Posts Tagged ‘Goldman Sachs Group’

Emerging-Market Stress Just Begun as Record Debt Wall Looms

May 23, 2018

Emerging-market companies and governments straining to deal with the rising cost of borrowing in dollars face increasing pressure as a record slew of bonds come due.

Some $249 billion needs to be repaid or refinanced through next year, according to data compiled by Bloomberg. That’s a legacy of a decade-long debt binge during which emerging markets more than doubled their borrowing in dollars, ignoring the many lessons of history from the 1980s Latin American debt crisis, the 1990s Asian financial crisis and the 2000s Argentine default.

Even since the 2013 taper tantrum, the group’s dollar debt has climbed in excess of $1 trillion — more than the combined size of the Mexican and Thai economies, Institute of International Finance data show.

Even those that have been effective in building local-currency debt markets aren’t invulnerable from the Federal Reserve-led rollback in global liquidity. That’s because of the significant presence of overseas investors sensitive to shifts in advanced economies.

“We look to be in for a pretty rough patch near term,” says Sonja Gibbs, senior director for capital markets in Washington at the IIF, an association of the world’s biggest banks. “The sharper the rise in the dollar and rates, the greater the near-term contagion risk.” Rising U.S. rates will have a knock-on effect even in local debt markets, she said.

The following charts showcase some points of stress.

China has far and away the most dollar debt coming due through next year among emerging markets. Though much of the debt is also owned by Chinese investors, strains have become clear in recent weeks, with some companies unable to issue at their preferred amounts and maturities, and others, unusually, marketing floating-rate notes.

Despite having defaulted in the early 2000s, Argentina has issued so much dollar debt that it ranks No. 4 on the list — a testament in part to the impact that unprecedented U.S., European and Japanese monetary stimulus had in spurring a global hunt for yield since the 2007-09 financial crisis.

Turkey has the largest foreign debt load relative to gross domestic product, and perhaps not coincidentally has one of the worst-performing currencies against the dollar this year, down about 20 percent. Only Argentina’s peso has done worse among 24 emerging nations tracked by Bloomberg — another country that ranks high on the debt metric.

Benchmark 10-year Treasury yields have climbed this month to their highest since 2011, punching through 3 percent, even with the Fed less than half way done in its rate-hiking plans. And Jamie Dimon is warning of 4 percent yields to come. Fed forecasts suggest a peak in the policy rates in 2020 — also the medium-term crest for developing-market debt maturities, according to data compiled by Bloomberg.

Dollar debt makes up more than three quarters of emerging market foreign-currency debt, which stood at $8.3 trillion at the end of 2017, IIF data show. But local-currency obligations can also be caught in the fray. Countries from Malaysia to Mexico saw an influx of foreign money into their securities amid the global yield grab that could reverse as benchmark developed-nation rates climb. China’s local currency bonds — until recently largely inaccessible to global buyers — is more insulated from swings in global investor sentiment.

One reason overseas funds flocked to these economies is attractive growth rates, combined with inflation much lower than previous decades. That’s a powerful buffer for headwinds from higher rates. Domestic emerging-market growth “remains resilient,” and areas with “early-cycle” stories such as South Africa and Latin America are positioned for a bounce-back in risk appetite in coming months, Goldman Sachs Group Inc. analysts said May 16.

And while debt dynamics are flashing warnings, some other metrics are more cheery — read more here.

Even so, the rapid build-up in debt over the past decade has alarmed some — including Harvard economist Carmen Reinhart, who made headlines saying emerging markets are worse off today than during the 2008 crisis and 2013 taper tantrum.

“This is not gloom-and-doom, but there are a lot of internal and external vulnerabilities now that were not there during the taper tantrum,” she said last week.

(Updates with lira plunge in first paragraph under third chart.)
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Tesla May Need $10 Billion in Funding by 2020, Goldman Says

May 17, 2018

Elon Musk may need to tap capital markets for more than $10 billion by 2020 to fund Tesla Inc.’s automaking operations, new products and an expected expansion into China, according to Goldman Sachs Group.

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While Tesla has access to new bonds, convertible notes or equity to fund its growth, each of those choices has downsides for investors, Goldman analyst David Tamberrino said in a research note Thursday.

“We see several options available to the company to refinance maturing debt and raise incremental funds, which should allow Tesla to fund its growth targets,” Tamberrino wrote. “However, issuing incremental debt (including priming current creditors with secured debt) may weigh on the credit profile of the company while issuing additional equity or convertibles at lower premiums would dilute current shareholders.”

Musk, who co-founded the electric-car maker and serves as chairman and chief executive officer, is furiously cutting costs to avoid raising capital this year, even cutting off analysts who asked probing questions on a conference call this month. The company is struggling to meet production targets on its first mass-produced vehicle, the Model 3, and burned through more than $1 billion in the first quarter.

The company set up a unit in China this month, taking a step closer to producing electric vehicles in the country and setting up its first gigafactory outside the U.S.

The shares, down 8 percent this year, closed Wednesday at $286.48, giving the Palo Alto, California-based company a market value of $48.6 billion. Tesla had about $2.7 billion in cash at the end of the first quarter.

Tamberrino recommends selling Tesla shares, and sees them slumping 32 percent to $195 over the next six months.

— With assistance by Courtney Dentch

Bloomberg

https://www.bloomberg.com/news/articles/2018-05-17/tesla-may-require-10-billion-in-funding-by-2020-goldman-says

Stocks Sell Off as Close Approaches — technology down with financial shares close behind

March 27, 2018

Dow falls more than 400 points, and the tech-focused Nasdaq Composite is down 3.3%

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U.S. stocks slid Tuesday, pressured by further declines in technology and financial shares.

The Dow Jones Industrial Average had swung between small gains and losses for much of the session before turning firmly lower in the final hour of trading as losses accelerated in the tech sector.

The blue-chip index fell 432 points, or 1.8%, to 23770, while the S&P 500 slipped 2.1%, and the tech-focused Nasdaq Composite declined 3.3%. Earlier in the session, the Dow had risen as much as 243 points.

The S&P 500’s technology sector dropped 3.4%, suffering the biggest losses of the index’s 11 major segments. Nvidia , which has made a broad push to bring its computing platform into self-driving cars, was the worst performer in the broad index after the chip company said it would temporarily halt testing of its driverless technology on public roads following the fatal crash of an Uber Technologies autonomous vehicle. Nvidia shares fell 9.4%.

Meanwhile, shares of Facebook declined 5.2% as Chief Executive Mark Zuckerberg said he expects he will have to testify about the social media company’s privacy and data-use standards. Facebook shares are down 15% this month over concerns about its handling of user data. Pressure in the tech sector spilled over into the broader market last week when the Dow and S&P 500 dropped nearly 6% to long their biggest weekly declines since October 2008.

Bank shares also came under fresh selling pressure Tuesday. The KBW Nasdaq Bank Index of large lenders fell 2.8%, on course for its third decline in five trading sessions, as a fresh wave of buying in government bonds sent the yield on the 10-year Treasury note to its lowest settlement since early February. Lower interest rates tend to hurt banks by weighing on their net interest margins, a key measure of lending profitability. Bank of America lost 3.3%, while Goldman Sachs Group lost 3%.

Defensive sectors were among the best performers as investors sought safety in the shares of companies that pay steady dividends. Utility companies in the S&P 500 added 1.6% as shares of WEC Energy Group WEC 1.91% and DTE Energy rose 2%. The real-estate sector climbed 0.2%, and shares of telecommunications firms added 0.7%.

Ryan Detrick, senior market strategist for LPL Financial, said the recent downturn in the market could be a chance for investors to buy the dip.

“The bottom line is still the tariffs are a near-term worry, sure, but the global economy’s still on really firm footing,” he said.

Traders on the floor of the New York Stock Exchange on Monday.
Traders on the floor of the New York Stock Exchange on Monday. PHOTO: MICHAEL NAGLE/BLOOMBERG NEWS

European stocks rebounded Tuesday, with the Stoxx Europe 600 closing up 1.2%, ending a four-day losing period, which came amid rising tensions between multiple EU nations and Russia.

The upbeat trading in Europe echoed the sharp resurgence in equities markets in Asia-Pacific. That recovery began Monday as the U.S. and China appeared to soften their stances over trade, after tensions between the two superpowers ratcheted up last week.

The friction was soothed Monday by news that the two countries were in talks to improve U.S. access to Chinese markets.

That said, rules requiring foreign companies to form joint ventures with domestic partners in China were likely to be a sticking point, given that U.S. firms would be required to divulge trade secrets.

“Talk of these tariffs started off with the EU coming back strongly, saying they’d look at countermeasures, so the U.S. added in that caveat about allies and friends being exempted. [That exemption] has been extended to more and more countries and if it’s also extended to China it will look like it was a bit of saber-rattling to bring China to the table and that seems to have succeeded,” said Edward Park, a director at asset manager Brooks Macdonald.

Some analysts see stock swings as a consequence of investor pessimism and broadly healthy equity-market performance.

“The market seemed to be assuming the worst-case scenario. That they responded this way may reflect overall positioning because we’ve had quite a good run and that correction was a bit stronger than expected,” said Geoffrey Yu, head of the U.K. investment office at UBS Wealth Management. “That volatility is going to continue due to [central bank] renormalization.”

Rising inflation has prompted growing speculation about the Federal Reserve’s interest-rate policy, with some analysts suggesting the central bank will increase rates four times in 2018 instead of the three times it has penciled in.

“If the Fed does change to four hikes this year, it’s not that much of a concern unless it’s in reaction to much higher inflation,” Mr. Park, of Brooks Macdonald, said.

In Asia, the Shanghai Composite Index added 1.1%, while Japan’s Nikkei closed 2.7% higher.

Write to David Hodari at David.Hodari@dowjones.com and Allison Prang at allison.prang@wsj.com

https://www.wsj.com/articles/asia-pacific-stocks-rise-on-lower-anxiety-about-global-trade-1522114769

Goldman-Backed Circle Is Hiring 100 for Global Crypto Expansion — “The long-term view is that every form of value on the planet will become a crypto token.”

March 15, 2018

Bloomberg

By Justina Lee and  Benjamin Robertson

From

  • Company to add staff as it expands newly acquired Poloniex
  • Co-founder sees every form of value becoming crypto token

Circle Internet Financial Ltd., the consumer finance startup backed by investors including Goldman Sachs Group Inc. and Baidu Inc., will hire 100 people as it expands a newly acquired cryptocurrency exchange.

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The Dublin-registered company, which began as a mobile-payments platform, is focused on improving operations, customer support and technology at Poloniex, the exchange it acquired last month. Circle will hire 25 to 35 people to grow its Asia operations, adding to a staff of about 10 in Hong Kong and mainland China, and set up teams in South Korea and Japan, co-founder Jeremy Allaire said in an interview.

The expansion adds to signs that cryptocurrency entrepreneurs are undaunted by increased regulatory scrutiny and a selloff in digital assets that cut Bitcoin’s value in half since mid-December. Allaire, who has lofty visions for the future of digital tokens, said that Circle will cooperate with authorities as the company expands globally.

 Image result for cryptocurrencies, photos

“The long-term view is that every form of value on the planet will become a crypto token,” Allaire said in Hong Kong. “We want to offer more markets, more assets, we want to localize it, and launch it in more international markets and, critically, we need to work with the most important regulators,” he said, referring to Poloniex.

 Image result for bitcoins, photos

Circle is backed by $140 million in venture capital from investors such as Goldman, Baidu, and investment bank China International Capital Corp., according to its website. The company has no plans to raise additional funds for now and expects to be profitable for a second year, Allaire said.

Circle’s products include Circle Pay, a payment app; Circle Invest, a platform for investing in digital assets; and Circle Trade, which provides market-making services. The latter handles about $4 billion a month and plans to start supporting crypto trades in Asian currencies such as the Hong Kong and Singapore dollars, said Jack C. Liu, who joined Circle as managing director in January.

https://www.bloomberg.com/news/articles/2018-03-15/goldman-backed-circle-is-hiring-100-for-global-crypto-expansion

Goldman Says Stocks May Plunge 25% If 10-Year Yield Hits 4.5%

February 26, 2018

Bloomberg

By Joanna Ossinger

  • ‘Stress test’ outcome could sink S&P 500 to 2,155-2,298 range
  • Measures outlier move vs Goldman’s 3.25% year-end scenario
 Image result for Daan Struyven, Goldman, photos
Treasury Secretary Steven Mnuchin
Goldman Says Stocks Could Plunge on 4.5% 10-Year Yield

 

If the 10-year U.S. Treasury yield hits 4.5 percent by year-end, the economy would probably muddle through — stocks, not so much, according to Goldman Sachs Group Inc.

Goldman’s base-case scenario calls for a 10-year yield of 3.25 percent by the end of 2018, though a “stress test” out to 4.5 percent indicates such a move would cause stocks to tumble, economist Daan Struyven wrote in a note Saturday. He also said the economy would probably suffer a sharp slowdown but not a recession.

“A rise in rates to 4.5 percent by year-end would cause a 20 percent to 25 percent decline in equity prices,” the note said.

While a recent drop in stocks may have been fueled by concerns tied to the 10-year yield approaching 3 percent, many strategists have said they felt equities could continue to rise until reaching 3.5 percent or 4 percent.

READ: Market’s Red Line for Yields Isn’t Where Most People Think

A 20 percent to 25 percent drop in stocks, as measured from the S&P 500’s Jan. 26 peak close of 2,872.87, would take the gauge to a range of approximately 2,155-2,298. It closed on Friday at 2,747.30 after dropping as low as 2,581 on Feb. 8 at the apex of the recent volatility-fueled meltdown. If this scenario did play out with Goldman’s numbers, stocks would have a long way further down to go.

Includes video:

https://www.bloomberg.com/news/articles/2018-02-25/goldman-says-stocks-may-plunge-25-if-10-year-yield-hits-4-5

iPhones and Children Are a Toxic Pair, Say Two Big Apple Investors

January 8, 2018

Two activist shareholders want Apple to develop tools and research effects on young people of smartphone overuse and addiction

Teens took a group selfie with a smartphone in New York’s Times Square on Dec. 1.
Teens took a group selfie with a smartphone in New York’s Times Square on Dec. 1. PHOTO: DREW ANGERER/GETTY IMAGES

The iPhone has made Apple Inc. and Wall Street hundreds of billions of dollars. Now some big shareholders are asking at what cost, in an unusual campaign to make the company more socially responsible.

A leading activist investor and a pension fund are saying the smartphone maker needs to respond to what some see as a growing public-health crisis of youth phone addiction.

Jana Partners LLC and the California State Teachers’ Retirement System, or Calstrs, which control about $2 billion of Apple shares, sent a letter to Apple on Saturday urging it to develop new software tools that would help parents control and limit phone use more easily and to study the impact of overuse on mental health.

The Apple push is a preamble to a new several-billion-dollar fund Jana is seeking to raise this year to target companies it believes can be better corporate citizens. It is the first instance of a big Wall Street activist seeking to profit from the kind of social-responsibility campaign typically associated with a small fringe of investors.

Adding splash, rock star Sting and his wife, Trudie Styler, will be on an advisory board along with Sister Patricia A. Daly, a nun who successfully fought Exxon Mobil Corp. over environmental disclosures, and Robert Eccles, an expert on sustainable investing.

The Apple campaign would be unusual for an activist like Jana, which normally urges companies to make financial changes. But the investors believe that Apple’s highflying stock could be hurt in coming decades if it faces a backlash and that proactive moves could generate goodwill and keep consumers loyal to Apple brands.

“Apple can play a defining role in signaling to the industry that paying special attention to the health and development of the next generation is both good business and the right thing to do,” the shareholders wrote in the letter, a copy of which was reviewed by The Wall Street Journal. “There is a developing consensus around the world including Silicon Valley that the potential long-term consequences of new technologies need to be factored in at the outset, and no company can outsource that responsibility.”

Obsessive teenage smartphone usage has sparked a debate among academics, parents and even the people who helped create the iPhone.

Two teenage boys use smartphones in Vail, Colo., in June 2017.
Two teenage boys use smartphones in Vail, Colo., in June 2017. PHOTO: ROBERT ALEXANDER/GETTY IMAGES

Some have raised concerns about increased rates in teen depression and suicide and worry that phones are replacing old-fashioned human interaction. It is part of a broader re-evaluation of the effects on society of technology companies such as Google and Amazon.com Inc. and social-media companies like Facebook Inc. and Snap chat owner Snap Inc., which are facing questions about their reach into everyday life.

Apple hasn’t offered any public guidance to parents on how to manage children’s smartphone use or taken a position on at what age they should begin using iPhones.

Apple and its rivals point to features that give parents some measure of control. Apple, for instance, gives parents the ability to choose which apps, content and services their children can access.

The basic idea behind socially responsible investing is that good corporate citizenship can also be good business. Big investors and banks, including TPG, UBS Group AG and Goldman Sachs Group Inc. are making bets on socially responsible companies, boosting what they see as good actors and avoiding bad ones.

Big-name activists increasingly view bad environmental, social or governance policies as red flags. Jana plans to go further, putting its typical tools to work to drive change that may not immediately pay off.

Apple is an ambitious first target: The combined Jana-Calstrs stake is relatively small given Apple’s nearly $900 billion market value. Still, in recent years Apple has twice faced activists demanding it pare its cash holdings, and both times the company ceded some ground.

Chief Executive Tim Cook has led Apple’s efforts to be a more socially responsible company, for instance on environmental and immigration issues, and said in an interview with the New York Times last year that Apple has a “moral responsibility” to help the U.S. economy.

Apple has shown willingness to use software to address potentially negative consequences of phone usage. Amid rising concerns about distracted driving, the company last year updated its software with a “do not disturb while driving” feature, which enables the iPhone to detect when someone is behind the wheel and automatically silence notifications.

The iPhone is the backbone of a business that generated $48.35 billion in profit in fiscal 2017. It helped turn Apple into the world’s largest publicly listed company by market value, and anticipation of strong sales of its latest model, the iPhone X, helped its stock rise 50% in the past year. Apple phones made up 43% of U.S. smartphones in use in 2016, according to comScore , and an estimated 86 million Americans over age 13 own an iPhone.

Jana and Calstrs are working with Jean M. Twenge of San Diego State University, who chronicled the problem of what she has dubbed the “iGen” in a book that was previewed in a widely discussed article in the Atlantic magazine last fall, and with Michael Rich of Harvard Medical School and Boston Children’s Hospital, known as “the mediatrician” for his work on the impact of media on children.

The investors believe both the content and the amount of time spent on phones need to be tailored to youths, and they are raising concern about the public-health effects of failing to act. They point to research from Ms. Twenge and others about a “growing body of evidence” of “unintentional negative side effects,” including studies showing concerns from teachers. That is one reason Calstrs was eager to support the campaign, according to the letter.

The group wants Apple to help find solutions to questions like what is optimal usage and to be at the forefront of the industry’s response—before regulators or consumers potentially force it to act.

The investors say Apple should make it easier and more intuitive for parents to set up usage limits, which could head off any future moves to proscribe smartphones.

The question is “How can we apply the same kind of public-health science to this that we do to, say, nutrition?” Dr. Rich said in an interview. “We aren’t going to tell you never go to Mickey D’s, but we are going to tell you what a Big Mac will do and what broccoli will do.”

Write to David Benoit at david.benoit@wsj.com

Appeared in the January 8, 2018, print edition as ‘Investors Prod Apple On Child iPhone Use.’

https://www.wsj.com/articles/iphones-and-children-are-a-toxic-pair-say-two-big-apple-investors-1515358834

Bitcoin Tumbles Below $13,000 as Investors Face ‘Reality Check’ — “Unsophisticated investors holding the bag at the top.”

December 22, 2017

Bloomberg

By Richard Frost and Eric Lam

 Updated on 

Bitcoin sank as much as 21 percent on Friday, extending its loss from its intraday high this month toward 40 percent, as the crypto-world was swamped by a wave of selling.

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The digital currency dropped to as low as $12,191.80 before trading at $12,975.50 as of 3:47 p.m. in Hong Kong. Bitcoin, which fell as much as 38 percent from its peak of $19,511, is still up more than 1,100 percent this year. Other cryptocurrencies also plunged, with bitcoin cash crashing 38 percent and ethereum losing 26 percent over the past 24 hours, according to coinmarketcap.com.

Investors are having a “reality check,” said Stephen Innes, head of trading for Asia Pacific at Oanda Corp. “At the heart of the matter was a frenzied demand for coins with limited supply has now led to unsophisticated investors holding the bag at the top.”

The plunge comes amid growing signs of mania for anything cryptocurrency related.

Long Island Iced Tea Corp. shares rose as much as 289 percent after the unprofitable Hicksville, New York-based company rebranded itself Long Blockchain Corp. Bank of Japan Governor Haruhiko Kuroda said on Thursday bitcoin isn’t functioning like a normal means of payment and is being used for speculation.

Bitcoin also fell as concern grew that an offshoot could become a stronger rival to the more well-known cryptocurrency. Bitcoin cash, which emerged earlier this year amid a split between factions over proposed software upgrades, was added to Coinbase Inc.’s offerings this week.

Still, cryptocurrencies are attracting established players. Goldman Sachs Group Inc. is setting up a trading desk to make markets in digital currencies such as bitcoin, according to people with knowledge of the strategy. The bank aims to get the business running by the end of June, if not earlier, two of the people said.

— With assistance by Sarah McDonald

https://www.bloomberg.com/news/articles/2017-12-22/bitcoin-plummets-toward-13-000-down-more-than-30-from-record

‘Project Scalpel’: Behind Big Banks’ Plan to Save $2 Billion

March 27, 2017

Wall Street firms discuss joint venture to process transactions

Banks’ hope is that ‘Project Scalpel’ eventually would trim at least $2 billion from their annual spending.
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Big banks have cut more than $40 billion of costs since the financial crisis.

They aren’t done.

While prospects for revenue growth at banks have brightened since the election, a handful of the biggest firms are considering ways to slash still more from their back-office budgets. One effort, dubbed “Project Scalpel,” is aimed at cutting the administrative and operational costs involved with processing stock and bond transactions after a trade is struck, according to people familiar with the discussions.

Talks around this effort are at an early stage but so far have included a number of banks, such as Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp., the people said. If the idea materializes, it could create a joint venture that allows banks to share trade processes and technology.

The hope is this would be widely used by the industry and eventually trim at least $2 billion from the banks’ annual spending, the people said. In the past, banks viewed their ability to efficiently process trades, and handle transfers of ownership and associated activities like dividend and interest payments, as a competitive advantage.

Now, the processes and systems around these functions have become commoditized. Competing banks have redundant systems handling the same functions.

A joint system would eliminate the duplication, spread the cost burden and make it simpler to upgrade technology, according to the people familiar with the discussions. It also would free up resources for revenue-generating investments, they said.

There are plenty of obstacles. These include questions around data privacy and ownership stakes in the venture, and whether to use existing technology systems or build a new one. Some bankers also fear a for-profit service provider could eventually grow too powerful and boost fees.

Despite the hurdles, banks for decades have cooperated in other areas such as creating transaction venues and building clearinghouses. The recent discussions represent a possible extension of that cooperation and underscore that banks remain obsessively focused on keeping expenses in check.

The six biggest U.S. banks have eliminated more than 100,000 jobs since 2009, while shedding less-profitable business lines and trimming compensation.

This is the result of a relatively fallow period on Wall Street in which banks’ returns on equity have been held down by a combination of more-stringent capital requirements, lackluster economic growth, superlow interest rates, and more subdued trading.

On cost-cutting, “much of the easy stuff is done,” said Mark Alexander, a former senior technology and operations executive at Bank of America. “Banks now need to think about doing something different and transformational.”

European banks including Barclays PLC and Société Générale SA have said they are working with technology providers to outsource and share some trading back-office operations in Europe.

Financial-services firms spend as much as $24 billion annually on post-trade operations, or what is known in the industry as activity that occurs “south of the trade blotter,” according to a study by technology firm Broadridge Financial Solutions Inc.

A shared-processing venture would potentially allow banks to cut or reassign thousands of back-office workers. Each firm would keep scores of risk managers, programmers and traders focused on making trades happen.

Joint ventures involving rival banks are complex, though. A couple of years ago, about 10 banks tried to create just such a post-trade with clearinghouses including the Depository Trust & Clearing Corp. Those talks foundered because there were too many different views about what the finished product would do and the technology that would underpin it.

The latest idea is to narrow the group. The Scalpel discussions also involve a recently formed investment firm called Motive Partners, the people familiar with the matter said. Motive is led by bank-technology veterans including Morgan Stanley and Goldman alum Stephen Daffron,  and former Fidelity National Information Services Inc. executives Rob Heyvaert and Michael Hayford.

Banks have previously collaborated on combining back-office functions. In the 1970s, securities firms created a clearinghouse to reduce and then computerize mountains of paper trading tickets. The result was the DTCC, which handles trillions of dollars of securities transactions daily.

Over the past two years, collaboration has accelerated again. Banks recently created joint utilities for things like anti-money-laundering compliance procedures and sharing basic underlying information about stocks and bonds.

“The banking industry must find ways to structurally lower costs,” UBS Group AG Chief Executive Sergio Ermotti told analysts last year. He says the way to achieve it is “closer collaboration between financial institutions.”

https://www.wsj.com/articles/project-scalpel-behind-big-banks-plan-to-save-2-billion-1490607000

Yuan Pares Record Rally as Goldman Says Now’s the Time to Sell — The yuan is likely to weaken this year as capital outflows continue

January 6, 2017
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January 5, 2017, 8:32 PM EST January 6, 2017, 3:53 AM EST
  • Offshore rate tumbles as much as 1.1%, most in a year
  • PBOC strengthens fixing less than forecasts from Mizuho, ANZ

What’s Triggering the Rally in the Yuan?

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The offshore yuan pared its record weekly rally as China’s central bank raised its fixing less than projected and some analysts reiterated their bearish views on the currency.

The exchange rate fell as much as 1.1 percent to 6.8623 a dollar in Hong Kong, the most since this day last year, after a 2.5 percent surge over the past two sessions. Goldman Sachs Group Inc. advised clients that the best times to bet against the yuan have tended to be after interventions that flushed out bearish positions, or when China concerns were off traders’ radar screens.

Yuan short sellers were squeezed in Hong Kong this week after interbank borrowing rates soared, the dollar weakened and Bloomberg News reported that Chinese policy makers are preparing contingency plans to support the exchange rate. The move widened the offshore yuan’s premium over the onshore rate to 1.6 percent, the most since February last year. While borrowing rates in Hong Kong remained elevated on Friday, a broad recovery in the U.S. currency eased some of the pressure on bears.

“The offshore yuan is sinking because there is some recovery in the dollar, perhaps the unwinding of short-yuan positions has mostly been done, and it’s closing the gap with the onshore currency,” said Roy Teo, senior currency strategist at ABN Amro Bank NV in Singapore. The yuan is likely to weaken this year as capital outflows continue and the U.S. Federal Reserve increases interest rates, Teo said.

China’s central bank raised its daily reference rate by 0.92 percent to 6.8668 per dollar on Friday, following a 1 percent drop in a gauge of the greenback’s strength overnight. The offshore yuan was trading 0.9 percent weaker at 6.8537 per dollar as of 4:51 p.m. in Hong Kong, while the onshore rate slumped 0.6 percent. Friday’s fixing was weaker than Mizuho Bank Ltd.’s prediction of 6.8447 and Australia & New Zealand Banking Group Ltd.’s estimate of 6.8456.

The three-month yuan interbank rate in Hong Kong, known as Hibor, surged to a record high, while the overnight rate jumped 23 percentage points to 61 percent, the highest since last January’s cash crunch. Rising interbank rates can make some short positions prohibitively expensive.

The yuan is giving back some of its gains after a week that echoed the short squeeze in January of last year. That abrupt reversal marked the beginning of a nearly 5 percent rally lasting two months.

Chinese policy makers have several reasons to engineer a stronger or stable yuan in the short term. U.S. President-elect Donald Trump has pledged to label the country a currency manipulator on his first day in office, while the exchange rate came close to breaking through the psychologically-important level of 7 per dollar earlier this week. Policy makers also want to avoid a flood of capital outflows as citizens’ annual foreign-exchange quotas reset for the new year.

Goldman Forecast

Still, the analyst consensus suggests China will eventually let the yuan continue its descent. The exchange rate will fall to 7.16 per dollar by year-end before sliding to 7.3 the following year, according to the median of projections compiled by Bloomberg.

Goldman researchers see an even quicker retreat. The Chinese currency will probably drop to 7.3 per dollar by December, emerging-market strategists led by Kamakshya Trivedi in London predicted in a note dated Thursday.

Benjamin Fuchs, chief investment officer at the $2 billion hedge fund BFAM Partners (Hong Kong), said China’s moves to repeatedly tighten capital controls risk eroding confidence in its currency. The dollar’s advance against the yen and other currencies has also increased competitive pressure on China to let the yuan depreciate, he said.“We’re starting to see more and more of a negative cycle being created,” Fuchs said. China’s attempts to curb outflows are “just making people want to take money out quicker, and make companies change their behavior.”

— With assistance by Robin Ganguly, Justina Lee, and Tian Chen

https://www.bloomberg.com/news/articles/2017-01-06/china-strengthens-yuan-fixing-by-most-since-2005-as-dollar-sinks

Related:

 (Wall Street Journal)

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The Good News: U.S. Stocks Steady as Dow Nears 20000 — The Bad News: Will Trump Bring Back Jobs From China? In Shenzhen, They Aren’t That Worried

December 21, 2016

Blue-chip index closed at a record in previous session

Updated Dec. 21, 2016 9:50 a.m. ET

U.S. stocks were little changed Wednesday, leaving the Dow Jones Industrial Average within striking distance of 20000.

The blue-chip index edged up 6 points, or less than 0.1%, at 19980. The S&P 500 rose less than 0.1% and the Nasdaq Composite added less than 0.1%.

The Dow industrials have gained 9% since Election Day, buoyed by investors’ bets that President-elect Donald Trump’s administration will pursue policies such as tax cuts, regulatory rollbacks and infrastructure spending that could improve the outlook for U.S. companies. That has spurred a flood of money into stocks, particularly banks and industrial companies, pushing Goldman Sachs Group up 34% and Caterpillar up 11% since Nov. 8.

If the Dow gets to 20000 before Christmas, it will be the shortest amount of time between 1,000-point thresholds in the index’s history, according to Bespoke Investment Group. The Dow first settled above 19000 less than a month ago.

The total value of the global equity market has climbed by roughly $3 trillion since the Nov. 8 election, while the value of global bond markets has declined by roughly the same amount, according to Deutsche Bank research.

“We’ve ticked through everybody’s worries this year—Brexit, the U.S. election, the Italian referendum—and all the while, here we are higher,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company.

While hopes that Mr. Trump will reduce regulation and bring about tax reform have contributed to the rally in U.S. stocks, Mr. Trump’s election was largely a catalyst for the market to realize a fundamental improvement in the global economy, some analysts and investors said.

Federal Reserve Chairwoman Janet Yellen noted recent improvements in the U.S. economy on Monday, while the Bank of Japan raised its own assessment of the domestic economy.

The yield on the 10-year U.S. Treasury note was slightly lower at 2.549%, according to Tradeweb, from 2.566% Tuesday. Yields move inversely to prices.

Yields on long-dated U.S. government bonds have risen for eight of the past nine sessions amid expectations for stronger growth and inflation and tighter monetary policy in the U.S., Europe and Japan.

For most of 2016, “we worried about deflation and would the Fed tighten at all, and now we’ve moved from that pessimistic narrative to one of worrying about how high inflation does go and will the Fed tighten more than expected,” said Mr. Schutte.

In currency markets, the WSJ Dollar Index fell 0.3% after settling at a 14-year high on Tuesday. The euro rose 0.5% against the dollar to $1.0439, while the dollar fell 0.5% against the yen to ¥117.2690.

Some investors have been skeptical of the recent rally, however, pointing to uncertainty over which policies will be implemented next year under the new U.S. administration and the risks of a more protectionist stance on trade.

“We’re going to start 2017 on a very cautious note, because the way the market seems to be only discounting the good things Trump might do and pretending as though none of the bad is going to come to pass is rather worrying,” said Edward Smith, asset allocation strategist at Rathbones, who is reducing exposure to U.S. stocks and holding more in cash.

The outlook for European stocks is also cloudy, he said. Despite an improving economy, “to bet on European outperformance, you’d need to bet on a solution to the Italian banking crisis, and really I think it’s too early to call that,” he said.

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Markets in Europe and Japan have largely climbed back from a bruising start to 2016. The Stoxx Europe 600 inched down 0.3% on Wednesday amid losses in Southern European banks, after settling at its highest since 2015.

The stronger yen helped send Japanese stocks down 0.3% Wednesday, but the Nikkei Stock Average remained near its best level since 2015.

Markets elsewhere in Asia mostly closed with gains, boosted by the strong finish on Wall Street. Hong Kong’s Hang Seng added 0.4%, while Shanghai stocks rose 1.1%. Markets in Australia added 0.4%, with the basic-resources sector gaining as metals prices strengthened.

U.S. crude oil was up 0.4% at $53.50 a barrel after data showed a bigger-than-expected drop in U.S. crude stockpiles.

Write to Riva Gold at riva.gold@wsj.com

http://www.wsj.com/articles/european-stocks-steady-as-pre-christmas-lull-descends-1482309798

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Bring Back Jobs From China? In Shenzhen, They Aren’t That Worried

As Donald Trump presses companies on U.S. manufacturing, city that became poster child for globalization has learned to adapt to economic shifts

Image may contain: skyscraper, sky and outdoor

Dec. 21, 2016 5:30 a.m. ET

SHENZHEN, China—U.S. President-elect Donald Trump’s threat to compel Apple Inc. and others to manufacture more at home should strike fear into this Chinese megacity where many of the world’s high-tech gadgets are made.

Once a sleepy village, Shenzhen today is the sprawling epicenter of China’s consumer-electronics industry, the country’s top export. At two Foxconn Technology Group factories here, some 230,000 workers make gear for Apple and global rivals, including Chinese communications giant Huawei Technologies Co., which has its base in Shenzhen.

Yet many executives here say they aren’t worried by Mr. Trump. The economic forces that transformed this once-poor backwater in Guangdong province into a sea of skyscrapers are too massive to be rolled back, their thinking goes. Even if Mr. Trump imposes tariffs on Chinese-made goods, as he has threatened to do, it’s now so efficient to engineer, produce and ship electronics from this region of southern China that it could still outcompete the U.S., they say.

“We are very relaxed about all the talk of tariffs, although the noise it creates is not good,” said a senior executive at a global consumer-electronics firm with operations in Shenzhen, who spoke anonymously to avoid entering the debate over Mr. Trump’s proposals.

Sources: China Customs (high-tech exports); National Bureau of Statistics
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More than Mr. Trump, what worries businesses here is simply surviving the Darwinian competition of global commerce. While Shenzhen is mostly a winner in globalization, it is buffeted by the same competitive forces Mr. Trump is seeking to reverse in the U.S.—forces the president-elect has blamed for hollowing out American industry and jobs.

As wages rose since 2010, many of Shenzhen’s once-thriving clothing and toy factories moved to lower-cost regions of China and countries such as Vietnam. Now, some consumer-electronics makers are moving, too. Others are cutting labor costs by using robots instead of people.

“There is too much competition, too many low-price offerings on Amazon,” says Emily Wu, who is struggling to keep her Shenzhen Wonda Tech Co. Ltd. operation afloat. Wonda makes 40,000 cameras a month for brands sold on Amazon.com Inc. and elsewhere. Rising labor costs mean she is producing some orders at a loss.

Mr. Trump is using coercion and enticement to get firms to manufacture in the U.S. During the campaign, he vowed to get Apple to “build their damn computers and things” in America. This month, Apple supplier Foxconn said it may expand operations in the U.S.

But it remains unclear what operations or how many jobs such a move would generate. The other trend under way at Foxconn is a shift to more-automated factories using cost-saving robots. Foxconn declined to comment on its specific customers and plans.

“If these jobs come back to the U.S. they are going to be for people who manage 1,000 robots in an automated factory,” said Christopher Balding, a finance professor at Peking University in Shenzhen. “It will be jobs for computer nerds, not the people who voted for Trump.”

Shenzhen’s global competitiveness has limits. China restricts the internet, meaning innovators have less access to open-source software and ideas. China’s weak intellectual-property protections mean entrepreneurs are constantly at risk of having their ideas stolen.

But the city has weathered economic shifts before. Former Chinese leader Deng Xiaoping in 1979 named Shenzhen as a special economic zone where market forces would have freer rein, sparking more than a decade of 40% annual growth as a low-cost manufacturer. Concerned textiles were becoming a dead end, Shenzhen brought in national universities to produce a higher-skilled workforce. In recent years, the city’s economy averaged 13% growth, according to official data—more than the national rate.

China's then-leader Deng Xiaoping, center, during a visit to Shenzhen in 1992. Years earlier, Mr. Deng had declared Shenzhen a special economic zone, setting the stage for its blockbuster growth.
China’s then-leader Deng Xiaoping, center, during a visit to Shenzhen in 1992. Years earlier, Mr. Deng had declared Shenzhen a special economic zone, setting the stage for its blockbuster growth. PHOTO: AFP/GETTY IMAGES
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The city found its comparative advantage assembling smartphones and devices from a supply chain of specialized parts made in Japan, Taiwan and South Korea. Shenzhen’s army of university-trained engineers made it a global center for product prototyping.

Mock-ups that take weeks to produce in the U.S. can be done in a day for a fraction of the cost in Shenzhen, according to Duncan Turner, a venture capitalist who helps run Hax Accelerator, a workspace that sponsors inventors from around the world here.

“Shenzhen was known for making things cheap, then it was known for making things well,” says Mr. Turner, whose firm sits above a giant bazaar of electronics parts serving local engineers and factories. “Now, anyone who wants to prototype anything does it here.”

If these jobs come back to the U.S. they are going to be for people who manage 1,000 robots in an automated factory.

—Peking University finance professor Christopher Balding

The growth rate of Shenzhen’s manufacturing has slowed while sectors like software and scientific research are surging ahead. Industry grew at 8% annually between 2012 and 2014, the latest year available, while research averaged 16%.

The proportion of Shenzhen’s economy related to industries such as manufacturing fell 7 percentage points in that period, while that related to information technology and research grew by 3 percentage points, according to the 2015 Shenzhen Statistical Yearbook.

The shift is easy to see. On the city’s manufacturing outskirts, more concrete factory bays are going vacant. Meantime, neighborhoods of gleaming office buildings are sprouting up in the high-tech districts.

Globally competitive firms relying on design and branding are taking root. Da-Jiang Innovations Science and Technology Co., among the world’s biggest makers of drones, is based in Shenzhen to take advantage of “access to the suppliers, raw materials, and young, creative talent pool necessary for sustained success,” according to its website.

A view of the Shenzhen skyline as seen from Tencent's new headquarters in the city.
A view of the Shenzhen skyline as seen from Tencent’s new headquarters in the city. PHOTO: BLOOMBERG
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Daimler AG joined Chinese car maker BYD Co. Ltd. in 2011 to develop an electric car in Shenzhen. Apple is opening a research and development center in the city, where some 100,000 programmers produce software for Apple’s operating system. In a nod to Shenzhen’s rise as an innovation center, Chinese internet giants Baidu Inc. and Alibaba Group Holding Ltd. opened large offices.

Some small manufacturers are shifting to design and branding. In two years, Qiwo Smartlink Technology Ltd. has gone from a maker of cheap cameras and gizmos for others to a design house with $100 million in annual sales. “All the supply chains and related companies are here, I don’t think you can move this to the U.S.,” said James Guo, Qiwo’s head of exports.

If anything, higher U.S. tariffs would accelerate economic trends already under way, Shenzhen business owners say. Shenzhen’s factories may leave—but for low-wage provinces in China, not the U.S. Meanwhile, the city will add jobs in design, engineering and marketing.

That process is already under way. On a recent Thursday night at the Hax inventors’ workspace in Shenzhen, 26-year-old Junyi Song was working a robot arm he hopes to sell as cheaply as $7,000 a pop. At that price, even small factories could replace labor with automation.

“It’s the future,” said Mr. Song.

Write to John Lyons at john.lyons@wsj.com

http://www.wsj.com/articles/bring-back-jobs-from-china-in-shenzhen-they-arent-that-worried-1482316231