>>> Up
* Almirall Raised to Buy at JB Capital Markets; PT 15.20 euros (+)
* Novo Nordisk Raised to Overweight at Morgan Stanley
* Nyfosa Raised to Hold at SEB Equities; PT 90 kronor
* SEB Raised to Buy at Arctic Securities; PT 118 kronor
* Standard Chartered Raised to Buy at Investec; PT 610 pence
* Uniper Raised to Neutral at Goldman; PT 10 euros
>>> Down
* Admiral Cut to Underweight at JPMorgan; PT 1,750 pence
* Chemring Group Cut to Underweight at Barclays; PT 336 pence
* Cognor Holding SA Cut to Sell at Erste Group; PT 3.13 zloty
* Direct Line Cut to Neutral at JPMorgan; PT 240 pence
* EasyJet Cut to Underweight at JPMorgan; PT 310 pence
* Eurobank Cut to Neutral at Goldman; PT 92 euro cents
* HMS Networks Cut to Hold at Nordea
* SBB Cut to Hold at Nordea
* Senior Raised to Overweight at Barclays; PT 183 pence
* Wizz Air Cut to Reduce at HSBC; PT 1,350 pence
>>> Initation
* Abcam Maintained at Hold at Panmure Gordon
* Bawag Rated New Buy at Deutsche Bank; PT 73 euros
* Darktrace Rated New Buy at Stifel; PT 570 pence
* Dassault Aviation Reinstated Neutral at JPMorgan; PT 162 euros
* Exclusive Networks Rated New Buy at Stifel; PT 21.50 euros
* Siemens Energy Resumed Neutral at Citi; PT 16 euros
* Siemens Gamesa Resumed Neutral at Citi; PT 18.05 euros
* WithSecure Rated New Hold at Stifel; PT 2.60 euros
>>> Call
* Deutsche Telekom May Sell German Towers Only, Jefferies Says
* Direct Line Upgraded at Berenberg as Stock ‘Too Cheap to Ignore’
* Handelsbanken Miss Driven by Trading; NII Holds Up, Citi Says (+)
* Munters Sales Growth Not Translating Into Profits: Jefferies (+)
* Novo Nordisk Raised at MS on Blockbuster Obesity Opportunity
* Partners Group Update ‘Mixed,’ Citi Expects Negative Reaction (+)
* Rio Tinto Drops After Outlook Warning; RBC Sees 2Q Output Miss
* Voestalpine Earnings Beat, Though Analysts Note Backward-Looking
Draghi drama spells more trouble ahead for Italy
Fresh political turbulence comes amid worsening economic outlook
Italian Prime Minister Mario Draghi remains in office, for now, after the president rejected his resignation offer yesterday. But the high-intensity political drama unfolding in Rome spells more trouble for Italy amid weakening economic performance, soaring inflation and a looming gas supply crisis.
In Skopje, European Commission president Ursula von der Leyen made an attempt at convincing the entrenched opposition in the North Macedonian parliament to embrace a French proposal that could unblock the Balkan country’s EU membership bid.
And in lighter (though not calorie-wise) news, the EU’s top court ruled that Danish dairy producers should not name their cheese feta.
Super Mario, buffering
Mario Draghi’s frustration with Italy’s fractious political parties, and their pre-election political manoeuvring, could soon bring an end to his term as prime minister amid gathering storms on the economic front, write Amy Kazmin in Rome and Sam Fleming in Brussels.
“The majority of national unity that had supported this government since its creation is no longer there,” Draghi said in a statement as he offered to resign. President Sergio Mattarella has rejected that offer and asked him to address parliament next week to assess how much support his government would have.
Markets were quick to react to this fresh bout of political turbulence: Italian stocks sold off yesterday, with a FTSE gauge of equities in the country sliding 3.4 per cent. The yield on Italian 10-year government bonds rose to 3.24 per cent, sending the gap with German 10-year yields higher as investors demand a rising premium for holding Italian debt.
Asked about this renewed political upset, EU economics commissioner Paolo Gentiloni (and a former Italian prime minister himself) stressed the importance of not adding political tremors at a time of high tension. “In these troubled waters — war, high inflation, energy risks, geopolitical tensions — stability is a value in itself. Now is the time for sticking together, for cohesion.”
Forecasts from the EU commission yesterday showed the toll the war is taking on the Italian economy: growth is now forecast to slow dramatically between this year and next, decelerating from a respectable 2.9 per cent in 2022 to only 0.9 per cent in 2023. The commission blamed ebbing real household purchasing power in the face of soaring commodity prices, as well as sliding consumer sentiment, rising fund costs and continued supply chain bottlenecks.
“The risks to the growth outlook are tilted to the downside, in particular in view of potential supply disruptions of natural gas, given Italy’s still sizeable dependency on deliveries from Russia despite recent diversification efforts,” the commission said.
Tensions within Draghi’s national unity government had been rising ever since Russia’s invasion of Ukraine. Draghi has been staunch in his support for the government in Kyiv and a key architect of the tough sanctions against Moscow. But some members of his coalition — including the Five Star and the League — have traditionally had close ties with Moscow and Vladimir Putin.
Those tensions finally boiled over yesterday, when the Five Star party refused to support the government in a critical parliamentary vote on an aid package aimed at cushioning the impact of inflation on the population. Though the package still passed with a majority, Draghi has said he is unwilling to govern unless all large parties currently in the ruling coalition are willing to remain united behind him so he can be effective as a leader.
The suspense will rise as Draghi’s parliamentary appearance gets closer, with some parties eager to try to persuade him to stay on for another few months, and others calculating the likely benefits of early elections.
Chinese regulators rush to tame investor panic over mortgage boycotts
Homebuyers stop paying loans on more than 200 unfinished property projects
Chinese regulators are trying to stamp out panic over rising home loan risks at banks as a wave of homeowners join a country-wide mortgage boycott of unfinished houses.
Hundreds of thousands of buyers have halted mortgage payments on more than 200 unfinished property projects in China this week, aggravating a property sector crisis that has dragged down economic growth.
The CSI 300 Banks index fell as much as 3.3 per cent on Thursday to its lowest level since March 2020 on signs that the boycott was gaining traction. Bank share performance was mixed on Friday, with some stocks extending losses despite statements intended to reassure investors.
The China Securities Regulatory Commission, the country’s top securities watchdog, asked banks to disclose the degree of their mortgage exposure in an attempt to address market concerns, according to two banking sources briefed on the matter.
Sixteen listed banks, including state-owned lenders, revealed Rmb2.8bn ($414mn) of loans vulnerable to the mortgage boycott. In co-ordinated filings, the banks emphasised that the loans in question accounted for a small portion of their total outstanding mortgage portfolios, representing less than 0.01 per cent of mortgage liabilities for most of the lenders. Some of the banks did not reveal their numbers.
The state-owned Agricultural Bank of China said it held Rmb660mn of overdue loans on unfinished homes, the largest among banks that disclosed their holdings. The smaller Industrial Bank said Rmb384mn of mortgages on unfinished homes had soured, while Ping An Bank revealed Rmb318mn of affected debts.
“Defaulting on the mortgage is a desperate move by these home buyers to get the banks’ attention and wrestle with the developers,” said Wang Qi, chief executive at fund manager MegaTrust Investment in Hong Kong.
“The biggest challenge for Chinese real estate is consumer confidence. The recent mortgage defaults have only added to the problem,” added Wang. “The government needs to repair the consumer sentiment and business confidence ASAP with more stimulus.”
The country’s banking and insurance watchdog said it would step up co-ordination with the central bank and housing regulator to help local governments complete pending real estate developments.
“From a positive view, such movement brings banks into negotiations to resume construction,” Jefferies analysts wrote on a note on Thursday. “However, investors are concerned about the spread of mortgage payment snubs simply due to lower property prices, and the impact on property sales, which will further deteriorate developers’ cash flow.”
Jefferies estimated that the delayed projects accounted for about 1 per cent of China’s overall banking mortgage balance.
Chinese authorities are expected to hasten to avoid systemic risks to the financial sector or wider economy.
“Household financial positions and social stability are regarded as top priorities for policymakers,” said Betty Wang, senior China economist at Australian lender ANZ.
Solutions could include guiding banks to support unfinished projects, granting longer grace periods for mortgage payments or exempting mortgage interest, according to a third banking source, who was briefed on a meeting between the People’s Bank of China, housing regulators and banks.
"The Damage Could Be Huge": Chinese Banks Tumble, Swept Up In Mortgage Nonpayment Scandal As Borrowers Revolt
On Friday, shares of China’s banks extended their slide to a two-year low amid fears widespread mortgage non-payments would spark contagion within the banking sector (see "China On Verge Of Violent Debt Jubilee As "Disgruntled" Homebuyers Refuse To Pay Their Mortgages") even after the local banking and insurance regulator said it will maintain continuity and stability of financing policies for the real estate sector.
China Central Television said on its WeChat page that the regulator will guide financial institutions to participate in risk disposals based on market conditions, after researcher China Real Estate Information Corp. reported that home buyers had stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, spurring concerns that the quality of home loans is in rapid decline and could culminate in a 2007-like credit/housing bubble blow up.
Still, as Bloomberg Markets Live reporter Ye Xie writes, the grassroots movement of Chinese homebuyers boycotting mortgage payments isn’t exactly akin to the US subprime crisis of 2008. That said, no matter what Beijing does to address the latest chapter in China’s housing crisis drama, banks are likely to share the burden.
In the wake of a surging number of homebuyers who refuse to pay mortgages on construction projects that have stalled, China’s banking regulators said Thursday that they are coordinating with other agencies to support local governments in working to ensure the delivery of housing units. Separately, Bloomberg reported that policy makers held emergency meetings with banks to discuss the issue amid concern that it may worsen.
The boycotts raise the risk of mortgage defaults, a new set of troubles for banks that are already squeezed by exposure to ailing property developers. Mortgages make up almost 20% of total bank loans outstanding, amounting to about 39 trillion yuan ($5.8 trillion).
In a rather panicked note from Morgan Stanley economist Zhipeng Cai (available to pro subscribers), he addresses the topic of widespread mortgage nonpayment and writes that "we estimate 188mn sqm (1.7mn units) are at risk. We expect local governments will be urged to help completion, but a national bazooka solution remains difficult in near term."
His warning: "Non-linearity is the key to watch."
To others, however, such as Xie, this is an exaggeration. According to the Bloomberg reporter, "it’s reasonable to argue that this is unlikely the start of something as bad as the US subprime crisis. Unlike lending to developers, mortgages have been regarded as the safest assets on banks’ balance sheets, as Betty Wang, an economist at ANZ, pointed out. Mortgage defaults have been rare, and rising home prices over the years have increased the value of banks’ collateral."
Some data: the average non-performing mortgage-loan ratio of the six largest banks, which accounted for 68% of China’s total home loans, was only 0.38% in 2021, compared with an NPL ratio of 2.73% for developers, according to Wang’s calculations.
Of course, all of this assumes that the current mortgage-boycott movement can be quickly nipped in the bud. If not, the potential damage could be huge. Nomura’s economist Lu Ting and his colleagues estimated that about 4.4 trillion yuan worth of mortgages made between the end of 2020 and March of 2022 may be tied to those home projects that have been stalled or slow in being built.
Understandably, Chinese banks have gotten hammered in recent days. The CSI bank index fell more than 4% over the past two days to the lowest since March 2020. Their price-to-book ratio has dropped to an all-time low of 0.61, suggesting investors believe a significant part of the banking system’s assets are impaired.
At the same time, the CSI 300 Financials Index slipped as much as 1.2% on Friday, and is set for an 11th session of declines. Of course, the worse it gets, the more likely Beijing will have no choice but to unleash a powerful releveraging bazooka, even if it has to do so kicking and screaming.
Indeed, as Xie correctly concludes, "the government is likely to step in sooner rather than later as the mortgage boycotts start to undermine social stability. Either banks have to chip in to provide cheap funds for developers to complete projects, or they have to allow homebuyers to delay their payments. Neither is an attractive option."
What is the worst case scenario? Here we go back to the "non-linearity kicking in" case suggested by Morgan Stanley:
Home-buyer confidence weakens further from a low starting point, leading to further deterioration in property sales. This may force more developers, even relatively strong ones today, to suspend unfinished projects, furthering the downtrend. In the meantime, housing prices may continue to fall, exacerbating the downward spiral. Furthermore, the stress in the housing sector could spread to the broader economy, given the extensive inter-sector linkages, while being magnified by the financial system.
In short: a self-reinforcing downward cascade which ends in either a historical crash of the world's largest asset...
... or a state bailout. Here are the two most likely policy responses according to Morgan Stanley:
- Damage control: Local governments will likely be called upon to mobilize resources on a by-project basis, possibly with the help of SOEs and LGFVs, to kick-start suspended projects, signaling to the public that housing completion is the over-arching priority. SOE developers may be encouraged to conduct M&A activities, taking over stalled projects.
- Reining in systemic risk beyond the near term: Policy makers will likely need to send a clear and strong signal that they stand ready to be the "rescuer of the last resort" to rein in systemic risks. Plausible moves include more meaningful demand stimulus, more explicit guarantees on quality developers, or (less likely) a TARP-like program. Translation: a massive firehose of liquidity and credit is about to be unleashed.
One final though: similar to crypto lenders which generously handed out 20% DeFi interest until it all blew up spectacularly in one giant, cross-linked ponzi scheme, so China's 5%+ mortgage rates had been an extremely lucrative business for banks. It's now payback time.
- ASML (ASME TH) +2.2%
- AstraZeneca (ZEG TH) +2.2%
- Bawag (0B2 TH) +2.2%
- Bawag Rated New Buy at Deutsche Bank; PT 73 euros
- Equinor (DNQ TH) +1.5%
- OMV (OMV TH) +1.5%
- Infineon (IFX TH) +1.5%
- Uniper (UN01 TH) +1.2%
- Uniper Raised to Neutral at Goldman; PT 10 euros
- Fortum Continuing Constructive Talks With German Government
- Thyssenkrupp (TKA TH) +1.2%
- Nokia (NOA3 TH) -0.4%
- Vodafone (VODI TH) -0.5%
- Investor AB (IVSD TH) -1.3%
- Mowi (PND TH) -1.4%
- Tomra (TMRA TH) -4.4%
- Tomra 2Q Revenue Beats Estimates
DAX:
- Infineon (IFX TH) +1.7%
- Daimler Truck (DTG TH) +1.3%
- E.On (EOAN TH) +1.2%
- Deutsche Boerse (DB1 TH) +1%
MDAX:
- Talanx (TLX TH) +1.6%
- Uniper (UN01 TH) +1.2%
- Fortum Continuing Constructive Talks With German Government
- Rheinmetall (RHM TH) +1.2%
SDAX:
- AUTO1 (AG1 TH) +2.6%
- Schaeffler (SHA TH) +2.2%
- Instone Real Estate (INS TH) +1.8%
- Shop Apotheke (SAE TH) +1.7%
- Salzgitter (SZG TH) +1.3%
- About You (YOU TH) +1%
- Draegerwerk (DRW3 TH) -4.4%
- Draegerwerk Prelim 2Q Ebit Loss About EU77M
Asian stocks pared losses Friday and US equity futuresticked higher as investors assessed the outlook for Federal Reserve interest-rate hikes and the latest readings on China’s economy. MSCI Inc.’s Asian share gauge was steady as China climbed but Hong Kong retreated. Alibaba Group Holding Ltd. contributed to a slide in China tech following a report that it faces a probe linked to a data theft case. China’s second-quarter growth slowed on Covid lockdowns but consumption rallied in June as curbs eased. Officials refrained from injecting funds into the banking system and left borrowing costs unchanged. S&P 500, Nasdaq 100 and European equity futures gained after the US stock market came off Thursday’s session lows to close with a small loss. Treasuries edged up and the the yield curve between two-year and 10-year maturities remained inverted, something viewed as recession signal. The Bloomberg Dollar Spot Index dipped from a record high. Oil is poised to end the week below $100 a barrel for the first time since April. Traders are weighing up how hawkish the Fed must be to curb inflation. Bets on a one-percentage-point July rate hike have been scaled back after the latest commentary pointed toward 75 basis points. Ebbing liquidity threatens to stir more market volatility after steep losses for stocks and bonds in 2022. In the latest Fed comments, Governor Christopher Waller backed raising rates by 75 basis points this month, though he said he could go bigger if warranted by the data. St. Louis Fed President James Bullard echoed some of those comments, saying he favored hiking by the same amount. In a first flurry of US bank earnings, JPMorgan Chase & Co.’s earnings fell short of estimates and Morgan Stanley announced a plunge in investment-banking revenues. But the chiefs of both banks said they aren’t steering their firms toward shelter even as they see global events denting the economy. Meanwhile about $1.9 trillion of options are set to expire Friday, a even that could bring some volatility to markets. US After Hours PINS +14.2% on WSJ report that activist Elliott Mgmt has built large stake; CDXS -21.3% and TXG -12.8% fall on weak guidance; RRGB +2.5% gets a new CEO
Nikkei +0.58% Hang Seng -1.66% CSI -0.41% Shanghai -0.36% Shenzen -0.20%
Eur$ 1.0026 CNH 6.7770 CNY 6.7653 JPY 139.04 GBP 1.1830 CHF 0.9828 RUB 60.0941 TRY 17.4669 WTI$ 96.34 +0.60% Gold 1,709.20 -0.04% BTC 20,500 -0.80% ETH 1,193.44 +0.05%
S&P +0.17% Nasdaq +0.25% EuroStoxx +0.88% FTSE +0.37% Dax +0.74% SMI +0.65%
Macro :
- Hedge Funds Saw $10 Billion Net Outflows in June, Citco Says
- Italy’s Prime Minister Mario Draghi Says He Will Resign
- *CHINA'S WANG SAYS CHINA-US TIES AT `CRITICAL' MOMENT: XINHUA
Keep an eye on :
- AXFO SS : Axfood 2Q Operating Profit Beats Estimates
- BRG NO : Borregaard 2Q Ebitda Beats Estimates
- BRAV SS : Bravida 2Q Net Sales Beats Estimates
- BRBY LN : Burberry 1Q Retail Sales Meets Estimates
- COOR SS : Coor 2Q Adjusted Ebita SEK172M
- DKSH SW : DKSH 1H Operating Profit Beats Estimates
- DRW3 GY : Draegerwerk Prelim 2Q Ebit Loss About EU77M
- EDP PL : EDP Says 1H Electricity Generation Rises 6%
- ELISA FH : Elisa 2Q Comparable Ebitda Meets Estimates
- EMSN SW : EMS-Chemie 1H Ebit Beats Estimates
- ERICB SS : Ericsson Gets Approval to Complete Purchase of Vonage
- GJF NO : Gjensidige 2Q Pretax Profit Beats Estimates
- GRNG SS : Granges 2Q Operating Profit Beats Estimates
- HUSQB SS : Husqvarna 2Q Adjusted Operating Profit Misses Estimates
- IBS PL : Ibersol Decides Not to Accept RBI’s Offer for Restaurants
- INWI SS : Inwido 2Q Net Sales Beats Estimates
- KEMIRA FH : Kemira 2Q Oper Ebitda Beats Estimates
- LIFCOB SS : Lifco 2Q Net Sales Beats Estimates
- MTRS SS : Munters 2Q Net Sales Beats Estimates
- NSKOG NO : Norske Skog 2Q Ebitda Beats Estimates
- ONCO SS : Oncopeptides Offering of 15.1m Shares Prices at SEK28.92/Share
- PNDXB SS : Pandox 2Q Property MGMT Income SEK858M Vs. SEK568M Y/y
- PGHN SW : Partners Group Assets Under Management $130.6B
- CFR SW : Richemont 1Q Sales at Constant Exchange Rates Beats Estimates
- RIO LN : Rio Tinto 2Q Mined Copper Production Misses Estimates
- ROG SW : Roche: 8-Yr APHINITY Study Shows Reduced Breast Cancer Risk
- SHOT SS : Scandic 2Q Adjusted Ebitda SEK1.08B
- SCHA NO : Schibsted 2Q Ebitda Misses Estimates
- SPM IM : Saipem Says Share Sale Ended With EU1.4B Subscribed
- SOW GY : Software AG Cuts FY Digital Business Bookings Forecast
- SOW GY : Software AG Promotes Benno Quade to COO
- TEL NO : Telenor Digi Sees Low Single Digit Decline for FY Normal Ebitda
- TOM NO : Tomra 2Q Revenue Beats Estimates
- TOM2 NA : TomTom 2Q Revenue Beats Estimates
- VOW GY : VW’s Battery Business Faces Supply-Chain Hurdles in Road to IPO
- XXL NO : XXL 2Q Ebitda Misses Estimates
>>> Up
* Novo Nordisk Raised to Overweight at Morgan Stanley
* Nyfosa Raised to Hold at SEB Equities; PT 90 kronor
* SEB Raised to Buy at Arctic Securities; PT 118 kronor
* Standard Chartered Raised to Buy at Investec; PT 610 pence
* Uniper Raised to Neutral at Goldman; PT 10 euros
>>> Down
* Admiral Cut to Underweight at JPMorgan; PT 1,750 pence
* Chemring Group Cut to Underweight at Barclays; PT 336 pence
* Cognor Holding SA Cut to Sell at Erste Group; PT 3.13 zloty
* Direct Line Cut to Neutral at JPMorgan; PT 240 pence
* EasyJet Cut to Underweight at JPMorgan; PT 310 pence
* Eurobank Cut to Neutral at Goldman; PT 92 euro cents
* HMS Networks Cut to Hold at Nordea
* SBB Cut to Hold at Nordea
* Senior Raised to Overweight at Barclays; PT 183 pence
* Wizz Air Cut to Reduce at HSBC; PT 1,350 pence
>>> Initation
* Abcam Maintained at Hold at Panmure Gordon
* Bawag Rated New Buy at Deutsche Bank; PT 73 euros
* Darktrace Rated New Buy at Stifel; PT 570 pence
* Dassault Aviation Reinstated Neutral at JPMorgan; PT 162 euros
* Exclusive Networks Rated New Buy at Stifel; PT 21.50 euros
* Siemens Energy Resumed Neutral at Citi; PT 16 euros
* Siemens Gamesa Resumed Neutral at Citi; PT 18.05 euros
* WithSecure Rated New Hold at Stifel; PT 2.60 euros
>>> Call
* Deutsche Telekom May Sell German Towers Only, Jefferies Says
* Direct Line Upgraded at Berenberg as Stock ‘Too Cheap to Ignore’
* Novo Nordisk Raised at MS on Blockbuster Obesity Opportunity
* Rio Tinto Drops After Outlook Warning; RBC Sees 2Q Output Miss
* Voestalpine Earnings Beat, Though Analysts Note Backward-Looking