The government also said it plans to delay repayment of $44bn of loans from the IMF. Argentina has already defaulted on its debt eight times, twice since the turn of the millennium. The reorganisation prompted Standard & Poor’s to issue a “selective default” rating on the country’s $101bn of debts on Thursday, though it added in a press release on the move that the default had been “cured” by new terms applied to the short-term bonds and would be lifted on Friday. Argentina’s finance ministry cast the default ruling as a technicality. The new payments schedule it published on Thursday went into effect on Friday. Later on Friday, Fitch also downgraded Argentina to “restricted default”, citing a missed payment, but added that it “expects to resolve the RD shortly, pending confirmation of payment on the short-term local debt securities on the revised terms announced by the authorities”.
China’s currency has dropped 3.7 per cent against the dollar in August, putting it on track for the biggest monthly fall in more than a quarter of a century as Beijing hunkers down for a protracted trade war with the US. Beijing had allowed the currency, which it controls through a managed float, to fall to Rmb7.1494 a dollar by early Friday, with analysts expecting further weakness in the months ahead as policymakers seek to make Chinese exports more competitive and to partly blunt US tariff rises. “China is really now taking a long-term perspective,” said Yi Xiong, an economist with Deutsche Bank. “They don’t think [the trade war] is something that can actually be resolved in the short term.” The currency’s fall may draw the ire of Washington, which this month officially labelled China a currency manipulator. But it will also help mitigate the impact of US tariffs, which have expanded to cover virtually all goods imported from China. Economists at Capital Economics estimated this month that a 10 per cent fall against the dollar for the renminbi would boost economic growth by 0.2 per cent, helping to offset a cumulative drag of 0.8 per cent from existing and planned US tariffs.
The dramatic decline in yields on US Treasury bonds means that investors can now get more income from dividends on S&P 500 shares than on even the longest-dated government debt, upending the traditional relationship between stocks and bonds and potentially driving more savers towards the stock market. The yield on 30-year Treasuries has this week fallen decisively below the 1.98 per cent dividend yield from US stocks. On Wednesday, the 30-year yielded 1.94 per cent. Shorter-dated Treasury bonds and notes have offered less income than dividends for some time. Apart from brief moments earlier this year and in 2016, investors have to look back to the 2008 financial crisis to find the last time dividends brought in more cash than all of the available Treasuries. “It’s a really big deal,” said Jonathan Golub, chief US equity strategist for Credit Suisse. “If your primary concern is steady cash to live off then the idea that you can get a better return of capital from equities is important, but also out of sync with what we have been trained over time to think is normal.”
Boris Johnson sparked constitutional uproar yesterday when he announced plans to shut down parliament for five weeks, daring opponents of his Brexit strategy to vote down his government. The move, designed to thwart MPs’ efforts to stop a no-deal Brexit on October 31, was described by John Bercow, Speaker of the Commons, as a “constitutional outrage”. Ruth Davidson, the popular pro-European Conservative leader in Scotland, is expected to quit on Thursday, according to people briefed on her plans. Gina Miller, the anti-Brexit campaigner, has applied for a judicial review into the decision to prorogue parliament. The prime minister asked the Queen to prorogue parliament between the second week of September and October 14 — the longest suspension since 1945. The monarch, who has so far avoided being dragged into the Brexit debate that has divided Britain since the 2016 referendum on EU membership, approved Mr Johnson’s request in a meeting of the privy council, which advises her on political matters.
Investors wiped $13bn off the combined market value of Altria and Philip Morris International on Tuesday after the revelation of merger talks, threatening to derail the recombination of the two tobacco giants. PMI investors are worried about US regulatory and litigation issues, which were the main reason the two companies split more than a decade ago, according to analysts and people familiar with investor feedback to the companies. Altria investors are upset that the contemplated deal does not pay them a premium for their shares, they said. The combined group would have a market value of around $200bn. Both companies are listed on the New York Stock Exchange but PMI sells Marlboro and other brands outside the country while Altria sells inside the US.
The world’s largest wealth manager has turned bearish on stocks, fearing that the latest escalation of the trade fracas between the US and China poses a heightened threat to global markets. UBS Wealth Management, which oversees $2.5tn for rich clients, has trimmed its core equity recommendation to an “underweight” position for the first time since the height of the eurozone crisis in 2012, on worries that the ongoing trade war and slowing global growth increase the risk of owning stocks. The move was prompted by Friday’s announcement by Donald Trump, US president, of an increase in previously announced tariffs, wrote Mark Haefele, global chief investment officer for UBS’s wealth management group, in a note distributed to clients late on Sunday. Underweight means that customers should cut exposures in their portfolios that span various classes of assets. “It seems less and less likely that [the trade war] will de-escalate before the end of the year,” Mr Haefele told the Financial Times on Monday. “This latest round of tariffs increases the risk that global growth and manufacturing growth will slow.”
China’s renminbi weakened to a new 11-year low and stock markets in Asia-Pacific turned sharply lower after US-China trade tensions worsened further over the weekend. On Monday morning, the onshore renminbi weakened as much as 0.8 per cent against the dollar to its lowest since February 2008 following comments from the White House that US President Donald Trump’s only regret was not raising tariffs more than he had already. The currency has weakened 3.8 per cent in August, putting it on track for its worst month since it moved to a managed floating exchange rate in 2005. The offshore renminbi, which is more freely traded, weakened as much as 0.7 per cent to Rmb7.1858 to the dollar, a new record low.
The head of Germany’s central bank has announced his opposition to launching a major monetary or fiscal policy stimulus package in response to the recent slowdown in Europe’s biggest economy. Jens Weidmann said it was not time to “panic” even though the German economy was heading for its first recession in six years after shrinking slightly in the second quarter, hit by US-China trade tensions, weak global growth and fears of a chaotic UK exit from the EU. His comments show how divided the world’s economic leaders are on the best way to respond to signs that the decade-long boom in the global economy is about to come to a shuddering halt. Positioning himself against a sizeable resumption of bond-buying by the European Central Bank, Mr Weidmann said he was “particularly cautious about government bond purchases” because they could blur the line between monetary and fiscal policy.
Donald Trump announced on Friday night that he was increasing tariffs on amost all Chinese imports, ramping up the trade war with Beijing after triggering a sharp market sell-off earlier in the day by warning US companies to leave China. In a series of tweets after the stock market closed, Mr Trump said he was raising existing tariffs on $250bn worth of Chinese imports from 25 per cent to 30 per cent on October 1, and raising tariffs on $300bn of Chinese goods, due to start on September 1, from 10 per cent to 15 per cent. Mr Trump’s move capped a tumultuous day on world financial markets that began with Beijing announcing it was preparing to slap new levies on $75bn of US imports, and saw Jay Powell, the Federal Reserve chairman, caution that the central bank would be unable to counteract the effects of a US-China trade war.
Intensifying regulatory scrutiny of Facebook's Libra digital currency has spooked some of the project's early backers, with at least three privately discussing how to distance themselves from the venture. The 28 members of the Libra Association, which include Visa, Mastercard, Uber, Spotify and the Facebook subsidiary Calibra, made a non-binding pledge to invest at least $10m in the project, which Facebook unveiled in June, with the aim of shaking up the global payments market. However, the proposed currency has prompted a fierce backlash from global watchdogs and politicians, including an official investigation by EU antitrust officials. Two of the project’s founding backers told the FT they were concerned about the regulatory spotlight and were considering cutting ties. Another backer said they were worried about publicly supporting Libra for fear of attracting the attention of agencies who oversee their own businesses. “I think it's going to be difficult for partners who want to be seen as in compliance [with their own regulators] to be out there supporting [Libra]” one of the founding partners said.
The US and Japan are dashing to clear the final hurdles on the way to a partial trade deal that could be finalised as early as next month, potentially delivering some relief from the commercial tensions battering the world economy. Toshimitsu Motegi, Japan’s economy minister, is due in Washington on Wednesday for pivotal talks with Robert Lighthizer, the US trade representative, that could determine the chances of a deal being agreed soon, according to people familiar with the matter. The agreement that is being discussed would fall short of a comprehensive trade deal, which would be pushed to a later stage. This “early harvest” or “mini-deal”, as some negotiators have described it, would involve Japan further opening up its agricultural market to American goods in exchange for some cuts to US industrial tariffs.
Apple has committed more than $6bn for original shows and movies ahead of the launch of its new video streaming service, a ballooning budget aimed at catching up with the likes of Netflix, Disney and AT&T-owned HBO. The iPhone maker has been preparing its foray into media for years, after hiring Jamie Erlicht and Zack Van Amburg, two well-known executives from Sony Pictures Television, to lead the charge in 2017. The pair were initially armed with $1bn to commission original content over their first year but the budget has expanded and the total committed so far has passed $6bn, according to people familiar with the matter. The company has spent hundreds of millions of dollars alone on a star-studded series featuring Jennifer Aniston, Reese Witherspoon and Steve Carell called The Morning Show. According to people familiar with the matter, that amounts to a higher price per episode than Game of Thrones, which reportedly cost $15m for each episode of its final season. The Morning Show ranks alongside science fiction drama See, which features Aquaman star Jason Momoa and is written by Peaky Blinders creator Steven Knight, as one of the most expensive shows on Apple’s slate.
US companies are watering down their spending plans as the threat of slowing global growth and the trade war sap business confidence. Capital expenditure, or capex, is set to grow 3.5 per cent this year, a sharp drop from the 4.2 per cent anticipated just four months ago, according to Citi analysts. The downward revisions reflect the spending plans of 714 listed US companies, excluding financial groups, and echo the drumbeat of dire sentiment data that began to appear late last year indicating businesses would curtail their investments. The revisions come at a pivotal time for markets as the trade war between the US and China and a string of poor economic data have triggered a surge in market volatility and sent investors rushing into safe assets such as US government bonds. “Capex has been one of the biggest concerns about the state of the economy,” said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors. “This year we’re seeing uncertainty hurt capex — it has continued to dwindle.”
A proposal floated by US president Donald Trump to purchase Greenland has been met with a mixture of incredulity and derision, with the self-governing Danish territory declaring it was “not for sale”. “It must be an April Fool’s Day joke,” Lars Lokke Rasmussen, who was Denmark’s prime minister until June, wrote in a tweet on Friday in response to reports that Mr Trump had reportedly raised with his key advisers the prospect of buying the world’s biggest island. “Greenland is not for sale, and can’t be sold,” the island’s government said in a statement. “But Greenland is ready for negotiations to enter collaborations with other countries, including the US.” Jeppe Kofod, the new Danish centre-left foreign minister, said Greenland could not be bought “in dollars, yuan or roubles.” The Arctic island, home to just 56,000 residents, depends on Copenhagen for foreign affairs and national security while being geographically part of North America. It has geopolitical significance because of its location between North America and Europe, abutting the North Pole. It also has significant natural resources potential, including rare earth metals, oil and gas.
After months of speculation that Beijing might use force to intervene in protests in Hong Kong, the sight of paramilitary police massing in the Chinese border city of Shenzhen would appear to confirm the worst fears of many in the territory. Just a few kilometres away from the Asian financial centre, the Shenzhen Bay Sports Center was packed with thousands of members of China’s People’s Armed Police (PAP) — the armed forces’ unit dedicated to crushing internal unrest — practising drills on Thursday morning. “They arrived about a week ago because of the current chaos in Hong Kong,” said a cleaner at the sports centre who declined to give his name for fear of losing his job. “There are tens of thousands of troops inside but they aren’t letting us inside to clean, I’ve only been able to sneak a peek.” There was no official confirmation of why the personnel were gathered there, with authorities earlier saying a previous drill by police was in preparation for the anniversary of the People’s Republic of China on October 1.
US equities fell 3 per cent on Wednesday after disappointing data from China and Germany increased fears over global growth and bond markets signalled the chances of a recession were mounting. The S&P 500 index finished down 2.9 per cent at its low point for the day, with energy stocks leading the declines, closely followed by financials. The tech-heavy Nasdaq was down just over 3 per cent. Underscoring the rising concerns, the yields of US and UK 10-year government bond yields dipped below those of shorter-maturity debt for the first time since the financial crisis — an inversion of their normal relationship that has historically been a harbinger of recession and which crimps banks’ profitability. In Asia, Japan’s Topix was down 1.9 per cent, erasing gains for the year, while the S&P/ASX 200 in Australia fell 1.2 per cent. Hong Kong’s Hang Seng index and China’s CSI 300 were down 0.67 per cent and 0.91 per cent respectively on opening.
WeWork has unveiled its prospectus for a $3bn-$4bn initial public offering that would see the office-space provider become the latest private unicorn to go public in the face of stormier markets and a gloomier global economy. The heavily lossmaking property group, which stated its mission was “to elevate the world’s consciousness”, would follow Uber, Lyft and Pinterest in a rush to IPO this year after an extended period when hyped young companies have relied on private investors to supply billions of dollars of growth capital. The stampede is seen by some money managers as a sign that stock markets are near their peak. WeWork accelerated its listing plans as a trade war between the US and China caused global stock markets to gyrate in the summer. Executives are keen to complete the IPO while US stocks remain near record highs, people with knowledge of the matter said, given concerns that global growth could slow in 2020. The IPO, which could come as soon as September, will be a big test of public investor appetite. Even among its cohort, WeWork stands out for its rapid growth, ballooning losses and heavy debt load.
Donald Trump engineered a remarkably quick retreat on Tuesday from his latest aggressive move in the trade war with China, delaying some new tariffs on consumer goods that were set to take effect on September 1 for more than two months, until mid December. Yet there are scant hopes that the gesture will pave the way for a resumption of serious negotiations leading to a lasting peace in the trade war consuming Washington and Beijing. “This seeming de-escalation in ongoing tensions may be a temporary reprieve,” said Elena Duggar, associate managing director at Moody’s, the rating agency. “Relations between the world's two largest economies will remain contentious, punctuated with occasional steps towards compromise,” she added. Mr Trump’s move was accompanied by an unusual acknowledgment that the deepening economic conflict with Beijing could have negative repercussions for US households, which he has so far strenuously denied.
Argentina’s currency tumbled on Monday and the cost to insure against a debt default leapt after opposition candidate Alberto Fernández’s win in primary elections stoked concerns of a populist comeback in presidential elections in two months’ time. The unexpectedly strong showing by Mr Fernández, whose running mate is former president Cristina Fernández de Kirchner, prompted speculation that market-friendly President Mauricio Macri will lose October’s election. Mr Fernández received 47.7 per cent of the votes in a pre-election test of sentiment as voters punished Mr Macri for an austerity programme that has caused a deep recession, high unemployment and inflation of more than 50 per cent. Mr Macri’s coalition received just 32.1 per cent. “At the moment, it’s looking like a first-round win for Fernández, and a first-round win by that ticket is unabashedly bad news,” said Greg Lesko, a portfolio manager at Deltec Asset Management. “There is no silver lining to that.” Eddy Sternberg, a portfolio manager for emerging markets debt at Loomis Sayles, a Boston-based asset manager, was equally downbeat. “My first reaction to the results was, there goes Argentina,” he said. “The only chance Argentina had of becoming a normal country is shot.” The Argentine peso dropped as much as 25.3 per cent to more than 60 against the US dollar before paring some of its losses on Monday. It was the largest such drop since December 2015 when Mr Macri lifted currency controls and allowed the peso to float freely. The difference in the price at which traders were willing to buy and sell the currency was unusually wide in a sign of market stress, said Paul McNamara, a fund manager focused on emerging markets at GAM.
The Trump administration has officially labelled China a “currency manipulator” after the Chinese central bank allowed the renminbi to fall below a key threshold, marking a dramatic escalation in the trade war between the two economic powers. The US Treasury announced its decision after financial markets closed on Monday. It came just hours after President Donald Trump again accused China of weakening its currency to create an unfair trade advantage. The Treasury designation was seen by analysts as a largely symbolic move that would serve as a political justification for more tariffs. “The US Treasury’s designation of China as a currency manipulator signals that the trade war is expanding into an all-out and open economic warfare between the two countries,” said Eswar Prasad, a Chinese financial system expert at Cornell University.
US President Donald Trump said the US would place a 10 per cent tariff on $300bn of additional Chinese goods, escalating the trade war between Washington and Beijing in a new threat to the global economic outlook. The announcement continued to unsettle financial markets on Friday, leading to haven buying of bonds and a broad equity sell-off. The yield on the global benchmark 10-year US Treasury bond, which moves inversely to prices, fell to around its lowest level since 2016, dropping 5.4 basis points to 1.83 per cent. That extended a fall from the start of Thursday to 18bps. After a 1 per cent fall on Wall Street on Thursday, European stocks joined the sell-off after Asian shares suffered falls. Germany’s exporter-led Xetra Dax 30 fell by almost 2 per cent, with all but one of its constituents down. London’s FTSE 100 lost 1.5 per cent. China’s renminbi also weakened sharply. In a series of afternoon tweets, Mr Trump shattered a tenuous truce he reached with Xi Jinping, his Chinese counterpart, at the G20 summit in Osaka in late June, which had paved the way for new high-level talks in Shanghai this week.
The Federal Reserve cut its main interest rate by 25 basis points, the first reduction since the financial crisis, but disappointed investors by calling the move a “mid-cycle adjustment to policy” rather than the start of a more aggressive cycle of monetary easing. The one-notch cut — widely expected by economists and investors — stemmed from growing concerns among its key officials about “uncertainties” linked to weakness in the global economy and simmering trade tensions. The central bank’s Federal Open Market Committee said it was ready to “act as appropriate to sustain the expansion”, hinting at more rate cuts in the future, and paired the move with a decision to halt the reduction in the Fed’s balance sheet two months earlier than planned. But comments by Jay Powell, the Fed chairman, at a press conference, spooked investors by suggesting that the FOMC would take a more cautious approach to easing than they had expected. Before the Fed meeting, markets were betting on three more interest rate cuts by the end of 2019.
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March 2021
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