Tag Archives: Economic Decline

California Controller warns that economic downturn may be near

FILE PHOTO - The California flag flies above City Hall in Santa Monica, California, U.S. on February 6, 2009. REUTERS/Lucy Nicholson/File Photo

By Robin Respaut

SAN FRANCISCO (Reuters) – California’s state tax collections in April fell short of expectations, a sign that the state may be headed toward an economic downturn, State Controller Betty Yee warned on Wednesday.

Collections totaled $15.98 billion, $1.05 billion or 6.2 percent short of the governor’s projected budget for the month.

“April is usually the state’s biggest tax filing month, so lower-than-expected personal income tax receipts are troubling,” said Yee, the state’s chief fiscal officer, in a statement.

“While we await the governor’s May Revision, this is another signal that we may be inching towards an economic downturn, and we must tailor our spending accordingly.”

California has collected $96.88 billion during the first 10 months of fiscal 2017, which ends June 30. That means the state is $1.83 billion behind last summer’s budget estimates and $211.3 million shy of January’s revised fiscal year-to-date predictions.

Governor Jerry Brown plans to release on Thursday his mid-year revision of the proposed state budget for fiscal 2018. The revised budget is expected to reflect changes in the state’s financial position since January.

For the month of April, during which California tends to collect about 17 percent of its personal income tax receipts, collections lagged by 5.3 percent. Retail sales and use tax receipts fell short of projections in the governor’s proposed 2017-18 budget by $106.7 million, or 13.3 percent. Corporation tax receipts for April were 13.8 percent lower than estimates in the budget.

In January, Governor Brown proposed a $179.5 billion state budget for fiscal 2018, a 5 percent increase over this year, but he warned that the state must remain fiscally prudent ahead of an inevitable economic downturn.

California is especially vulnerable to downturns, because the state is more reliant than most on capital gains taxes, a volatile revenue source, and less on property tax revenue, which is more stable.

(Reporting by Robin Respaut; Editing by Richard Chang)

Global banking Fees Fall 29 Percent

A view of the exterior of the JP Morgan Chase & Co. Corporate headquarters in the Manhattan borough of New York City,

By Anjuli Davies

LONDON (Reuters) – Global investment banking fees fell 29 percent in the first quarter of 2016 from a year earlier as market volatility put a brake on dealmaking and equity and debt capital markets activity, Thomson Reuters data published on Monday showed.

Global fees for services ranging from merger and acquisitions advisory services to capital markets underwriting reached $16.2 billion by the end of March, the slowest first quarter for fees since 2009.

Regionally, fees in the Americas totaled $8.7 billion, down 32 percent from last year. Fees in Europe were down 27 percent at $3.9 billion and the Asia-Pacific region saw an 18 percent decline to $2.6 billion.

Investment banking income was dragged down across all products as global markets were hit by volatility sparked by global growth worries, geopolitical tensions in the Middle East and a China slowdown.

Company boards and their chief executives were deterred from pulling the trigger on big transformative deals, in contrast to the record levels of activity seen last year, although the quarter saw a flurry of Chinese companies seeking Western targets.

Equity capital markets fees saw the steepest decline of 48 percent compared to a year ago, followed by a 26 percent fall in debt capital markets fees and an 18 percent decline in M&A revenue.

JPMorgan <JPM.N> topped the global league table for fees, drawing in $1.2 billion during the quarter, a decline of 23 percent compared to a year earlier but gaining slightly in overall wallet share.

The top five banks were all American, but European banks Barclays <BARC.L> and Credit Suisse <CSGN.S> each gained one place to rank sixth and seventh respectively.

<<<For the full league table click on: http://trmcs-documents.s3.amazonaws.com/3501ec8eae589bfbef9cc1729a7312f0_20160404083831_1Q2016_Global_Investment_Banking_Review.pdf >>>

(Editing by Susan Fenton)

U.S. repo rates jump to highest level since 2008 at quarter-end

A Wall Street sign is seen in Lower Manhattan in New York

NEW YORK (Reuters) – A key overnight borrowing cost for Wall Street surged on Thursday to its highest level since the height of the global credit crunch in the fall of 2008, as investors slashed their lending to dealers and banks at quarter-end.

The interest rate on the $5 trillion repurchase agreement market jumped to 0.85 percent late on Thursday, nearly double the level at Wednesday’s close <USONRP=GCMN>, according to data from interdealer broker ICAP.

In the repo market, Wall Street dealers borrow from money market funds and other investors and pledge their Treasuries and other securities they own as collateral.

Around the time before and shortly after collapse of Lehman Brothers in September 2008, this short-term lending cost spiked above 2 percent, ICAP data showed.

Since the financial crisis, repo rates have risen at the end of a quarter as money funds and other investors reduced their lending to conserve cash for reporting and regulatory purposes. They have retreated with the start of a new quarter.

“But today, are higher rates a function of the repo market returning to normal? Or is it a sign of declining liquidity on quarter-end?” Scott Skrym, managing director at Wedbush Securities, wrote in a research note.

According to Skrym, Thursday’s repo rate was quoted as high as 1.75 percent, well above its recent average of 0.57 percent.

Meanwhile, money funds, mortgage finance agencies and other key repo lenders preferred to park their cash at the Federal Reserve on Thursday.

The U.S. central bank awarded $303.85 billion of its fixed-rate reverse repos to bidders, the most since the last day of the final quarter of 2015.

The Fed’s reverse repo program is seen as a critical policy tool that drains money from the financial system in an effort to achieve the Fed’s interest-rate objectives.

The Fed currently pays money funds and other participants an interest rate of 0.25 percent to hold its Treasuries overnight.

(Reporting by Richard Leong; Editing by Chizu Nomiyama)

Roller-coaster first quarter ends with dollar down, global stocks flat

People walk through the lobby of the London Stock Exchange in London

By David Gaffen

NEW YORK (Reuters) – Equity markets worldwide fell for the first time in four days on Thursday, the final day of a roller-coaster first quarter that has hammered the dollar and the pound but helped gold and bonds to big gains.

March closed on a subdued note after a volatile quarter that saw investors vacillate between calm and panic. Oil prices, the source of much concern throughout the quarter, were a touch higher as investors looked for clarity over a possible agreement by major oil-producing nations to reduce supply.

The dollar hovered near seven-week lows against the euro. It has fallen this week on reduced expectations for near-term interest rate hikes from the Federal Reserve, particularly after comments from Fed Chair Janet Yellen.

U.S. oil futures edged lower, slipping in late trading to lose 0.4 percent to $38.15 a barrel, after another report of record U.S. stockpiles, while China was put on a downgrade warning by S&P.

This quarter “has all been about the three C’s: commodities, China and central banks,” said Aberdeen Asset Management investment committee member Kevin Daly.

When oil hit $27 a barrel in mid-January there were “pretty dark” predictions for the global economy, Daly said, but the rebound in crude, China and ECB stimulus and the Federal Reserve cooling rate hike expectations had all bolstered confidence.

Wall Street was sleepy one day ahead of key monthly labor market data. In the span of three months, the S&P 500 erased an 11 percent fall, one of its worst-ever starts to a year, and is now set to end the quarter with modest gains.

The S&P 500 dipped 0.2 percent to 2,059.74; it ended the quarter up about 0.8 percent.

Safe-haven gold has been the big winner of 2016 so far. It ticked up to $1,231 an ounce and has jumped a whopping 16 percent this quarter, its best run in nearly 30 years. [GOL/]

The euro rose to $1.1382 and the yen hovered at 112.53 to the greenback, leaving the six-currency dollar index on track for its biggest monthly fall since April 2015 and largest quarterly drop in five years.

Bond yields declined during the quarter as investors reduced expectations for rate increases from the Federal Reserve and central banks in Europe and Japan added to stimulus efforts. The U.S. Barclays Aggregate bond index has returned 2.78 percent in the first quarter.

European markets were hit, with shares down 1 percent on Thursday. Euro zone inflation data was muted, underscoring just why the European Central Bank is cranking up its stimulus efforts.

Sterling has also taken a pounding this year as concerns have grown about a potential British exit, or ‘Brexit’, from the European Union. It barely budged on Thursday but has seen its biggest quarterly tumble in 6-1/2 years against the euro.

This year’s turbulent start pushed MSCI’s benchmark emerging market equity index down 14 percent by the time it bottomed on Jan. 21.

But fast forward 2-1/2 months and EM stocks are up 20 percent. Currencies from the Russian rouble to the Brazilian real have surged and struggling parts of Africa have some of the best-performing bonds in the world.

Japan’s Nikkei sagged 0.7 percent on Thursday to an 11 percent quarterly loss, having been slammed by the 7-percent surge in the yen against the dollar.

Shanghai shares have been an even bigger loser, having dropped about 15 percent since the start of the year.

(Additional reporting by Marc Jones in London and A. Ananthalakshmi in Singapore; Editing by Nick Zieminski and James Dalgleish)

Central banks ‘running out of time’ to reflate economies: Bill Gross

Bill Gross speaks at the Morningstar Investment Conference in Chicago

By Jennifer Ablan

NEW YORK (Reuters) – Bond manager Bill Gross, who runs the Janus Global Unconstrained Bond Fund, said central banks are “running out of time” to reflate global economies as their aggressive policies including quantitative easing and low, even negative, interest rates are losing their effectiveness.

In his April Investment Outlook, Gross wrote that markets and the capitalistic business models based upon them and priced for them “will begin to go south” if global economies do not produce growth.

Given massive monetary stimulus, Gross said nominal gross domestic product growth rates for the U.S. should be between 4 percent and 5 percent by 2017 while that for the euro zone should be between 2 percent and 3 percent, respectively.

On Monday, the Federal Reserve Bank of Atlanta’s GDPNow model predicted U.S. growth at a 0.6 percent pace in the first quarter, marked down from an earlier estimate of 1.4 percent.

In Japan, nominal GDP should be between 1 percent and 2 percent while China should be between 5 percent and 6 percent by 2017, Gross added.

“Capital gains and the expectations for future gains will become Giant Pandas – very rare and sort of inefficient at reproduction,” Gross said. “I’m saying that developed and emerging economies are flying at stall speed and they’ve got to bump up nominal GDP growth rates or else. Cross your fingers.”

Gross warned against investing in negative-yielding securities.

“The real market and the real economy await a different conclusion as losses from negative rates result in capital losses, not capital gains,” he said. “Investors cannot make money when money yields nothing. Unless… nominal GDP can be raised to levels that allow central banks to normalize short-term interest rates, then south instead of north is the logical direction for markets.”

(Reporting By Jennifer Ablan; Editing by Chizu Nomiyama)

U.S. Dollar Lowest Level in 7 Weeks

An employee checks U.S. dollar bank-notes

By Sam Forgione

NEW YORK (Reuters) – The U.S. dollar hit its lowest level against the euro in nearly seven weeks on Wednesday following dovish comments from Federal Reserve Chair Janet Yellen that pushed out expectations for the central bank’s next interest rate hike.

The euro &lt;EUR=&gt; advanced to $1.1364, its highest against the dollar since Feb. 11, while the dollar hit a more than five-month low against the Swiss franc at 0.9592 franc &lt;CHF=&gt;.

The dollar index, which measures the currency against a basket of six major rivals, hit its lowest level in 12 days at 94.588 &lt;.DXY&gt; after posting its biggest one-day percentage decline since March 17 on Tuesday.

The ADP National Employment Report showed U.S. private employers added 200,000 jobs in March, above economists’ expectations. The data came ahead of the U.S. Labor Department’s more comprehensive March non-farm jobs report on Friday.

While the ADP data beat economists’ forecast for 194,000 jobs according to a Reuters poll, the data was not enough to halt the negative sentiment toward the dollar a day after Yellen stressed the need to be cautious in raising rates.

“It’s going to take more than one ADP number that was just okay to overcome Yellen’s dovish comments,” said Chris Gaffney, president of EverBank World Markets in St. Louis.

The dollar was on track to post its biggest quarterly percentage decline in five years, and was last down 4 percent for the first quarter.

The dollar’s losses accelerated against the euro after traders “covered” or reversed “short” bets against the euro once it crossed $1.1335, said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.

The Australian dollar &lt;AUD=D4&gt;, which is closely correlated with commodity prices, soared to a roughly nine-month high &lt;AUD=D4&gt; of $0.7709 as oil prices – which are U.S. dollar-denominated – rose and became cheaper for holders of other currencies. &lt;O/R&gt;

U.S. crude was last up 2.8 percent at $39.36 a barrel &lt;LCOc1&gt;.

Against the yen, the dollar was last down 0.2 percent at 112.45 yen &lt;JPY=&gt; after touching an eight-day low of 112.02 yen earlier.

(The story was refiled to change the word in the analyst comment to “reversed” from “repurchased”, in the eigth paragraph)

(Reporting by Sam Forgione; Editing by Dan Grebler)

U.S. Dollar weakens after worse-than-expected consumer spending

Global Markets

NEW YORK (Reuters) – Wall Street shares rose in choppy trading as the dollar fell following weaker-than-expected U.S. economic data on Monday that cut expectations of a near-term interest rate increase by the Federal Reserve.

The dollar reversed earlier gains and moved lower after U.S. consumer spending data indicated a sluggish economy with weak first-quarter gross domestic product growth.

Monday’s worse-than-expected consumer spending, as well as a downward adjustment to January’s numbers and weak readings for personal income and inflation, cast doubt on the prospect of the Fed raising rates at either of its upcoming meetings in April and June.

The dollar had benefited last week from stronger-than-expected economic data and comments from some Fed officials indicating that policymakers think they could raise interest rates as early as next month.

“Because we had softer (personal consumption expenditures) data and also the big downward revision in spending in January, that is causing a lot of the (dollar) long trades that many have put on to be cut back,” said Kathy Lien, managing director at BK Asset Management in New York.

“Today’s report certainly raises the question of whether the Fed can pull the trigger in June.”

Higher interest rates increase the strength of the dollar by making it more attractive to investors, but a strong dollar can weigh on the returns of firms that do business overseas, hurting earnings.

The dollar index <.DXY> dipped 0.2 percent against a basket of six major currencies, falling to 95.950. It had risen to as much as 96.339 prior to the data, its highest in almost two weeks.

Following the data’s release on Monday, markets <0#FF:> are pricing in only about a 37 percent chance of a rate hike by the Fed in June, with only a 10 percent chance of an April increase factored in so far, according to CME Group’s FedWatch tool.

The weak dollar benefited U.S. stocks, which rose in afternoon trading, led by the materials and consumer discretionary sectors, as utilities and energy dragged.

With share markets in Europe closed, as well as those in Australia, New Zealand and Hong Kong for holidays following last week’s Good Friday holiday in the U.S., trading was generally light for much of the day.

The Dow Jones industrial average <.DJI> rose 34.86 points, or 0.2 percent, to 17,550.59, the S&P 500 <.SPX> gained 3.55 points, or 0.17 percent, to 2,039.49 and the Nasdaq Composite <.IXIC> added 2.06 points, or 0.04 percent, to 4,775.57.

MSCI’s measure of emerging markets stocks <.MSCIEF> rose by around 0.1 percent in thin trading. MSCI’s index of world shares <.MIWD00000PUS> gained 0.11 percent.

Bonds rose in price in the wake of the U.S. data, with yields on benchmark U.S. 10-year Treasuries falling to 1.8684 percent.

Oil prices, which have risen about 50 percent since multi-year lows hit in January, turned lower in thin trading.

U.S. crude futures <CLc1> fell 0.5 percent to $39.04 per barrel, and Brent <LCOc1> lost 0.8 percent to $40.11.

Fed Chair Janet Yellen and other Fed policymakers are expected to speak on Tuesday, making the U.S. central bank’s policy the main focus for now.

(Reporting by Dion Rabouin; Editing by Nick Zieminski and Alan Crosby)

Dollar turns lower against euro, yen on doubts over rally’s momentum

By Sam Forgione

NEW YORK (Reuters) – The U.S. dollar lost ground against the yen and was mostly flat against the euro on Wednesday, reversing earlier gains after traders took profits on skepticism that central bank policy in the United States and elsewhere would continue to diverge.

The dollar fell to a session low of 113.23 yen after hitting a more than two-week high against the Japanese currency of 114.55 yen early in the U.S. trading session. The euro was last up slightly against the dollar at $1.0866 after hitting a more than one-month low of $1.0826 earlier.

Early in the U.S. session, data showing stronger-than-expected growth in U.S. private payrolls in February added to a recent pile of reassuring U.S. economic data and boosted expectations that the Federal Reserve would hike interest rates at least once this year.

That optimism cooled, partly on doubts that uniformly strong U.S. economic data would continue and that the European Central Bank would announce a greater stimulus package and weaken the euro at the central bank’s meeting on March 10.

“People are taking a bit of a profit after a strong ride,” said Sebastien Galy, currency strategist at Deutsche Bank in New York, in reference to the dollar’s recent gains. “Everyone knows the dollar, for good reasons, is too expensive.”

The ADP National Employment Report showed U.S. private employers added 214,000 jobs in February. That was above economists’ expectations for a gain of 190,000, according to a Reuters poll.

Uncertainty remained over the impact of low oil prices on Fed policy and China’s economic growth, leading traders to take profits in the dollar’s gains, said Sireen Harajli, currency strategist at Mizuho Bank Ltd in New York.

Harajli said uncertainty ahead of Friday’s U.S. non-farm payrolls report for February may have contributed to the reversal in the dollar’s rally. Economists polled by Reuters expect U.S. employers to have added 190,000 jobs last month.

The U.S. dollar index, which hit a roughly one-month high of 98.582 earlier, was last down 0.17 percent at 98.176 <.DXY>. The dollar was last down 0.53 percent against the yen at 113.38 yen <JPY=>.

The dollar was last down 0.07 percent against the Swiss franc at 0.9962 franc <CHF=>.

(Reporting by Sam Forgione; Editing by Lisa Von Ahn)