“Strong global market sentiment for risky assets, a weakened dollar and geopolitical turmoil in the Middle East underline the need for a long-term multi-asset portfolio”, asserts a leading global analyst at one of the world’s largest international advisory organisations.
deVere Group’s International Investment Strategist Tom Elliot, is weighing in after the IMF upgraded its estimate of global GDP growth this year to 3.9 per cent.
Mr Elliot comments: “We have seen an unusually strong start to the year for risk assets, as global investors appear confident that a period of non-inflationary, globally synchronised economic growth is underway.
“Equities and non-core bond markets have benefited from strong inflows in recent weeks, with a slow creep upwards in core government bond yields doing little to deter enthusiasm for risk.
“The MSCI World index of developed market shares is up 7.0 per cent since the start of January, and up 5.5 per cent in local currency terms. The Japanese economy grew at an annual rate of 1.4 per cent in the third quarter 2017, despite a shrinking population. And the MSCI Emerging Market index is up 9.9 per cent since January.”
Mr Elliot details three major theories that are on offer for these developments: “Firstly, the ECB and the Bank of Japan look likely to end their quantitative easing programs earlier than had been anticipated, so bringing forward the date when those central banks might also start to raise interest rates.
“Secondly, Trump’s tax cuts announced in December are worth an estimated $1.5tr over the next five years, at a time when the labour market is already tight. This raises fears of wage inflation pushing up CPI inflation.
“And thirdly, a suspicion by many FX traders that the Trump administration wants a weaker dollar as a deliberate tool for narrowing the trade deficit, to be used alongside more overtly protectionist policies. Trump denied this while in Davos on Thursday, calling for a strong dollar… ‘ultimately’.”
Mr Elliot underlines how Sterling’s strength has contributed to a return on the MSCI U.K. index of -0.2 per cent, as dollar-earning FTSE100 heavyweights have come under pressure, and to a return on the MSCI World index in sterling terms of just 2.0 per cent.
He goes on to say that Trump’s ‘Make America Great Again’ policy poses only a modest attack on free trade, and that it should be contextualised.
Mr Elliot states: “Bush raised tariffs on European steel imports early in his first term, and massively expanded agricultural subsidies. The sky did not fall down. We must hope that Trump’s attacks on free trade remain relatively specific and do not become broad in scope.” At the same time, Central bank policy errors remain “a key risk to capital markets”, asserts Elliot.
He says: “Anything that produces a sudden rise in core government bond yields, or cash rates, are a threat to stock markets and high yield bonds.”
“Meanwhile, geopolitical turmoil in the Middle East should be observed closely”, says deVere’s top analyst.
Mr Elliot comments: “The Middle East is developing new themes that one needs to keep an eye on, partly because of the ongoing risk of a regional clash, but also due to the young populations who are less conservative and less inclined to tolerate the status quo.”
He concludes: “As such, I strongly advise a multi-asset portfolio for the long term to offset financial volatility, centred around 60 per cent global equities and 40 per cent global bonds.
“Such funds predicated on this principle are available in spades and differ according to the level of risk for suitable investors, who more often than not, value certain returns over high-risk gambles.”
Stocks edge down as investors hit pause, watch bond yields
By Suzanne Barlyn
NEW YORK (Reuters) – Global equity markets were little changed on Tuesday as Wall Street retreated and investors paused to gauge whether a bond yield jump had run its course, taking stock of gains from Monday’s surge.
The subdued performance of the three major Wall Street indices followed a flat close in Europe and slipping shares in Asia.
“It was such a strong opening to the month yesterday that investors could be short-term focused and saying, ‘Let’s take some of the profits that we saw yesterday,'” said Sam Stovall, chief investment strategist at CFRA Research in New York.
March began with a bang on Monday as global equities markets rose, the S&P 500 had its best day since June 5 and bond markets calmed after a month-long selloff.
In Tuesday late-afternoon trading, the Dow Jones Industrial Average rose 45.37 points, or 0.14%, to 31,580.88, the S&P 500 lost 3.1 points, or 0.08%, to 3,898.72 and the Nasdaq Composite dropped 106.23 points, or 0.78%, to 13,482.60.
The pan-European STOXX 600 index rose 0.19% while MSCI’s gauge of stocks across the globe %.
Emerging market stocks rose 0.05%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.16% lower, while Japan’s Nikkei lost 0.86%.
The European Central Bank should expand bond purchases or even increase the quota earmarked for them if needed to keep yields down, ECB board member Fabio Panetta said on Tuesday, after weeks of steady increases in borrowing costs.
Australia’s central bank on Tuesday affirmed its pledge to keep interest rates at historic lows as policymakers battle to stop surging bond yields from disrupting the country’s surprisingly strong economic recovery.
After a sharp selloff last week, U.S. Treasuries have stabilized with bond market indicators and derivatives positioning pointing to near-term calm. But an improving economy could trigger another slide in their prices.
U.S. Federal Reserve Governor Lael Brainard said she was closely watching bond markets and would be concerned if a recent rise in yields continued and began to constrain economic activity.
“Some of those moves last week and the speed of the moves caught my eye,” Brainard said on Tuesday.
A Treasuries selloff last week pushed the 10-year yield to a one-year high of 1.614%. Benchmark 10-year notes last rose 11/32 in price to yield 1.4102%, from 1.446% late on Monday.
Gold prices rose, inching up from a more than eight-month low, as a retreat in the dollar and U.S. Treasury yields lifted demand for the safe-haven metal.
Spot gold added 0.8% to $1,736.02 an ounce. U.S. gold futures settled up 0.6% at $1,733.60.
The dollar index fell 0.318%, with the euro up 0.37% to $1.2092.
Earlier, the dollar was up for a fourth consecutive day after the spike in bond yields challenged the market consensus for dollar weakness in 2021. But riskier currencies rose as bond markets calmed and stocks recovered.
Bitcoin fell 2.19% to $47,808.00 after rising nearly 7% on Monday.
Shares in mainland China and Hong Kong fell overnight after a top regulatory official expressed concerns about the risk of bubbles bursting in foreign markets.
Oil prices largely shrugged off expectations that OPEC would agree to raise oil supplies at a meeting this week.
The global oil market is rebalancing after damage to demand wrought by the COVID-19 pandemic was met with curbs on output by OPEC producers, the group’s president said.
The industry is recovering from a collapse in demand triggered by the pandemic, but U.S. shale production will not recover to pre-pandemic levels, Occidental Petroleum Chief Executive Vicki Hollub said on Tuesday.
“The recovery is looking really good to us. If you look at what’s happening in India as well as the U.S., I think the oil industry is looking like things will be pretty good for us over next couple of years,” Hollub said.
U.S. crude futures settled down 89 cents at $59.75 a barrel, while Brent futures fell 99 cents to settle at $62.70 a barrel.
(Reporting by Suzanne Barlyn; Editing by Dan Grebler)
Robinhood now a go-to for young investors and short sellers
By John McCrank
NEW YORK (Reuters) – Robinhood, the online brokerage used by many retail traders to pile in to heavily shorted stocks like GameStop Corp, has made an ambitious push into loaning out its clients’ shares to short sellers as it expands its business.
The broker had $1.9 billion in shares loaned out as of Dec. 31, nearly three times the $674 million a year earlier, and it was permitted to lend out $4.6 billion worth of securities under margin agreements, around five times bigger than the prior year, according to an annual regulatory filing late on Monday.
The size of the jump highlights Robinhood’s rapid growth over the past year as the number of retail investors has soared in the work-from-home environment during the pandemic and as retail brokers have largely eliminated trading fees, a model Robinhood helped pioneer.
Menlo Park, California-based Robinhood is expected to go public this year with a valuation of more than $20 billion.
Securities lending is common among brokerages, which can earn income by lending shares to hedge funds and others, who then sell the shares back into the market, betting the share prices will drop so they can buy them back at a lower price when it is time to return them, pocketing the difference.
Shares that are in heavy demand from short sellers, like GameStop, which had 140% short interest in January https://www.reuters.com/article/us-retail-trading-shortselling-explainer/explainer-how-were-more-than-100-of-gamestops-shares-shorted-idUSKBN2AI2DD, command the biggest premium from the lender.
What makes Robinhood notable is that many of the stocks its users invest in are among the most sought-after by people who want to bet against them, said one senior financial executive involved with hedge funds.
It was unclear how great a benefit the securities lending was to Robinhood’s revenue and income, which it does not disclose.
Robinhood declined comment on the filing and did not immediately respond to a request for comment on the details of which stocks it loans out.
In January, retail investors coordinated through trading forums on social media in an attempt to punish hedge funds by buying up shares of GameStop and other heavily shorted names, like AMC Entertainment, driving up their prices and forcing short sellers to close out positions at big losses.
On Jan. 28, at the height of the retail trading mania, Robinhood, along with several other brokers, restricted the buying of GameStop and other so-called meme stocks due to a massive spike in collateral requirements needed to clear the trades, angering many of its customers.
The trading restrictions sparked congressional hearings, regulatory probes and have placed greater scrutiny on short selling.
In response, Vlad Tenev, Robinhood’s chief executive officer, called for shorter stock settlement times, which would reduce clearing collateral requirements.
He also said the idea that more shares of a stock can be shorted than there are available to trade, as was the case with GameStop, is a “pathology” that could destabilize the financial markets.
Robinhood positioned itself for growth in securities lending in October 2018 by launching its own clearing broker, which acts as a go-between with the clearinghouse that settles its trades, and allows it to hold its customers’ assets. The broker can then lend out securities its customers buy on margin.
At present, less than 3% of Robinhood’s funded accounts are margin-enabled, Tenev recently told Congress.
(Reporting by John McCrank in New York; Editing by Megan Davies and Matthew Lewis)
Resurgent stock market evokes memories of long-gone bubble on Tokyo’s ‘Wall Street’
By Junko Fujita
TOKYO (Reuters) – At the almost empty “Wall Street” bar and restaurant in Tokyo’s Kayabacho financial district, three groups of patrons dine quietly at tables separated by partitions.
The sedate scene is a far cry from the area’s heyday 30 years ago when traders flush from big wins on the nearby Tokyo Stock Exchange routinely crowded the restaurant’s bar, downing glasses of premium whiskey.
Even though Japanese stocks are scaling giddy heights not seen since the asset inflation bubble of the late 1980s and early 1990s, bars and restaurants in the financial district aren’t along for the ride.
Kayabacho’s streets are instead eerily quiet.
“During the bubble era, people came here to drink a glass of Ballantine’s 30-year-old (whisky) for 5,500 yen ($52), even when there’s no seats available, just standing by the cash register,” “Wall Street” owner Kenichi Inoue, 62, told Reuters.
Inoue opened the European style bar and restaurant in 1989, the year the Nikkei index hit a record peak, aiming to serve drinks and food at the affordable price of around $30 per person.
Brokers and traders packed into the bar almost every evening, with tables at the back usually filled by workers from Yamaichi Securities, then the country’s fourth largest brokerage.
“It was easy to guess the size of the crowd for the evening,” said Inoue. “If the market was up, I knew it would be busy.”
Inoue’s restaurant wasn’t the only establishment to benefit during the boom. Coffee shops scattered throughout Kayabacho were filled with brokers exchanging information on the market.
The ‘Tatsumi’ restaurant was popular with superstitious traders because it served tempura, or deep fried vegetables and fish. The Japanese word for “deep-fry”, ageru, has the same sound as the word “boost”.
“Back then brokers used to come here in a group. They gave us 100,000 yen in cash in an advance,” said 62-year-old owner, Masahiko Tsuda, citing a figure equivalent to around $800 at the time. “If that was not enough, they paid the difference at the end of the week.”
The party came to an end when the stocks bubble burst in the early 1990s. Yamaichi was one of four major banks and brokerages that collapsed in 1997.
Compounding the market slide, the Tokyo Stock Exchange in 1999 completed a decade-long switch to electronic trading, closing the formerly bustling trading floor.
The number of brokerage employees almost halved from a peak of 170,000 nationwide in 1991 to 91,000 last year, according to the Japan Securities Dealers Association.
With them went much of the vibrancy of Kayabacho, a downturn that has been exacerbated by the coronavirus pandemic, which has led to trading restrictions on bars and restaurants across Tokyo.
Redevelopment plans for Kayabacho, which houses many small and old buildings, have been in train for several years, with attempts to rebrand the area as a fintech hub. Heiwa Real Estate, the owner of the stock exchange building, plans to open a 15-storey office tower in the area later this year.
But the revamp lags the refurbishment of neighbouring districts like Marunouchi and Nihonbashi, where major property developers Mitsubishi Estate and Mitsui Fudosan have created hubs for global firms.
Adding to Kayabacho’s woes, the coronavirus pandemic has dealt a blow to the real estate market across Tokyo, as more people work from home and domestic economic growth slows.
“Kayabacho’s atmosphere is dark and gloomy,” said Yoko Hattori, 52, the owner of a standing bar, New Kayaba. “The economy is bad. Many buildings here are old but renovation is not easy because it costs money.”
Tsuda said he no longer sees people flashing lots of cash at his restaurant, while Inoue said “Wall Street” was facing the most critical time of its history.
Inoue has attempted to diversify his menu from the pasta, pizza and grilled meats that catered to mostly male stockbrokers, adding organic food and cold press juice for more health-conscious customers.
He is grateful that his own business never relied too heavily on the excesses of the bubble era: “If this had been an high-end restaurant, it would have been closed a long time ago.”
(Additional reporting by Mayu Sakoda and Hiroko Hamada; editing by Jane Wardell)
Stellantis sees rebound in 2021, but chip shortage a worry
By Giulio Piovaccari, Gilles Guillaume and Nick Carey MILAN (Reuters) – Low global car inventories and cost cuts should boost...
UK’s DS Smith gains from orders packed and shipped in online boom
By Pushkala Aripaka (Reuters) – DS Smith expects demand for its paper and fibre-based packaging supplies to continue growing in...
UK fishing sector sees more job losses if post-Brexit export troubles not tackled soon
By Maytaal Angel LONDON (Reuters) – Britain could lose more jobs in its fishing sector if the current delays and...
Fall in UK economic activity bottoms out in February – PMI
LONDON (Reuters) – British economic output stabilised in February after a sharp fall the month before, as many businesses continued...
Asia growth drives 4% rise in Prudential 2020 operating profit
By Carolyn Cohn LONDON (Reuters) – Prudential’s operating profit rose 4% in 2020, Britain’s largest insurer said on Wednesday, driven...