US Banks Flush with Cash
US Banks shares are rallying as investors anticipate big dividends after they pass this year’s Federal Reserve stress tests.
Editor’s Remarks: In its second round of stress tests on the 34 largest banks in the US, the Federal Reserve has given US banks the go-ahead to distribute their profits to shareholders and not to keep them to build up their capital buffers. This is the first time that all the banks have passed since 2011 and follows a first round where the Fed concluded that all of them are well capitalised enough to withstand a severe economic slump, with the banking system able to withstand up to $493bn of losses. Morgan Stanley, Citi, BoA, JPM and the other major banks’ share prices have rallied strongly on the news and investors are expecting 100% dividend payouts that are estimated to be as high as $100bn in total. The US banking system is flush with cash at the moment – maybe they might consider buying a troubled Italian lender?
The Beginning of the End of Stimulus?
Global markets are in flux as investors try to decipher a week of cryptic central bank comments.
Editor’s Remarks: After a spate of conflicting pronouncements from the European Central Bank, the Bank of Canada and the Bank of England, the dollar hit a 7-month low and bond prices are in retreat as investors start to anticipate rising interest rates around the world. Speculation is mounting that the Bank of Canada is set to unwind its 50bp interest rate cut from 2015 and the Bank of England is preparing to reverse its 25bp post-Brexit referendum cut. Earlier in the week, Mario Draghi sent the euro soaring by mentioning the word “reflation.” Government bond prices are in retreat and, despite strong gains by bank shares following the good Federal Reserve stress test news, Wall Street is down. The only constant in recent weeks has been Fed Chair Janet Yellen’s hawkish tone and it feels like her contemporaries around the world are feeling interest-rate trigger happy too.
Setback for Fox News and Murdoch
The UK Culture Secretary has said she is likely to refer Fox’s proposed takeover of Sky TV to the Competition and Markets Authority.
Editor’s Remarks: Rupert Murdoch’s Twentieth Century Fox currently owns 39% of Sky TV, and he is attempting to take full control of the European pay-TV broadcaster with a £11.7bn bid to match its 100% ownership of Fox News in the US. However, following a three-month investigation by the UK media regulator Ofcom, the UK Culture Secretary Karen Bradley has raised concerns over the bid as it could “increase influence by members of the Murdoch Family Trust over the UK news agenda and the political process.” While it looks increasingly likely that she will refer the bid to the Competition and Markets Authority, Fox remains confident the deal will go through although they admit it might slip into 2018. Fox did, however, pass Ofcom’s “fit and proper” which had been a worry following a series of sexual harassment allegations at Fox News in the US. Influence over the UK news agenda and political process by Murdoch? Surely not.
Xi Jinping Goes to Hong Kong
The Chinese President is making his first visit to the territory to celebrate the 20th anniversary of its handover to China.
Editor’s Remarks: Upon arrival, President Xi stressed his commitment to the “one country, two systems” formula amid fears of creeping “mainlandisation” and worries that the Liaison Office, Beijing’s discreet representative bureau in Hong Kong, is becoming less discreet of late. In a highly symbolic visit, Xi will visit the Peoples Liberation Army headquarters in the territory and perform the swearing in of long-standing civil servant Carrie Lam as Hong Kong’s new chief executive. On Saturday, he will raise the Chinese flag over celebrations for the 20th Anniversary of the handover at the HK Convention Centre before flying back to Beijing. But anxiety over the visit is evident – Hong Kong police have detained 26 democracy activists and umbrellas, a symbol of 2014’s pro-democracy protests, have been banned from official events even though it is raining.
Merkel Attacks Protectionism and Isolation
The German prime minister has strongly condemned isolationism while the EU prepares a free trade deal with Japan.
Editor’s Remarks: G20 Leaders are due to meet in Hamburg next week, and the EU machine is preparing to present a globalist united front against US President’s “America First’ rhetoric. In a speech to the Bundestag, Angela Merkel argued forcibly in favour of free trade, the Paris climate change accord while condemning protectionism and isolation. At the same time, the EU Trade Commissioner, Cecilia Malmstrom, was jetting off to Tokyo to push through a free trade deal before the G20 meeting. Japan and Europe have been discussing a deal since 2013, but it seems like some urgency has been injected into negotiations that have come unstuck over European food exports to Japan and European tariffs on Japanese cars and car parts. In her speech, Merkel emphasised her blossoming relationship with French President Emmanuel Macron and called for reforms to deepen the EU and the eurozone.
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