A close economic advisor to Japanese Prime Minister Shinzo Abe has described the Bank of Japan (BOJ) negative interest rate policy as being “extremely beneficial” to the world’s third largest economy.
Yasutoshi Nishimura, a member of the House of Representatives in the Diet, told Reuters that the policy is currently keeping mortgage rates low and giving a boost to corporate debt issuance even if the strategy may be strangling bank earnings short term.
He said the plus points outweigh those negatives as summer spending, both private and corporate, will be boosted hugely. The comments by the influential politician are a hint that the BOJ might be considering dropping rates even further after its policy meeting towards the end of September.
“We need to avoid falling back into deflation,” Nishimura said in the interview. “It’s important to keep cash flowing through the system. The positives of the current strategy by the BOJ are far more important than the negatives. I don’t think we will see the BOJ reversing the current easing policy, it’s extremely beneficial to the Japanese economy on the whole.”
Sources close to the central bank are sure the BOJ will make negative rates the focus of future quantitative easing as it transfers from a base money centred strategy.
In the midst of the BOJ’s huge asset-purchasing program which started at the beginning of 2016, the central bank stunned the financial world by pulling interest rates down to a negative figure, essentially meaning they are charging banks a fee for keeping funds in their vaults, about 0.1 percent.
“The comments from Nishimura could be seen as trying to give the thumbs up to a policy that was initially very unpopular with a lot of politicians when it was brought in,” said Anthony Russell, Senior Vice President at Monex BMO Securities in a phone interview on Wednesday. “Abe will be happy to get some political back-up at this moment in his career, there’s no doubt of that.”
Reduced banking profits made the policy unpopular in the corporate world and many consumers feared private savings rates could also be dropped. However, BOJ Governor Haruhiko Kuroda promised that would not be the case, and Nishimura seemed to affirm this in the Reuters interview.
Immediate effects of the policy have been a drop in borrowing costs and reduced government bonds, leading to more people taking out cheaper loans for new homes.
Saturday, September 17, 2016
Friday, September 16, 2016
Japanese capital expenditure rating finally falls
The fragility of the Japanese economy was yet again brought into the stark light of day as the government dropped its rating for capital expenditure for the first time in 11 months, while at the same time giving a rosier outlook on private consumption.
The Shinzo Abe administration held firm to its broad assessment of the world’s third largest economy in its September report, describing it as being in “a slow recovery with underlying issues”.
The Cabinet Office released the report to the public on Tuesday and the results are being scrutinized by the country’s media who are starting to turn on the current PM who’s “Abenomics” are failing to deliver the promised results.
Household spending, factory production and, most importantly, exports are all on a downslide according to a slew of economic reports recently, and the country’s central bank will hold a policy meeting at the end of next week to decide on the next course of action. The only bright spot was an increase in core machinery output.
Many observers are expecting the Bank of Japan (BOJ) to continue with its easing strategy as inflation slips beneath their 2 percent target and economic growth remains weak at best.
“We’ll see a full report of how the stimulus is affecting the economy near the end of this month,” said Anthony Russell, Senior Vice President at Monex BMO Securities in an email to clients. “The decrease in capex [capital expenditure] is not encouraging but it’s unclear how long that will go on for. If corporate profits can stay strong then the government can change their assessment moving into October.”
Last month capital expenditure was rated as showing “a pickup”, so September’s early data is a downgrade.
Meanwhile, private consumption was “very solid in general”, excellent news as it constitutes about 70 percent of the nation’s economy. It’s the first time the benchmark factor has been upgraded for over a year, as buyer sentiment has been stagnant.
Business sentiment and housing construction also merited a small upward revision in the government report.
The Shinzo Abe administration held firm to its broad assessment of the world’s third largest economy in its September report, describing it as being in “a slow recovery with underlying issues”.
The Cabinet Office released the report to the public on Tuesday and the results are being scrutinized by the country’s media who are starting to turn on the current PM who’s “Abenomics” are failing to deliver the promised results.
Household spending, factory production and, most importantly, exports are all on a downslide according to a slew of economic reports recently, and the country’s central bank will hold a policy meeting at the end of next week to decide on the next course of action. The only bright spot was an increase in core machinery output.
Many observers are expecting the Bank of Japan (BOJ) to continue with its easing strategy as inflation slips beneath their 2 percent target and economic growth remains weak at best.
“We’ll see a full report of how the stimulus is affecting the economy near the end of this month,” said Anthony Russell, Senior Vice President at Monex BMO Securities in an email to clients. “The decrease in capex [capital expenditure] is not encouraging but it’s unclear how long that will go on for. If corporate profits can stay strong then the government can change their assessment moving into October.”
Last month capital expenditure was rated as showing “a pickup”, so September’s early data is a downgrade.
Meanwhile, private consumption was “very solid in general”, excellent news as it constitutes about 70 percent of the nation’s economy. It’s the first time the benchmark factor has been upgraded for over a year, as buyer sentiment has been stagnant.
Business sentiment and housing construction also merited a small upward revision in the government report.
Thursday, September 15, 2016
British insurance giant close to Abbey Life deal
Deutsche Bank’s UK lending unit, Abbey Life, have announced they are in discussions with leading life insurance firm Phoenix Group Holdings regarding a possible sale of their British operations, according to sources that prefer to remain un-named.
The sources claim the talks are in the closing stages and the purchase will cost Phoenix over a billion dollars, assuming both boards green-light the agreement.
Deutsche purchased Abbey Life a decade ago for well over the asking price and the current valuation for the business is roughly a billion pounds, said the sources in a magazine article for Reuters. The embedded value is close to double that if past figures are to be taken seriously.
“Phoenix could be bursting onto the closed life acquisition scene with this deal,” said Anthony Russell, Senior Vice President at Monex BMO Securities in a note to investors. “The insurance sector is watching this one closely and if it proceeds we could see much more action in the UK.”
According to people close to the deal, Deutsche shunned offers from Admin Re and Legal & General last year in preference to entering into talks with Phoenix in 2016.
Phoenix and Deutsche Bank have both declined to answer emails and phone calls regarding the matter.
Earlier in the year Abbey Life was rocked by a scandal involving the treatment of long-term clients which is thought to be heading for compensation settlements and possibly hefty fines for the company.
Big insurers have come under increasing pressure from shareholders to settle their legacy books as new regulations and ultra-low interest rates hurt profits. Many players in the sector have resorted to putting their books up on the market.
Britain’s vote to leave the E.U. started the ball rolling on interest rate cuts and managers of closed life insurers have been one of the hardest hit in the financial landscape, with much reduced income.
Phoenix made it clear in their own announcement that the company will continue to seek out future opportunities to “take strides in the UK life insurance sector.” Chief executive Clive Bannister said that the firm was “actively searching for new acquisitions to become more competitive in the market.”
In the summer, Phoenix purchased French firm AXA's UK financial unit in a deal thought to be worth upwards of $500 million, encompassing all their pensions and investment business in Britain.
The sources claim the talks are in the closing stages and the purchase will cost Phoenix over a billion dollars, assuming both boards green-light the agreement.
Deutsche purchased Abbey Life a decade ago for well over the asking price and the current valuation for the business is roughly a billion pounds, said the sources in a magazine article for Reuters. The embedded value is close to double that if past figures are to be taken seriously.
“Phoenix could be bursting onto the closed life acquisition scene with this deal,” said Anthony Russell, Senior Vice President at Monex BMO Securities in a note to investors. “The insurance sector is watching this one closely and if it proceeds we could see much more action in the UK.”
According to people close to the deal, Deutsche shunned offers from Admin Re and Legal & General last year in preference to entering into talks with Phoenix in 2016.
Phoenix and Deutsche Bank have both declined to answer emails and phone calls regarding the matter.
Earlier in the year Abbey Life was rocked by a scandal involving the treatment of long-term clients which is thought to be heading for compensation settlements and possibly hefty fines for the company.
Big insurers have come under increasing pressure from shareholders to settle their legacy books as new regulations and ultra-low interest rates hurt profits. Many players in the sector have resorted to putting their books up on the market.
Britain’s vote to leave the E.U. started the ball rolling on interest rate cuts and managers of closed life insurers have been one of the hardest hit in the financial landscape, with much reduced income.
Phoenix made it clear in their own announcement that the company will continue to seek out future opportunities to “take strides in the UK life insurance sector.” Chief executive Clive Bannister said that the firm was “actively searching for new acquisitions to become more competitive in the market.”
In the summer, Phoenix purchased French firm AXA's UK financial unit in a deal thought to be worth upwards of $500 million, encompassing all their pensions and investment business in Britain.
Tuesday, September 13, 2016
U.S. is land of opportunity for Canadian energy companies
Last year’s nosedive in the Canadian dollar made it very probable that American investors would pile funds north of the border in search of assets and acquisitions at low prices. But the actual activity seen, especially in the energy sector, is entirely opposite to what analysts forecast, as Canadian companies look to the U.S. for expansion.
Good examples would be pipeline heavyweights Enbridge and TransCanada who are happy to pay over 25 percent premiums compared to three years ago acquiring American firms with deals totalling nearly $60 billion just in the last six months.
Earlier in the year, Canadian power firms Emera and Fortis invested $20 billion purchasing utility companies to the south.
Anthony Russell, Senior Vice President at Monex BMO Securities says the reasons for the current trend are convoluted but a big factor may be the difficulties Canadian companies are having getting building done in their own territory.
“Over the last few years regulatory complications have made it harder for Canadian firms to get their building work cleared. Even though the loonie [Canadian dollar] is so low, they are still seeking expansion in the U.S. market, obviously it’s worth paying the premiums and bad exchange rate for.”
Meanwhile, in Canadian M&A’s, last week saw the biggest ever merger in the country’s energy sector when U.S. company Spectra Energy, a gas pipeline specialist, announced they were selling the company to Calgary –based energy delivery firm Enbridge for almost $40 billion.
Enbridge were attracted by Spectra’s oil units as well as their already impressive gas facilities, and the agreement will help diversify Enbridge’s portfolio. Many energy firms are looking to move more into the gas business as North America starts to take a step back from coal-fired electricity generation methods.
It’s a welcome move for Enbridge, who have had serious issues with their Northern Gateway project over the last few years as regulators have held up building work.
Good examples would be pipeline heavyweights Enbridge and TransCanada who are happy to pay over 25 percent premiums compared to three years ago acquiring American firms with deals totalling nearly $60 billion just in the last six months.
Earlier in the year, Canadian power firms Emera and Fortis invested $20 billion purchasing utility companies to the south.
Anthony Russell, Senior Vice President at Monex BMO Securities says the reasons for the current trend are convoluted but a big factor may be the difficulties Canadian companies are having getting building done in their own territory.
“Over the last few years regulatory complications have made it harder for Canadian firms to get their building work cleared. Even though the loonie [Canadian dollar] is so low, they are still seeking expansion in the U.S. market, obviously it’s worth paying the premiums and bad exchange rate for.”
Meanwhile, in Canadian M&A’s, last week saw the biggest ever merger in the country’s energy sector when U.S. company Spectra Energy, a gas pipeline specialist, announced they were selling the company to Calgary –based energy delivery firm Enbridge for almost $40 billion.
Enbridge were attracted by Spectra’s oil units as well as their already impressive gas facilities, and the agreement will help diversify Enbridge’s portfolio. Many energy firms are looking to move more into the gas business as North America starts to take a step back from coal-fired electricity generation methods.
It’s a welcome move for Enbridge, who have had serious issues with their Northern Gateway project over the last few years as regulators have held up building work.
Monday, September 12, 2016
Canadian farming companies agree to form $40 billion titan
In a deal that is sure to come under the regulators microscope as detailed in a recent report by financial house Monex BMO Securities, two agricultural powerhouses Potash Corp of Saskatchewan and Calgary-based Agrium Inc. have agreed a potential tie-up that would create one of the biggest fertilizer and farming retailing entities in North America, worth around $40 billion.
A spokesman for Potash said in a statement that the combined firm would be one of the largest natural resource providers in the country and the biggest crop nutrient company on the globe. Potash is currently a world leader in the crop nutrient sector by capacity.
The two companies previously announced they had entered into discussions at the end of last month and the merger would be the latest in a line of tie-ups in the sector which include giants of the seed industry like Monsanto and Bayer, and Syngenta and ChemChina.
Even in the face of those massive mergers, the Potash - Agrium combination would create a conglomerate that will dominate the North American fertilizer landscape, controlling around 30 percent of all nitrogen and phosphate production on the continent.
The deal comes in the wake of a tough few years for the agricultural sector as prices plummeted in response to lowered demand and an inventory glut. Wheat and corn prices are at an 8-year low, causing farmers to think twice about boosting production and purchasing fertilizers and similar products.
Details of the deal are still hazy, however anonymous sources close to the discussions have said Agrium shareholders will receive 2.24 common shares for each of their own and Potash shareholders will get 0.4.
Shares for Potash were increased a small amount on Friday afternoon trading at $17.04. Agrium shares went untraded and stayed at $95.22. The split for the new company will be slightly in favour of Potash, whose shareholders will own 53 percent, with Agrium shareholders owning the remainder. The deal is expected to be finalized in the middle of next year.
On a proforma basis, the companies said the new entity would have had a net revenue of over $20 billion last year and they will expect yearly operating synergies of half a million dollars moving forward after the tie-up.
Agrium’s current CEO Chuck Magro will keep his position as the new company’s leader. Potash chief executive Jochen Tilk will be the chairman of the board.
A spokesman for Potash said in a statement that the combined firm would be one of the largest natural resource providers in the country and the biggest crop nutrient company on the globe. Potash is currently a world leader in the crop nutrient sector by capacity.
The two companies previously announced they had entered into discussions at the end of last month and the merger would be the latest in a line of tie-ups in the sector which include giants of the seed industry like Monsanto and Bayer, and Syngenta and ChemChina.
Even in the face of those massive mergers, the Potash - Agrium combination would create a conglomerate that will dominate the North American fertilizer landscape, controlling around 30 percent of all nitrogen and phosphate production on the continent.
The deal comes in the wake of a tough few years for the agricultural sector as prices plummeted in response to lowered demand and an inventory glut. Wheat and corn prices are at an 8-year low, causing farmers to think twice about boosting production and purchasing fertilizers and similar products.
Details of the deal are still hazy, however anonymous sources close to the discussions have said Agrium shareholders will receive 2.24 common shares for each of their own and Potash shareholders will get 0.4.
Shares for Potash were increased a small amount on Friday afternoon trading at $17.04. Agrium shares went untraded and stayed at $95.22. The split for the new company will be slightly in favour of Potash, whose shareholders will own 53 percent, with Agrium shareholders owning the remainder. The deal is expected to be finalized in the middle of next year.
On a proforma basis, the companies said the new entity would have had a net revenue of over $20 billion last year and they will expect yearly operating synergies of half a million dollars moving forward after the tie-up.
Agrium’s current CEO Chuck Magro will keep his position as the new company’s leader. Potash chief executive Jochen Tilk will be the chairman of the board.
Friday, September 9, 2016
Crude keeps rising amid tropical storm
After a storm threatened refining in the Gulf Coast region then moved on to the East Coast of the U.S. last week, crude prices jumped nearly 2 percent on Wednesday according to United States industry reports, which showed a significant drawdown in crude inventories.
The American Petroleum Institute said that inventories are down by over 12 million barrels in the past seven days following a levelling off in the market on Tuesday. That result was well short of expectations, with most specialists projecting an increase in stock by several thousand barrels.
There was a rise of 70 cents for benchmark Brent crude at $48.64 in afternoon trading. U.S. light crude made a move of 80 cents to $46.24 compared with a 68 cent rise in the morning session.
Due to the shale oil boom of the past two years, United States crude inventories have been at record highs. However, Hurricane Hermine severely hampered imports and led to a large chunk of lost crude output in the U.S.
Twelve percent of Gulf of Mexico production was halted until the storm passed, according to a government press release.
“We are still looking at a fairly bearish crude market,” says Anthony Russell, Senior Vice President at Monex BMO Securities. “The API report is a singular ray of hope on the downward trend so the large oil draw was fleeting.”
Crude prices were also given a lift by encouraging figures from one of the United States biggest trading partners, China, which upped their imports by 25% last month leaving them with their biggest stock of crude in decades. Much of the increase in orders is down to a rush by refiners to take advantage of low prices before import quotas terminate at the end of the year.
In an OPEC meeting which ended last Tuesday, Saudi Arabia agreed with some non-OPEC nations, notably Russia, to stabilize the crude market, leading to oil climbing to a weekly high. Those highs didn’t last, however, as many producer nations are still deliberating over whether to join the agreement. There will be an extension of the talks in an informal summit at the end of this month in Algeria.
Considering global markets are now fully supplied, most observers are predicting crude prices to drop before that meeting.
“We believe that crude has peaked now and the only way is down after this. All indicators show the price range limit has been reached,” Commerzbank crude analyst Carsten Fritsch said.
The American Petroleum Institute said that inventories are down by over 12 million barrels in the past seven days following a levelling off in the market on Tuesday. That result was well short of expectations, with most specialists projecting an increase in stock by several thousand barrels.
There was a rise of 70 cents for benchmark Brent crude at $48.64 in afternoon trading. U.S. light crude made a move of 80 cents to $46.24 compared with a 68 cent rise in the morning session.
Due to the shale oil boom of the past two years, United States crude inventories have been at record highs. However, Hurricane Hermine severely hampered imports and led to a large chunk of lost crude output in the U.S.
Twelve percent of Gulf of Mexico production was halted until the storm passed, according to a government press release.
“We are still looking at a fairly bearish crude market,” says Anthony Russell, Senior Vice President at Monex BMO Securities. “The API report is a singular ray of hope on the downward trend so the large oil draw was fleeting.”
Crude prices were also given a lift by encouraging figures from one of the United States biggest trading partners, China, which upped their imports by 25% last month leaving them with their biggest stock of crude in decades. Much of the increase in orders is down to a rush by refiners to take advantage of low prices before import quotas terminate at the end of the year.
In an OPEC meeting which ended last Tuesday, Saudi Arabia agreed with some non-OPEC nations, notably Russia, to stabilize the crude market, leading to oil climbing to a weekly high. Those highs didn’t last, however, as many producer nations are still deliberating over whether to join the agreement. There will be an extension of the talks in an informal summit at the end of this month in Algeria.
Considering global markets are now fully supplied, most observers are predicting crude prices to drop before that meeting.
“We believe that crude has peaked now and the only way is down after this. All indicators show the price range limit has been reached,” Commerzbank crude analyst Carsten Fritsch said.
Thursday, September 8, 2016
Indian software firm says US clients are keeping purse strings tight
The shares for one of India’s top software companies have plummeted almost 7 percent this month as they stated that some of their most important clients in the U.S. are keeping discretionary spending at an absolute minimum.
Tata Consultancy Services Ltd (TCS) hit a half year low as the company reported that according to their own data, as of the end of last month, spending from their top ten financial services clients in America has been “incredibly cautious” and in many cases they have been holding off on any new purchases.
A spokesman for the firm said late last night that the recent lack of orders has “significantly affected the company’s forward momentum.”
Anthony Russell, Senior Vice President at Monex BMO Securities, who are focused on the software market, commented, “The U.S. is an absolutely massive market for India’s software industry, a field that is worth around $200 billion annually. The next biggest territory for them is Europe, a very distant second. This is a setback for TCS but we are confident they can shake it off.”
TCS will take a severe hit not just from lower revenue but also the exchange rate fluctuations, which are not favouring the rupee at the moment.
Compared to the first quarter’s growth of 4 percent, TCS achieved only 1.5 percent revenue growth for the second quarter.
Some brokerage firms are slashing estimates for the Indian software giant by around 3 percent citing downward risks and other challenges.
Tata Consultancy Services Ltd (TCS) hit a half year low as the company reported that according to their own data, as of the end of last month, spending from their top ten financial services clients in America has been “incredibly cautious” and in many cases they have been holding off on any new purchases.
A spokesman for the firm said late last night that the recent lack of orders has “significantly affected the company’s forward momentum.”
Anthony Russell, Senior Vice President at Monex BMO Securities, who are focused on the software market, commented, “The U.S. is an absolutely massive market for India’s software industry, a field that is worth around $200 billion annually. The next biggest territory for them is Europe, a very distant second. This is a setback for TCS but we are confident they can shake it off.”
TCS will take a severe hit not just from lower revenue but also the exchange rate fluctuations, which are not favouring the rupee at the moment.
Compared to the first quarter’s growth of 4 percent, TCS achieved only 1.5 percent revenue growth for the second quarter.
Some brokerage firms are slashing estimates for the Indian software giant by around 3 percent citing downward risks and other challenges.
Wednesday, September 7, 2016
Traders await Euro bank decision amid gains in stocks
European stocks were bumped a little higher as they followed in the footsteps of the Asian markets which were standing at 12 month peaks due to better-than-projected trade figures from China, the world’s second largest economy.
Many interested observers will now be looking keenly at any announcement by the European Central Bank (ECB) regarding forthcoming monetary stimulus, and Frankfurt are under moderate pressure to kick start a flagging European economy.
The Chinese trade figures, which featured their first annual gain in imports for two years, were a ray of hope in a fairly mixed bag of reports, and some analysts say there is a chance ECB President Mario Draghi will announce that the bank will continue their 90 billion euro per month asset purchasing scheme.
Most experts expect the central bank rates to stay as they are however, with 80 percent of a recent Reuter’s survey expecting no change.
The euro is already trading at a fortnightly high of $1.1278 as of Wednesday, and further easing by the ECB is unlikely to weaken the currency further. Should the central bank decide to change rates it would fuel rumors that further stimulus will be added.
“We are not really looking for the same tired strategy of expansion of the quantitative easing or rate cuts,” said Anthony Russell, Senior Vice President at Monex BMO Securities in an email to clients. “A weaker euro is only going to be achieved by coming up with something a bit more innovative. A new package completely.”
“The markets are already familiar with expansion of the current method, and we have learnt that it doesn’t work. We haven’t seen inflation hit target levels,” Russell added.
Traders preferring slightly riskier investments like emerging markets and stocks may be rubbing their hands together though. If the U.S. Federal Reserve decides to keep their rates unchanged due to the generally murky looking economic waters there could be interesting opportunities in those areas.
There has still not been any clear sign of how the Fed is going to proceed, but recent history has shown they are in favor of very small, incremental rate hikes. Investors are not expecting anything groundbreaking in the next announcement.
London’s FTSE 100 was slightly up in the early trading along with most other euro zone markets with banking stocks leading the gains, while Asia-Pacific shares climbed 0.2 percent, slightly lower than the Wednesday crest.
Many interested observers will now be looking keenly at any announcement by the European Central Bank (ECB) regarding forthcoming monetary stimulus, and Frankfurt are under moderate pressure to kick start a flagging European economy.
The Chinese trade figures, which featured their first annual gain in imports for two years, were a ray of hope in a fairly mixed bag of reports, and some analysts say there is a chance ECB President Mario Draghi will announce that the bank will continue their 90 billion euro per month asset purchasing scheme.
Most experts expect the central bank rates to stay as they are however, with 80 percent of a recent Reuter’s survey expecting no change.
The euro is already trading at a fortnightly high of $1.1278 as of Wednesday, and further easing by the ECB is unlikely to weaken the currency further. Should the central bank decide to change rates it would fuel rumors that further stimulus will be added.
“We are not really looking for the same tired strategy of expansion of the quantitative easing or rate cuts,” said Anthony Russell, Senior Vice President at Monex BMO Securities in an email to clients. “A weaker euro is only going to be achieved by coming up with something a bit more innovative. A new package completely.”
“The markets are already familiar with expansion of the current method, and we have learnt that it doesn’t work. We haven’t seen inflation hit target levels,” Russell added.
Traders preferring slightly riskier investments like emerging markets and stocks may be rubbing their hands together though. If the U.S. Federal Reserve decides to keep their rates unchanged due to the generally murky looking economic waters there could be interesting opportunities in those areas.
There has still not been any clear sign of how the Fed is going to proceed, but recent history has shown they are in favor of very small, incremental rate hikes. Investors are not expecting anything groundbreaking in the next announcement.
London’s FTSE 100 was slightly up in the early trading along with most other euro zone markets with banking stocks leading the gains, while Asia-Pacific shares climbed 0.2 percent, slightly lower than the Wednesday crest.
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