Posts Tagged ‘Goldman Sachs’

Europe Stocks Gain as U.S. Futures Drop; Oil Rises: Markets Wrap

February 7, 2018


By Adam Haigh and Samuel Potter

 — Updated on 
  • Treasury yields decline after spike on Tuesday; dollar steady
  • Gold rises after slide yesterday; EM shares flat after rout
 “People are looking at this as partially a buying opportunity,” says Goldman Sachs Co-President Harvey Schwartz.
Goldman Sachs’ Schwartz Says Volatility May Be Catalyst for M&A
 Image result for Goldman Sachs Co-President Harvey Schwartz, photos

The rebound in stock prices spread to Europe, but markets remained on edge as Asian equities pared their advance while U.S. futures retreated. Treasuries rebounded after Tuesday’s slump, gold climbed and crude advanced.

The Stoxx Europe 600 Index headed for the first increase in eight days as most sectors on the gauge rose. Earlier in Asia, Japan’s benchmarks eked out slim gains at the close after retreating from the session’s highs, while Chinese shares dropped. The dollar was flat as most commodities rallied.

Markets from Europe to Japan tumbled into oversold territory after the rout of the past week, which was triggered by rising bond yields and the prospects for a return of inflation and subsequent tighter monetary policy. Amid a slew of calls to “buy the dip,” investors will be watching Wednesday’s auction of 10-year Treasuries for clues on where markets go from here.

Elsewhere, oil rose after three days of declines as an industry report showed an unexpected decline in U.S. crude stockpiles. And Bitcoin traded little changed at around $7,700.

Here are some key events scheduled for this week:

  • Monetary policy decisions are due this week in Russia, Brazil, Poland, Romania, the U.K., New Zealand, Serbia, Peru and the Philippines.
  • Earnings season continues with reports from Philip Morris, Tesla, Rio Tinto, L’Oreal Rio Tinto and Twitter.
  • New York Fed President William Dudley and Dallas Fed President Robert Kaplan are among policy officials due to speak.

Terminal users can read more in our markets blog.

These are the main moves in markets:


  • The Stoxx Europe 600 Index increased 0.4 percent as of 8:23 a.m. London time, the first advance in more than a week.
  • Futures on the S&P 500 Index sank 1.1 percent.
  • The MSCI Asia Pacific Index increased 0.2 percent, the largest climb in more than a week.
  • The U.K.’s FTSE 100 Index gained 0.6 percent, the first advance in more than a week.
  • The MSCI Emerging Market Index advanced less than 0.05 percent, the first advance in a week.


  • The Bloomberg Dollar Spot Index decreased less than 0.05 percent.
  • The euro fell less than 0.05 percent to $1.2372.
  • The British pound dipped 0.1 percent to $1.3931, the weakest in almost three weeks.
  • The Japanese yen gained 0.6 percent to 108.96 per dollar, the strongest in more than a week.
  • South Africa’s rand declined 0.2 percent to 11.9431 per dollar.
  • The MSCI Emerging Markets Currency Index rose 0.4 percent.


  • The yield on 10-year Treasuries dipped four basis points to 2.76 percent.
  • Germany’s 10-year yield climbed one basis point to 0.70 percent.
  • Britain’s 10-year yield advanced less than one basis point to 1.523 percent.


  • West Texas Intermediate crude climbed 0.4 percent to $63.65 a barrel.
  • Gold climbed 0.5 percent to $1,330.74 an ounce.


Dollar Gets the Cold Shoulder in Global Economic Boom

January 14, 2018

Investors are flocking to the yen, euro and other currencies amid promise of quickening growth overseas

The dollar decline is the latest reversal for many investors who expected the currency to rise as the Federal Reserve continues on a yearslong path of gradual interest-rate increases.

The promise of accelerating economic growth overseas is propelling investor funds into the yen, euro and many emerging-market currencies, intensifying a yearlong siege on the U.S. dollar.

The ICE Dollar Index hit its lowest level in more than three years on Friday, extending a nearly 10% decline last year that marked the dollar’s steepest annual fall since 2003. The index tracks the value of the currency vs. a basket of U.S. trading partners.

Investors point to the global economic upswing of recent months and the tentative, accompanying steps by central bankers in Europe and Japan to normalize monetary policy after years of expansive support. While the European Central Bank and the Bank of Japan continue to supply generous support to markets, expectations are building that the world’s biggest economies will soon unwind nearly a decade of postcrisis stimulus measures and eventually join the Federal Reserve in raising interest rates.

That potentially makes the dollar less appealing to investors, who for years piled into U.S. assets anticipating steady growth and accepting low yet still above-market yields. While the Dow industrials have surged to records alongside many global stock markets, major U.S. indexes have lagged behind foreign counterparts in recent months, a sign that markets here have become something of an afterthought following large gains earlier in the decade.

“The dollar narrative is one of a global regime shift,” said Mark McCormick,  North American head of FX strategy at TD Securities. Economies like Europe and Japan “are actually starting to look like places where you would want to invest.”

The dollar decline is the latest reversal for many investors who expected the currency to rise as the Fed continues on a yearslong path of gradual interest-rate increases. Recently, the dollar’s decline has been slow and steady, but the currency’s failure to tick up when news might seem to point toward a faster pace of Fed rate increases or an uptick in inflation has impressed itself upon some investors.

Two recent examples stand out. Robust U.S. consumer-price data on Friday didn’t spur a dollar rally, and rising Treasury yields in recent weeks have had no appreciable effect on the currency, even as they have reignited a longstanding market debate about whether interest rates will eventually return to precrisis levels.

“You are seeing all these positives that should be causing the dollar to strengthen having virtually no effect,” said Said Haidar, head of Haidar Capital Management, which oversees $388 million.

Mr. Haidar is betting that the dollar will decline against the currencies of commodity-producing emerging markets such as Malaysia, Chile and Colombia.

Many analysts believe the dollar’s decline in 2018 is likely to be accelerated by the passage of the U.S. tax bill, which is widely expected to expand the U.S. fiscal deficit. The dollar tends to fall when the deficit expands, reflecting in part the rising need for the nation to sell bonds to close its funding gap.

Goldman Sachs and J.P. Morgan expect U.S. fiscal deficits to rise to $1 trillion, or 5% of GDP, in 2019 from $664 billion in the 2017 fiscal year ended September, or around 3.4% of GDP.

In part, the recent dollar weakness merely reflects the normal wax and wane of market forces.The dollar has rallied nearly 25% against its peers from its lows of 2011, a gain that in the eyes of many analysts has made the U.S. currency more expensive than its underlying fundamentals would dictate.

A modest further decline in the dollar would be welcomed by many large U.S. companies that report substantial earnings overseas. A falling dollar tends to boost exports by making U.S. goods more competitive abroad, a key policy objective of President Donald Trump, and a weaker currency potentially also gives the Federal Reserve more room to raise interest rates.

But some investors worry that an extended drop in the dollar could shake faith in the U.S. economy, elevating concerns about the lofty stock-market valuations and complicating the Fed’s efforts to raise rates. A rapid drop could also spur fears that inflation will rise beyond the moderate pace hoped for by policy makers and investors.

Net bets against the dollar in futures markets shrank to their lowest level in more than a month in December, due in part to expectations that companies will take advantage of a one-time cut for repatriation of earnings and cash held overseas, which was written into the GOP tax overhaul. However, bearish bets on the dollar grew again in recent weeks, as wagers on the euro shot higher.

For investors seeking yield, “there is the most upside in countries like Europe and Japan, where monetary policy is the furthest away from normal,” said Kit Juckes, a strategist at Société Générale. “You don’t want to buy into stories that have largely played themselves out.”

Write to Ira Iosebashvili at

Which Banks to Own When Savers Get Fed Up

January 2, 2018

2018 will be the year that banks finally start paying decent returns to savers, but some will have to pay more than others

A Bank of America branch stands in lower Manhattan.
A Bank of America branch stands in lower Manhattan. PHOTO: SPENCER PLATT/GETTY IMAGES

Savings accounts, which have paid out almost nothing for the past decade, could get more interesting in 2018 as yields rise and investors scramble for the higher returns. That could be bad news for certain banks.

Savings account yields haven’t risen much since the Federal Reserve started raising interest rates. As the Fed keeps tightening in 2018, more banks will raise deposit rates and savers will respond by rushing to the banks that pay the most.

That is what happened in the last tightening cycle in the mid-2000s—banks moved slowly at first, gradually accelerating as rates moved higher. This time banks might have to be more aggressive because it is easier than ever for savers to move cash electronically to higher yielding competitors like Capital One and American Express.

Analysts at Keefe, Bruyette and Woods estimate that banks will pass along 34% of the rise in the Fed’s target rate to savers in 2018, up from 15% in 2017. As a result, most banks will still be net beneficiaries of higher rates. But the impact will be uneven.

For the first time in years, investors in bank stocks will have to look hard at the liability side of bank balance sheets. How much banks need to pay for deposits will determine banks’ profitability and growth rates.

Backwater BankingPercent of deposits in metro statistical areas with less than one million people:Source: Goldman Sachs estimates
Synovus FinancialBB&TRegions FinancialKeyCorpPNC FinancialWells FargoBank of AmericaJ.P. Morgan ChaseCitigroup0%1020304050607080Wells Fargox19%

Already, banks with more ordinary consumer deposits have raised yields more slowly, compared with banks with lots of deposits from businesses or wealth management clients, which tend to chase yields. Among the biggest banks, Bank of America has the strongest consumer franchise with 72% of deposits coming from consumers, according to analysts at Goldman Sachs. Among regional lenders, Regions Financial and PNC Financial are among the most consumer-centric.

Banks that get deposits from rural areas where there is less competition can often keep rates low. Synovus Financial for instance gets 67% of deposits from metro areas with less than 1 million people, while BB&T gets 56%, according to Goldman Sachs. J.P. Morgan Chase, by contrast, gets just 7% of deposits from these sparsely populated areas. The ease of electronic transfers could force rural banks to pay more this time around, but they are likely to still enjoy some advantage.

Fast-growing banks may also need to pay up for deposits to continue their loan growth.

The biggest banks have the advantage here because the government has restricted their lending so they are sitting on excess deposits.

In a recent note, analysts at Goldman Sachs put all these factors together into a composite score judging how resilient a bank is to rising rates. Among major national banks the clear winner was Bank of America. Among regional lenders, some of the standouts were Regions Financial, BB&T and PNC Financial.

These banks should be among the best to own as rates keep marching higher.

Write to Aaron Back at

Bitcoin: EU approves cryptocurrency clampdown to combat terrorism financing, money laundering

December 17, 2017

The European Union has agreed to implement stricter rules on exchange platforms that deal with virtual currencies, including bitcoin. The measure is part of an effort to prevent terrorist financing and money laundering.

A visual representation of the digital Cryptocurrency, Bitcoin (Getty Images/D. Kitwood)

The European Parliament and the European Council agreed to a new set of rules on Friday that target exchange platforms for bitcoin and other virtual currencies.

The new measures would require platforms that previously allowed users to remain anonymous to identify them.

Read moreA new legitimate era for Bitcoin

What do the new measures entail?

  • Requires platforms that transfer bitcoin and “wallet” providers that hold cryptocurrencies for clients to identify users
  • Limits use of pre-paid payment cards
  • Raises transparency requirements for company and trust owners
  • Allows national investigators more access to information, including national bank account registers
  • Grants access to data on the beneficiaries of trusts to “persons who can demonstrate a legitimate interest”

Read moreBitcoin energy boom stamps down colossal carbon footprint

Europe’s Justice Commissioner Vera Jourova hailed the new rules, saying: “Today’s agreement will bring more transparency to improve the prevention of money laundering and to cut off terrorist financing.”

Rights group Transparency International said the deal was a “breakthrough” but noted that certain loopholes remain, including a “lack of public access to information on the beneficiaries of trusts and similar arrangements.”

The EU lawmaker in charge of the issue, Dutch politician Judith Sargentini, noted that certain EU member states opposed the new measures as they were concerned they might have a negative impact on their economies. She said the opposing countries included Britain, Malta, Cyprus, Luxembourg and Ireland.

Read moreTrading in bitcoins may be coming soon to Goldman Sachs

Why the change is happening now: The changes were put forward by the European Commission, the EU’s executive arm, in the wake of the terror attacks in Paris and Brussels in 2015 and 2016, with officials saying bitcoin and other cryptocurrencies were being used to finance terrorists. It took more than a year of negotiations for the new measures to be approved.

Exchange rate Bitcoin to US-Dollar: December 11 2016 - December 10 2017

The bitcoin boom: The new EU measures have also come as bitcoin’s prices have surged over 1,700 percent since the start of the year — a development that has helped grant legitimacy to the virtual currency while also sparking fears that the bitcoin bubble could soon burst.

Preventing money laundering: In the wake of the Panama Papers and Paradise Papers leaks, the EU has vowed to do more to crack down on tax avoidance and money laundering. The leaks detailed how numerous politicians and celebrities funneled their money into shell companies in tax havens.

New revision: Friday’s deal revises the EU’s “Fourth Anti-Money Laundering Directive” which was enacted in 2015. At the time, it was the most sweeping anti-money laundering directive to take effect in Europe, creating a register of owners of companies for national authorities to access.

What happens next: The new rules must now be formally adopted by the EU’s member states and then turned into national laws within the next 18 months.

America’s Inequality Machine Is Sending the Dow Soaring

December 15, 2017


By Craig Torres and  Jordan Yadoo

  • Post-crisis policy favored asset markets over real economy
  • Now Trump’s tax handout to companies risks widening the gap

The Great Recession is a speck in the rear-view mirror for America’s financial markets. They’ve advanced far beyond pre-crisis levels. In fact, Goldman Sachs says you can go back a century before 2008, and still not find a “bull market in everything” like today’s.

If the real economy had roared back the same way, Donald Trump might not be president. Instead, it’s been a grind. While unemployment is near a two-decade low, wages have grown slowly by past standards. They’re nowhere near keeping pace with the asset-price surge.

Elected on a promise of better jobs and pay, Trump is about to pull the most powerful lever any government has for firing up the economy: fiscal policy. By slashing taxes on corporate profits, its authors say, the Republican plan will unleash the animal spirits of American business — and everyone will benefit.

A rising tide does lift all boats — but nowadays, in the U.S., not equally. Under both parties, recoveries have become increasingly lopsided. The current one has helped millions of people find work; it’s also benefited asset-owners far more than people who trade their labor for a paycheck. Income distribution, already the most unequal in the developed world, is getting worse. And that’s starting to influence everything from America’s spending habits to its elections.

“The story of our time is polarization — by party, by class and by income,” said Mark Spindel, founder and chief investment officer at Potomac River Capital in Washington, and co-author of a 2017 book about the Federal Reserve. “I don’t see anything in the tax bill to make that any better.’’

The Fed’s post-2008 toolkit included massive purchases of financial assets, which supported a liftoff on the markets but took time to trickle through to the real economy. Trump’s tax critics say his plan will have a similar effect, because companies will spend the windfall on share buybacks or dividends, instead of job-creating investments. Plenty of executives say that’s exactly what they’ll do.

Bank of America’s most recent buyback program totals $18 billion. Chairman Brian Moynihan championed the tax proposal this month. “It’s good for corporate America, and it’s good for us,” he said.

There was an echo there of one of the American business world’s classic slogans. As applied to the Trump tax cuts, it’s highly misleading, according to Nell Minow, vice chair of ValueEdge Advisors.

Good for U.S.?

This isn’t a case of “what’s good for General Motors is good for the U.S.,” said Minow, who’s dedicated her career to pushing corporations toward long-term investments in people and businesses. “In my list of the top 100 things companies should do for sustainable wealth creation, buybacks would be number 100.”

Companies in the S&P 500 Index bought $3.5 trillion of their own stock between 2010 and 2016, almost 50 percent more than in the previous expansion. The pace has slowed in the last two years. The tax bill could kickstart it.

Buybacks have fueled the stock rally (there’s disagreement about how big a part they played). And the rally’s biggest benefits go to the richest. On Twitter last week, Trump invited his followers to check their swelling retirement accounts. Only about half the country’s households have any such nest-egg.

Soaring markets helped the top 1 percent of Americans increase their slice of the national wealth to 39 percent in 2016, according to the Fed’s Survey of Consumer Finances. The bottom 90 percent of families held a one-third share in 1989; that’s now shrunk to less than one-quarter.

Republicans are gambling that they can run the economy so hot that companies will hire more workers, and eventually boost their wages. There’s a strong argument that the private sector can train them better than government programs can.

‘Benefits Everybody’

“The more growth we have, the more that benefits everybody,” said Ike Brannon, a former Bush administration Treasury official who’s now president of Capital Policy Analytics, a consulting firm. “It forces businesses to train people at the fringes.” He points to the late 1990s, when growth averaged more than 4 percent and the poorest one-fifth of households saw substantial income gains.

Looming in the background then was a technology-stocks bubble. It burst in March 2000, plunging the economy into recession. What happened next is telling — it illustrates the perverse asymmetry of bubbles. In the following three years, those poorest households saw their incomes fall more than twice as much as their richest counterparts.

The pattern was repeated after the even bigger housing crash of late 2007. Today, even after an increase of more than 9 percent over two years, incomes at the bottom are short of pre-crisis peaks, while higher earners have comfortably surpassed them.

Companies flush with cash are using it to buy more customers via mergers, or reward capital through dividends, according William Spriggs, chief economist at the AFL-CIO, the country’s biggest labor union group. But American workers won’t put up with any more business cycles that yield them few gains, he says. “This is the last time they can get away with it, because the backlash is going to be huge.”

In the end, the trend toward inequality amounts to capitalist suicide, Spriggs argues. Companies need demand, which requires rising wages so that workers can afford goods and services. “Businesses can’t create themselves, they respond to general growth in income,” he said. “Inequality chokes off business development.”

Support for that kind of argument is surfacing in unlikely quarters.

The International Monetary Fund used to be so entwined with American government thinking that its preferred market-friendly recipe was known as the Washington Consensus. Now, the Fund is cautiously backing redistributive measures — falling foulof the Trump administration in the process.

In October, the IMF said rich countries can share their prosperity more evenly, without sacrificing growth, by shifting more of the tax burden onto high earners. It warned that “excessive inequality can erode social cohesion, lead to political polarization, and ultimately lower economic growth.”

‘Broken System’

The U.S. is already experiencing some of those strains.

During last year’s election campaign, both major parties effectively broke in half. In both cases, an outsider candidate scored unexpected wins by running against the party establishment, and railing at an economic system they said was rigged against ordinary Americans.

Self-described socialist Bernie Sanders surprised pundits by mounting a serious challenge in the Democratic contest. Trump won his party’s nomination and the presidency. He told voters he had experience on the buy-side of American politics, having paid for favors from both parties, and so was well-placed to fix a “broken system” dominated by corporate lobbyists.

Now, Trump is about to hand corporations — which are already making high profits by historical standards — a giant tax cut. The bill “addresses problems we don’t have, and makes existing problems worse,” said Alan Krueger, an economics professor at Princeton University. “Especially the deficit, inequality, health care, and infrastructure investment.”

If the tax changes end up helping markets most, they’ll be widening a gap noted last month by JPMorgan Chase’s chief investment strategist, Jan Loeys. There’s not much sign of “economic overheating,” which happens when companies start spending more on wages and other inputs, Loeys argued. “Financial overheating, in contrast, is well advanced,” he wrote. “It merits monitoring a lot more closely for signs of bubble-trouble.”

Even Trump’s Treasury has flagged the danger. Last week, the Office of Financial Research made its annual report to Congress on the vulnerabilities of the financial system. It was sanguine about most of them, from inflation and bank solvency to debt levels.

But the agency, which color-codes its assessments, did see one major threat — from market risk. That gauge is at red alert.

U.S. Economic Expansion Could Become Longest on Record

December 13, 2017

Economists surveyed by The Wall Street Journal see 43% probability of a recession in the next three years

A stack of the current income tax regulations sits on the dais during a House Ways and Means Committee markup of the Republicans' Tax Cuts and Jobs Act in the Longworth Building in Washington, D.C., on Nov. 6
A stack of the current income tax regulations sits on the dais during a House Ways and Means Committee markup of the Republicans’ Tax Cuts and Jobs Act in the Longworth Building in Washington, D.C., on Nov. 6 PHOTO: TOM WILLIAMS/CQ ROLL CALL/ZUMA PRESS


Forecasters are increasingly optimistic the U.S. economic expansion could continue beyond the 2020 presidential election, aided by Republican tax legislation that is expected to lift growth over the next several years.

The slow-but-sturdy expansion that began in mid-2009 already is the third-longest in U.S. history and, if it continues into the second half of 2019, will exceed the 10-year record set by the 1990s economic boom.

Most of the private-sector economic forecasters surveyed in recent days by The Wall Street Journal said the odds of a new recession by late 2020 were below 50%. The average probability of a recession in the next year was 14%, with the odds creeping up to 29% in two years and 43% in three years.

Economists were more pessimistic about the outlook before Donald Trump was elected president in November 2016. In the Journal’s October 2016 survey, economists on average saw a 58% probability of a recession starting in the next four years.

The lower recession odds could reflect a number of factors, not least the economy’s strong performance over the past year. Another possible contributor is legislation overhauling the tax code that Congress may soon send to Mr. Trump’s desk.

Some 90% of economists surveyed said the tax bill would increase the pace of growth for the next two years, with most seeing a modest boost to the annual growth rate for gross domestic product. Forecasters remain split over its likely long-term effects: Nearly half, 47%, said growth in the long run would be unchanged or weaker than its current trend.

Those results were similar to economists’ predictions in October, when the tax plan was in an earlier form.

A plurality of economists surveyed, 42%, said they believed the tax bill, if enacted, would make a recession in the next three years less likely than it would have been had the tax code remained in its current form.

“Tax reform will foster greater capital formation and economic growth,” said Thomas Kevin Swift, chief economist at the American Chemistry Council.

Some 37% said the tax bill would make no difference and 22% said it would make a recession more likely by late 2020.

Some of the economists who warned the tax overhaul would increase the odds of a recession pointed to the possibility of aggressive interest-rate increases from the Federal Reserve if the central bank feels fiscal stimulus will cause the economy to overheat and generate damaging inflation.

“Tax-cut stimulus, if fully realized as its framers claim, will make for a very aggressive Fed response, upsetting the apple cart,” said Rajeev Dhawan, director of Georgia State University’s Economic Forecasting Center.

As 2017 draws to a close, forecasters predicted this year’s strong growth would continue into 2018, and the odds of a near-term downturn continued to fall.

On average, economists projected GDP growth of 2.5% this year and 2.6% in 2018, followed by a return in 2019 and 2020 to the roughly 2% trend that has prevailed since the 2007-09 recession. Economists saw the pace of hiring moderating over the next year and the unemployment rate dipping below 4% by the end of 2018.

Some 68% of economists said risks to the outlook for growth were tilted to the upside, while 23% saw risks tilted to the downside and 9% said the risks were balanced. Upside risks included fiscal stimulus, while disruptions to foreign trade were listed by a number of forecasters as a downside risk.

The Journal’s latest survey of 62 business, academic and financial economists was conducted Dec. 8-11. Not every economist answered every question.

Write to Ben Leubsdorf at

Goldman says this may become the longest economic expansion in history


The longest expansion period in the U.S. economy may be underway

4:59 PM ET Mon, 8 May 2017 | 00:53

Since the financial crisis, the economy has never been called robust, but it may be in the longest expansion on record, with a couple more years to go.

Goldman Sachs economists said, in a recent note, that their model shows an increased 31 percent chance for a U.S. recession in the next nine quarters. That number is rising. But it’s a good news, bad news story, and the good news is there is now a two-thirds chance that the recovery will be the longest on record.

“The likelihood that the expansion will break the prior record is consistent with our long-standing view that the combination of a deep recession and an initially slow recovery has set us up for an unusually long cycle,” they wrote.

The current expansion has already lasted 95 months, now the third-longest in U.S. history in 33 business cycles going back to 1854, the economists said.

“Only the expansions from March 1991 to March 2001 [120 months] and from February 1961 to December 1969 [106 months] were longer,” they wrote.

The Goldman economists also say the medium-term risk of a recession is rising, “mainly because the economy is at full employment and still growing above trend.” They define a recession as a quarter of negative growth.

“The most obvious way to keep risk from rising much further would be a slowdown of output and employment growth to a trend pace before too long,” the economists wrote. This would require more Federal Reserve tightening than is currently priced in the bond market, they wrote.

April’s strong jobs report last Friday provided some comfort that U.S. economic growth isn’t flatlining, after a stream of economic data that fell below expectations. U.S. GDP grew at just 0.7 percent in the first quarter, and economists expect second-quarter GDP to be as much as 3 percent or even more.

While many economists were encouraged by the 211,000 jobs created last month and 4.4 percent unemployment rate, the Goldman economists, in a separate note, wrote that they see the potential for the labor market to overheat.

The economists say their model says “that recession risk at the 1, 5, and 9-quarter horizon is well explained by lagged GDP growth, the slope of the yield curve, equity price changes, house price changes, the output gap, the private debt/GDP ratio, and economic policy uncertainty.”

Fewer jobs expected to move from London after Brexit

December 13, 2017

FT research shows 6 per cent of staff might move, despite claims of tens of thousands

By  in London
FT — Financial Times

Image result for the city, london, financial district, photos

The UK’s biggest international banks are set to move fewer than 4,600 jobs from London in preparation for Brexit — just 6 per cent of their total workforce in the financial centre — according to Financial Times research.  The FT analysis contrasts with consultants’ original claims that tens of thousands of jobs could move from London after Brexit — including an EY study this week that claimed 10,500 could leave on “day one”.

The FT estimates are based on public statements by 15 of the UK’s biggest international institutions, interviews of more than a dozen senior bank executives about Brexit planning and industry benchmarks. In the case of Deutsche Bank, where Sylvie Matherat, head of regulation, publicly said up to 4,000 jobs could move, the FT estimates that just 350 jobs may leave by April 2019.

The figure amounts to 5 per cent of Deutsche’s London headcount, a proportion broadly in line with other big banks. Some bankers say the lower estimates emerged as they thought through how many jobs and operations would need to move to the EU if the UK loses access to the bloc’s single market.

“Every city wants thousands of people, but what are they going to do?” said one senior executive at a large US institution, adding that the thousands of people sitting in his London office “cover clients” who will mostly be remaining in the UK. Share this graphic At JPMorgan, where chief executive Jamie Dimon warned before the Brexit vote of up to 4,000 London job losses, the number leaving before April 2019 is set to be closer to 700.

Goldman Sachs, which has taken a new office in Frankfurt that could accommodate 1,000 people, expects to move fewer than 500 from London. HSBC is still planning to move “up to 1000 people”, although its chief financial officer recently said the figure could fall.  A few banks still do not know how many staff they will move. BNP Paribas, for example, says it is “too soon to speculate” on the potential reduction in its London workforce.

he UK government says it has made important recent progress on Brexit, highlighting last week’s divorce deal with the EU, which paves the way to negotiations on future ties with the bloc and a transition of about two years under current rules — keenly sought by the City. But Sally Dewar, international head of regulatory affairs at JPMorgan, said her bank’s planning “hasn’t changed to reflect anything that would look like a better [Brexit] outcome”.

A senior executive at another US bank said that a “a watertight transition period that is legally robust” was “the only way we can responsibly stop, or adjust the timing of, the implementation of our plans to ensure post-March 2019 continuation of critical services to our clients, and that needs to happen very quickly”.

Some bankers say the real impact of leaving the EU could still be dramatic. “The story has always been three to five years out, not what does it do to the City the morning after Brexit,” said Rob Rooney, chief executive of Morgan Stanley International.

“If people judge it by the numbers that move ([immediately] afterwards, they will miss the point.” Several banks say they are planning to move relatively few people in the immediate aftermath of Brexit because it will take time for their EU operations to build up.

They expect to have very small balance sheets when the EU entities begin handling client business on April 1, 2019, and to be able to run some of the risk and support functions for those small EU entities from London.

Share this graphic David Davis, Britain’s Brexit secretary, says the UK is aiming at a trade deal that includes financial services. If there is a hard Brexit that impedes financial services providers’ access to Europe, one bank’s Emea chief executive said it was “inevitable” that the flow of business from the UK to the EU “continues and continues and that the ECB when they feel the moment is right will push to have much more market risk to be run onshore”.

“It’s a real game changer . . . it will make this day one seem very small,” he added. “If we move the substance of the trading to the continent, you’re then moving risk management, product controllers, compliance legal heads . . . the numbers race to a completely different place.”  At present, banks are continuing the preparations for a ‘phase one’, the structure they will have in place immediately after Brexit. “We’re already in the process of revamping our governance of legal entities, submitting all of our documents to regulators, identifying senior managers who would have to relocate,” said Ms Dewar.

Bank of America Merrill Lynch has already announced the management of its new EU entity in Dublin — to be led by Bruce Thompson, former group chief financial officer, and chaired by Anne Finucane, a senior executive.

Other banks are expected to unveil their EU leadership soon.  While many banks no longer see the first quarter of 2018 as the point of no return, they will accelerate some aspects of preparation. “By the end of [the first quarter of next year] we will start to have to take decisions around informing clients which then becomes more difficult to unravel,” said Ms Dewar.

From around April, banks will begin engaging with clients and “repapering” them to new EU entities where appropriate. Some banks are planning to move existing client positions to new EU entities from the middle of next year.

Bankers stress that how they move business will depend largely on their clients — how they structure their own international operations after Brexit and where they want to do business. Many banks are in the dark on what their clients are planning.

One senior banker said his expectation was that “stuff will go to New York, more will go to the EU, the UK has always been the loser in this, it’s just a matter of how much”.

Contains many graphics:

Bitcoin futures rise as virtual currency hits major exchange

December 11, 2017

The Associated Press

Image may contain: 1 person, beard and closeup

CHICAGO (AP) — The first-ever bitcoin future jumped after it began trading Sunday as the increasingly popular virtual currency made its debut on a major U.S. exchange.

The futures contract that expires in January surged more than $3,000 to $18,580 eight hours after trading launched on the Chicago Board Options Exchange. The contract opened at $15,000, according to data from the CBOE.

The CBOE futures don’t involve actual bitcoin. They’re securities that will track the price of bitcoin on Gemini, one of the larger bitcoin exchanges.

The start of trading at 5 p.m. CST overwhelmed the CBOE website. “Due to heavy traffic on our website, visitors to may find that it is performing slower than usual and may at times be temporarily unavailable,” the exchange said in a statement. But it said the trading in the futures had not been disrupted.

Another large futures exchange, the Chicago Mercantile Exchange, will start trading its own futures on Dec. 18 but will use a composite of several bitcoin prices across a handful of exchanges.

The price of a bitcoin has soared since beginning the year below $1,000, hitting a peak of more than $16,858 Dec. 7 on the bitcoin exchange Coindesk. As of 1:15 a.m. CST, it was at $16,733.49 on Coindesk.

Futures are a type of contract in which a buyer and a seller agree on a price for a particular item to be delivered on a certain date in the future, hence the name. Futures are available for nearly every type of security but are most famously used in commodities such as wheat, soy, gold, oil, cocoa and, as dramatized in the Eddie Murphy and Dan Aykroyd movie “Trading Places,” concentrated frozen orange juice.

The futures signal greater mainstream acceptance of bitcoin but also open up bitcoin to additional market forces. The futures will allow investors to bet that bitcoin’s price will go down — a practice known as shorting — which currently is very difficult to do.

There have been other attempts to bring bitcoin investing into the mainstream. Tyler and Cameron Winklevoss, twin brothers who own large amounts of bitcoin, tried to create an exchange-traded fund based on bitcoin, but federal regulators denied their application.

How much actual investor interest there will be in these bitcoin futures is still up in the air. Many larger Wall Street brokerages and clearinghouses, including Goldman Sachs and JPMorgan Chase, are either not allowing customers to trade bitcoin futures or only allowing select clients to do so. Other brokerages are putting restrictions on the amount of margin a trader can use in bitcoin futures, or putting limits on the amount that can be purchased.

The digital currency has had more than its fair share of critics on Wall Street. JPMorgan Chase CEO Jamie Dimon has called bitcoin “a fraud.” Thomas Peterffy, chairman of the broker-dealer Interactive Brokers Group, expressed deep concerns about the trading of bitcoin futures last month, saying “there is no fundamental basis for valuation of Bitcoin and other cryptocurrencies, and they may assume any price from one day to the next.”

Peterffy noted that if bitcoin futures were trading at that time, under the CBOE’s rules those futures likely would experience repeated trading halts because 10 percent or 20 percent moves in bitcoin prices have not been unusual in recent months.

Bitcoin is the world’s most popular virtual currency. Such currencies are not tied to a bank or government and allow users to spend money anonymously. They are basically lines of computer code that are digitally signed each time they are traded.

A debate is raging on the merits of such currencies. Some say they serve merely to facilitate money laundering and illicit, anonymous payments. Others say they can be helpful methods of payment, such as in crisis situations where national currencies have collapsed.


Kelvin Chan in Hong Kong contributed to this report.


This report has been corrected to show the opening price of the bitcoin future contract was $15,000.

After hot debate, US tax bill a boon to businesses

December 2, 2017


© GETTY IMAGES NORTH AMERICA/AFP/File / by Virginie MONTET | U.S. Sen. Orrin Hatch (R-UT) (C) is surrounded by members of the media at the Capitol December 1, 2017 in Washington, DC. Senate GOPs indicate that they have enough votes to pass the tax reform bill

WASHINGTON (AFP) – Is it a giveaway to the rich or a relief for the middle class? A boon for business or unnecessary stimulus for an economy already at full employment?The sweeping tax reform package adopted by a slim margin of 51-49 early Saturday by the Republican-controlled Senate has sparked fierce debate among economists.

It also has yet to be reconciled with a separate version passed by the House of Representatives.

But the proposal’s main planks included a reduction in corporate tax rates from 35 to 20 percent, increasing some deductions for individual taxpayers while eliminating many others and reducing taxation on partnerships.

The White House portrays the new tax package as the largest tax cut in US history and says it is aimed at spurring growth and producing higher wages and corporate profits while encouraging tax-shy companies to repatriate their wealth.

One of the proposal’s main boosters, Treasury Secretary Steven Mnuchin, recently touted a letter from nine economists who asserted that the first comprehensive tax overhaul in three decades would lift annual GDP growth by 0.3 percent over 10 years.

But a University of Chicago study found that among 38 economists, the overwhelming majority doubt growth will increase and nearly all believed it would balloon the national debt.

The Joint Committee on Taxation, a nonpartisan committee which estimates the cost of tax policies, also found Thursday the bill now passed by the Senate would add $1 trillion to the deficit.

Many economists argue that this kind of stimulus has limited impact when the economy is growing at its full potential pace.

Disagreements have at times turned personal, with former Labor Secretary Robert Reich, a Democrat, writing in an opinion piece on Wednesday that Mnuchin was either a “fool or a knave,” accusing him of lying about the supposed benefits of the tax overhaul.

– Is now the right time? –

Reich cited the findings of the Tax Policy Center, according to which over a decade most of the proposal’s benefits are likely to go to the wealthiest one percent of Americans while the upper middle class would likely face a higher tax burden and the poorest would see only small tax cuts.

But according to Douglas Holtz-Eakin, one of the economists who signed the letter cited by Mnuchin, said the modified new tax code aims to boost production and supply, rather than demand.

Entrepreneurs are among the first who stand to gain, with corporate tax rates falling as much as 15 percentage points, supposedly down to a level in line with those in other developed countries.

But US companies have long benefitted from tax deductions that brought their effective tax rate down to around 21 percent.

Another boon for the business world: partnerships and other so-called “pass-through” companies whose profits are enjoyed directly by their owners — and which account for half of corporate revenue and 90 percent of small businesses — will see steep tax cuts.

Multinational companies also will be encouraged to repatriate their profits at a preferential tax rate.

According to Holtz-Eakin, these changes are all incentives for innovation and investment that will drive productivity in the United States.

However, as White House economic adviser Gary Cohn found while attending a business conference recently, many companies plan to use excess cash from the tax cuts to increase their dividend rather than invest in equipment or hire more workers.

President Donald Trump’s administration argues that wages should rise after having stagnated for decades when accounting for inflation.

Holtz-Eakin said productivity gains should make hiring workers more profitable and cause companies to compete for available labor by offering higher salaries.

Others call the timing of such a tax overhaul into question, given that the world’s largest economy is already close to full employment and the Federal Reserve is poised to pounce on any sign of inflation by raising interest rates.

Lloyd Blankfein, the CEO of Goldman Sachs, expressed similar doubts last month in an interview with Bloomberg.

“I can’t say this is the moment where you want the most fiscal stimulus in the market, when we’re mostly at full employment, when GDP last registered at 3 percent,” he said.

“I don’t know that this is the moment that you provide the biggest stimulus.”

by Virginie MONTET

Tax-Hike Fears Trigger Talk of Exodus From Manhattan and Greenwich

November 27, 2017


By Simone Foxman, Patrick Clark, and Sridhar Natarajan

  • End of state and local tax deduction to raise rates for many
  • Miami real estate looking for an influx of high-tax refugees

Even Bruce McGuire, founder of the Connecticut Hedge Fund Association, understands if wealthy Northeasterners flee the region due to changes in the tax code.

“It would almost be irresponsible if you weren’t thinking about moving,” he said.

Bruce McGuire

Photographer: Qilai Shen/Bloomberg

The problem for the Connecticut hedge-fund set — and, more broadly, for a lot of the Wall Street crowd — is that Republican proposals in both the House and Senate would drive up taxes for many high-earners in the New York City area. By eliminating the deduction for most state and local taxes, an individual making a yearly salary of $1,000,000 — a figure not uncommon in the financial industry — would owe the Internal Revenue Service an additional $21,000, according to a preliminary analysis by accounting firm Marcum LLP.

Billionaire hedge fund managers have blazed the trail south in recent years. David Tepper, Paul Tudor Jones and Eddie Lampert are New York-area transplants to Florida, which has no personal income tax.

A final bill could still do away with the hike, but so far there are no signs coming out of Washington that will happen. Financially struggling New Jersey had the sixth-highest individual income rate this year, according to the Federation of Tax Administrators. New York ranked eighth and cash-strapped Connecticut 12th. Nine of the 10 states with the highest individual taxes, including Washington, D.C., voted Democratic in the 2016 presidential election.

To see a map of state and local tax deductions by congressional district, click here.

Tax Refugees

No one interviewed for this story would talk openly about making plans to move, but Goldman Sachs Group Inc. is estimating that New York City alone could lose as much as 4 percent of its top earners if the bill becomes law. In Florida, where there’s no state income tax, there’s the sense that this is a great opportunity to lure disgruntled tax refugees.

The Miami Downtown Development Authority is throwing a party next month during the annual Art Basel show, and Nitin Motwani, a real estate developer, has invited wealthy Northeasterners who’ve expressed interest in moving to the area. Because the proposed tax changes are practically begging them to relocate, Motwani expects a crowd.

Image result for welcome to florida, sign, photos

State and local taxes, also called SALT, “can and should be a major catalyst,” said Motwani, a development authority board member. Tax reform will “certainly be something we’re highlighting” at the party, in the Perez Art Museum. “Inertia is a tough thing, but you add on another tax bill and maybe that pushes you over the edge.”

Jeff Miller, director of luxury sales for Brown Harris Stevens in the Miami area, said he’s fielded a half-dozen calls from clients motivated by higher taxes to step up their search for South Florida property.

Two clients who work at New York City financial firms have scheduled tours of a newly completed 7,000-square-foot (650-square-meter) home on the Venetian Islands, Miller said. The $22.5 million asking price buys views of Biscayne Bay and a spot to moor a yacht.

“Usually it’s a snowstorm that would push them to pick up the phone,” Miller said. “The tax plan has the same effect.”

Salary Earners

The amount of the raise depends as much on how taxpayers earn money as where they live, according to Marcum.

Salary earners would bear the biggest hike. Investors fare better. A person who makes $1 million by investing would save about $7,000, according to Marcum.

“Computations clearly show that high-net-worth individuals in a high-tax jurisdiction would get a benefit and save a decent amount of money if they moved,” said Carolyn Mazzenga, head of Marcum’s family-wealth-services business.

No Exodus

But David Silver, a senior manager at accounting firm MBAF in New York, said he doesn’t see the beginning of an exodus.

“I would argue it’s probably not all that likely to uproot your family, leave your friends, and put your kids in new schools just because of proposed tax changes,” he said. Still, technology that allows collaboration between colleagues in far-flung offices has made moving to Florida an easier decision.

Tepper, who heads Appaloosa Management, relocated to Miami Beach in 2015 from Short Hills, New Jersey. Jones kept Tudor Investment Corp. in Greenwich, Connecticut, when he moved to Palm Beach, Florida, last year. In 2012, Lampert, best known as Sears Holdings Corp.’s chief executive officer, took his hedge fund to Miami from the same tony Connecticut town.

State budgets feel the impact. When Tepper moved his firm to Florida, forecasters warned it could jeopardize New Jersey’s budget because the firm generated more than $100 million in state income tax. In 2013, state income tax generated by residents of seven of the wealthiest towns in Fairfield County amounted to $1.8 billion, according to the Hartford Courant, or about 9 percent of the Connecticut state budget.

“There is a certain amount of burying one’s head in the sand and naivete in Hartford,” Connecticut’s capital, McGuire said. “I don’t think they believe it can happen.”

Graphic: How the House and Senate Tax Bills Stack Up

Frustration was high among commuters in the northern New Jersey suburb of Summit early one recent morning. They know there’ll be little sympathy for them across the country and they aren’t necessarily ready to pack up and move, but they’re ticked off.

“Most people in this community don’t need a decrease, but I don’t think it’s right to have more taxes taken out and be told it’s a tax cut,” said Gary Bakalar, head of client relationships at insurer XL Catlin in New York. “I’m a lifelong Republican and this is starting to make me question the wisdom of that.”

— With assistance by Alexis Leondis