Closing Market Summary: Fed Hikes Rates, Stocks Move HigherAs expected, the Federal Open Market Committee voted to raise the fed funds target range by 25 basis points to 0.75%-1.00% on Wednesday. More notably, the Fed still believes that three rate hikes are appropriate for 2017, relieving investors' fears that the central bank could begin setting the groundwork for a fourth hike. The major averages started the day in the green thanks to a bullish sentiment in the crude oil market and climbed to new session highs in the afternoon following the FOMC decision. The S&P 500 and the Nasdaq finished higher by 0.8% and 0.7%, respectively, while the Dow (+0.5%) struggled to keep pace with its peers. Also of note, small-caps surged on Wednesday with the Russell 2000 jumping 1.6%.
U.S. Treasuries spiked across the board in the wake of the FOMC's decision to tighten monetary policy. The benchmark 10-yr yield, which moves inversely to the price of the 10-yr Treasury note, finished ten basis points lower at 2.51%. Meanwhile, the 2-yr yield, which is more vulnerable to short-term interest rate hikes, lost seven basis points to finish at 1.31%.
In the same breath, the U.S. Dollar Index (100.69, -0.93) plunged 0.9% lower, ultimately aiding crude oil in its already solid performance.
Crude oil set today's bullish tone in pre-market action after the API reported encouraging inventory data on Tuesday evening. The EIA validated those positive numbers this morning, showing a draw of 200,000 barrels (+3.7 million barrels consensus). The reading prompted WTI crude to finish the day 2.1% higher at $48.71/bbl.
As one might expect, the energy sector (+2.1%) rode the commodity's performance to the top spot on today's leaderboard. The rate-sensitive utilities (+1.6%) and real estate (+1.9%) spaces closed in the same neighborhood as the energy sector, profiting from the slip in interest rates within the Treasury market, while the financial group (-0.1%) reacted in opposite fashion as the decline in yields weighed.
Meanwhile, the top-weighted technology sector (+0.6%) underperformed as semiconductor giant Intel (INTC 35.10, -0.08) continued to see weakness in the wake of its acquisition of Mobileye (MBLY 60.77, -0.19), which was announced on Monday. The two names lost 0.2% and 0.3% on the day, respectively.
Like technology, the consumer discretionary group (+0.5%) also struggled as large-cap names like Amazon (AMZN 852.97, +0.44), Walt Disney (DIS 111.87, -0.44), McDonald's (MCD 127.88, +0.08), and Target (TGT 54.57, -0.18) underperformed, among others.
Wednesday saw a slew of economic data, including February CPI, February Retail Sales, March Empire Manufacturing, March NAHB Housing Market Index, January Business Inventories, and the weekly MBA Mortgage Applications Index, but it was largely overshadowed by the Fed's rate decision:
- Total CPI rose 0.1% (consensus +0.1%) in February while core CPI, which excludes food and energy, increased 0.2% (consensus +0.2%). On a year-over-year basis, total CPI is up 2.7% and core CPI has increased 2.2%.
- The key takeaway from the report is that consumer inflation is certainly firming and offering a data-based rationale for the Fed to move on rates.
- February retail sales increased 0.1%, which is in line with the consensus. The prior month's reading was revised higher to 0.6% from 0.4%. Excluding autos, retail sales rose 0.2% while the consensus expected an uptick of 0.1%. The prior month's reading was revised higher to 1.2% from 0.8%.
- The key takeaway from the February report is that retail sales activity didn't necessarily corroborate the high readings seen for consumer confidence, exposing some of the disconnect between "soft" survey data and the "hard" data.
- The Empire Manufacturing Survey for March rose to 16.4 from the prior month's reading of 18.7. The consensus estimate was pegged at 14.5.
- The NAHB Housing Market Index for March rose to 71 (consensus 65) from an unrevised reading of 65 in February.
- Business Inventories rose 0.3% in January, which is in line with the consensus. The prior month's reading was left unrevised at 0.4%.
- The key takeaway from the report is that the inventory-to-sales ratio is at its lowest point since December 2014. That's elevated from pre-financial crisis levels, when it was below 1.30, yet a further downtrend could restore some much needed pricing power.
- The weekly MBA Mortgage Applications Index increased 3.1% to follow last week's 3.3% uptick.
Tomorrow's economic data will include February Housing Starts (consensus 1.260 million), Initial Claims (consensus 242,000), and March Philadelphia Fed (consensus 25.0) at 8:30 ET, while January JOLTS will cross the wires at 10:00 ET.
- Nasdaq Composite +9.6% YTD
- S&P 500 +6.5% YTD
- Dow Jones Industrial Average +6.0% YTD
- Russell 2000 +2.0% YTD
Renault Management Including CEO Involved in Emission Fraud: AFP
Renault may have implemented fraudulent strategies for over 25 years regarding emissions and the company’s management including CEO Carlos Ghosn is responsible, Agence France-Presse reports, citing a report by the French Economy Ministry’s fraud office.
- Renault wasn’t immediately available for comment
- French Economy Ministry spokeswoman declined to comment
MSCI said on Wednesday that a report that it had received a takeover offer from S&P Global that would have combined the two biggest global asset benchmark providers was “incorrect” and that it is currently “not in discussions with any third party”.
The group’s statement came after the Evening Standard reported that MSCI had rejected an $11bn bid from rival S&P Global.
“…we believe such reports are incorrect,” MSCI said. “We are not in discussions with any third party, and we have not received any offer or indication of interest.”
A pact would have brought together the two biggest providers of global financial market indicators. Benchmarks have taken on increased significance in recent years amid the rapid rise in exchange-traded funds that passively track indices.
S&P Global is perhaps best known for managing both the Dow Jones Industrial Average — among the oldest US equities gauges, and the S&P 500 index, a broader index that is closely followed by professional investors and is tracked by the largest ETFs.
MSCI manages a suite of all-world indices that capture 99 per cent of investable global equities, among a slew of other barometers.
EU warns banks may face higher bad loan risk when ECB tightens - Reuters News
15-Mar-2017 15:35:10
1 trillion euros of bad loans hampers EU bank lending
EU documents warn the problem has European dimension
EU finance ministers to discuss in April, Germany cautious
By Francesco Guarascio
BRUSSELS, March 15 (Reuters) - European Union banks may face increasing risks from bad loans totalling 1 trillion euros ($1.1 trillion) when the European Central Bank cuts back its economic stimulus programme, internal EU documents seen by Reuters said.
Banks have been saddled with more so-called non-performing loans (NPLs) following the 2008 global financial crisis, as companies and households have struggled to pay their debts. This in turn has crimped their ability to make new loans.
While the problem is more acute in countries such as Greece and Italy, which have experienced a prolonged economic crisis, it has "a European dimension" with spill-overs possible, a report by representatives of EU countries and regulators said.
And the risks posed by NPLs to the whole EU banking system may increase, "should monetary conditions become less accommodative," a document accompanying the report said.
The ECB is scheduled to cut the pace of its bond purchases, which it has used to try to stimulate economic growth, by a quarter to 60 billion euros a month from April.
Although it will continue them until at least the end of the year, it is also preparing the ground for a gradual phasing out of its aggressive stimulus measures, sources said. (Full Story)
EU countries with the highest rates of bad loans have returned to growth since the ECB launched its stimulus programme in 2014, but it remains unclear what will happen when this ends.
While banks are likely to benefit from higher interest rates, which improve the margin they make on their loans, this may be offset by the effects of another an economic slowdown.
The report will be discussed at a meeting of EU finance ministers in Malta on April 7-8 on how to tackle the NPL issue and a more detailed version is expected in spring.
ITALY'S BAD LOANS
Germany, the EU's largest economy, has so far opposed EU-funded solutions to the problem, arguing that it is only an issue in some countries and it is up to them to resolve it.
In absolute terms, more than a quarter of all EU bad loans are held by Italian banks, with Banca Monte dei Paschi di Siena BMPS.MI, which is negotiating the terms of a multi-billion-euros bailout with EU regulators, holding the largest proportion of bad loans compared to its capital.
German banks hold only 2.6 percent of the loans classified as soured, while in Greece and Cyprus nearly half of all loans are difficult to recover, according to the latest European Banking Authority (EBA) data.
Greek banks are being urged to reduce their high load of bad loans, a source said on Wednesday (Full Story).
In Portugal NPLs are almost 20 percent of the total, and in Slovenia and Italy the ratio is above 16 percent, against a slightly declining EU average of 5.4 percent.
To tackle the problem, the EBA proposed in January setting up a publicly-funded bad bank that would acquire soured loans at prices higher than the market is now ready to pay. (Full Story).
This could help create a secondary market for the loans, which banks now are reluctant to sell because prices are too low and there are too few buyers.
While UniCredit CRDI.MI, Italy's biggest bank, has sold 17.7 billion euros of bad loans at average 13 percent of their gross nominal value this year, it has also raised 13 billion euros in the markets to compensate the capital shortfall.
Italian lenders price bad loans at 41 percent of their nominal value on average, but the quality of the credit varies and few could afford a capital rise on the scale of UniCredit's.
While Germany did not endorse the EBA plan, the EU documents point at the development of a secondary market for NPLs as a priority. (Full Story)
But this issue remains controversial and is likely to require a compromise at political, rather than technical, level at the Malta meeting, an EU official familiar with the discussions told Reuters.
The documents also suggest a wider "restructuring of banking sectors" as states address the NPLs problem. This could lead to mergers among EU banks after they offload their bad loans, a banking industry official said.
"Time limits" to conclude insolvency procedures are also suggested as a way of boosting the value of bad loans, as recovering them would become easier and less costly. This proposal would complement European Commission plans to shorten bankruptcy procedures and the recovery of bad loans.