Stocks Climb on Rate-Cut Bets; Dollar Declines: Markets Wrap
(Bloomberg) -- U.S. equity futures climbed alongside stocks in Europe and Asia as investors cheered fresh signs from central bankers that rates are headed lower. Treasuries were steady, while the dollar declined.
Contracts on the main U.S. gauges gained a day after the S&P 500 briefly topped 3,000 for the first time on signals that Federal Reserve Chairman Jerome Powell is willing to lower rates, citing a slowing global economy and trade issues. The Stoxx Europe 600 Index headed for the first advance in five days, spurred by energy companies as crude rallied. Shares rose across most of Asia with the South Korean and Hong Kong markets outperforming and stocks in China edging higher.
Emerging-market stocks climbed along with currencies, while the pound continued its rebound from a two-year low. European government bonds were mixed.
This year’s rallies across stocks, bonds and credit got a fresh jolt on Wednesday thanks to comments from Fed Chairman Powell that persuaded investors rates are headed lower by at least a quarter-point in July. Minutes from the central bank’s last meeting further cemented expectations for a cut in borrowing costs. Traders will be eyeing ECB minutes and Powell’s testimony before the Senate Banking Committee on Thursday for further clues.
“There has been a total shift in monetary policy -- quantitative tightening is off the table and we’re back to some mild form of quantitative easing or stable central bank balance sheets,” said Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs. “That’s very supportive for equities.”
Elsewhere, oil extended gains on crude output cuts ahead of a potential hurricane in the Gulf of Mexico.
Here are some key events coming up:
Powell testifies to Senate Banking Committee on Thursday.ECB minutes are due on Thursday.A key measure of U.S. inflation -- the core consumer price index, due Thursday -- is expected to have increased 0.2% in June from the prior month, while the broader CPI is forecast to remain unchanged.U.S. producer prices are due on Friday.
Here are the main moves in markets:
Stocks
Futures on the S&P 500 Index gained 0.2% as of 7:24 a.m. New York time, the highest on record.The Stoxx Europe 600 Index rose 0.2%, the first advance in a week and the biggest advance in more than a week.The Shanghai Composite Index climbed 0.1%.The MSCI Emerging Market Index gained 0.7%, the biggest rise in more than a week.
Currencies
The Bloomberg Dollar Spot Index declined 0.2%, the lowest in a week.The euro increased 0.2% to $1.1269, the strongest in a week.The British pound increased 0.4% to $1.2558, the strongest in a week on the largest climb in three weeks.The onshore yuan climbed 0.1% to 6.865 per dollar, the strongest in more than a week.The Japanese yen rose 0.3% to 108.14 per dollar, the strongest in a week.
Bonds
The yield on 10-year Treasuries decreased less than one basis point to 2.06%.The yield on two-year Treasuries declined two basis points to 1.81%, the lowest in a week.
Commodities
West Texas Intermediate crude gained 0.3% to $60.60 a barrel, reaching the highest in seven weeks on its sixth straight advance.Iron ore fell 1.4% to $113.07 per metric ton.Gold decreased less than 0.05% to $1,418.91 an ounce.
--With assistance from Ruth Carson, Chester Yung, Cormac Mullen and Gregor Stuart Hunter.
To contact the reporter on this story: Laura Curtis in London at lcurtis7@bloomberg.net
To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Yakob Peterseil
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CHICAGO/WASHINGTON (Reuters) - In the wake of the U.S. housing meltdown of the late 2000s, JPMorgan Chase & Co hunted for new ways to expand its loan business beyond the troubled mortgage sector.
A dairy cow is seen grazing at the family farm, God Green Acres in Mayville, Wisconsin, U.S., June 24, 2019. Picture taken June 24, 2019. REUTERS/Darren Hauck
The nation’s largest bank found enticing new opportunities in the rural Midwest - lending to U.S. farmers who had plenty of income and collateral as prices for grain and farmland surged.
JPMorgan grew its farm-loan portfolio by 76 percent, to $1.1 billion, between 2008 and 2015, according to year-end figures, as other Wall Street players piled into the sector. Total U.S. farm debt is on track to rise to $427 billion this year, up from an inflation-adjusted $317 billion a decade earlier and approaching levels seen in the 1980s farm crisis, according to the U.S. Department of Agriculture.
But now - after years of falling farm income and an intensifying U.S.-China trade war - JPMorgan and other Wall Street banks are heading for the exits, according to a Reuters analysis of the farm-loan holdings they reported to the Federal Deposit Insurance Corporation (FDIC).
The agricultural loan portfolios of the nation’s top 30 banks fell by $3.9 billion, to $18.3 billion, between their peak in December 2015 and March 2019, the analysis showed. That’s a 17.5% decline.
Reuters identified the largest banks by their quarterly filings of loan performance metrics with the FDIC and grouped together banks owned by the same holding company. The banks were ranked by total assets in the first quarter of this year.
The retreat from agricultural lending by the nation’s biggest banks, which has not been previously reported, comes as shrinking cash flow is pushing some farmers to retire early and others to declare bankruptcy, according to farm economists, legal experts, and a review of hundreds of lawsuits filed in federal and state courts.
Sales of many U.S. farm products - including soybeans, the nation’s most valuable agricultural export - have fallen sharply since China and Mexico last year imposed tariffs in retaliation for U.S. duties on their goods. The trade-war losses further strained an agricultural economy already reeling from years over global oversupply and low commodity prices.
Chapter 12 federal court filings, a type of bankruptcy protection largely for small farmers, increased from 361 filings in 2014 to 498 in 2018, according to federal court records.
“My phone is ringing constantly. It’s all farmers,” said Minneapolis-St. Paul area bankruptcy attorney Barbara May. “Their banks are calling in the loans and cutting them off.”
Surveys show demand for farm credit continues to grow, particularly among Midwest grain and soybean producers, said regulators at the Federal Reserve Banks of Chicago, St. Louis, Minneapolis and Kansas City. U.S. farmers rely on loans to buy or refinance land and to pay for operational expenses such as equipment, seeds and pesticides.
Fewer loan options can threaten a farm’s survival, particularly in an era when farm incomes have been cut nearly in half since 2013.
Gordon Giese, a 66-year-old dairy and corn farmer in Mayville, Wisconsin, last year was forced to sell most of his cows, his farmhouse and about one-third of his land to clear his farm’s debt. Now, his wife works 16-hour shifts at a local nursing home to help pay bills.
Giese and two of his sons tried and failed to get a line of credit for the farm.
“If you have any signs of trouble, the banks don’t want to work with you,” said Giese, whose experience echoes dozens of other farmers interviewed by Reuters. “I don’t want to get out of farming, but we might be forced to.”
Michelle Bowman, a governor at the U.S. Federal Reserve, told an agricultural banking conference in March that the sharp decline in farm incomes was a “troubling echo” of the 1980s farm crisis, when falling crop and land prices, amid rising debt, lead to mass loan defaults and foreclosures.
JPMorgan Chase’s FDIC-insured units pared $245 million, or 22%, of their farm-loan holdings between the end of 2015 and March 31 of this year.
JPMorgan Chase did not dispute Reuters’ findings but said it has not “strategically reduced” its exposure to the farm sector. The bank said in a statement that it has a broader definition of agricultural lending than the FDIC. In addition to farmers, the bank includes processors, food companies and other related business.
FEDERAL BACKING FOR SMALLER BANKS
The decline in farm lending by the big banks has come despite ongoing growth in the farm-loan portfolios of the wider banking industry and in the government-sponsored Farm Credit System. But overall growth has slowed considerably, which banking experts called a sign that all lenders are growing more cautious about the sector.
The four-quarter growth rate for farm loans at all FDIC-insured banks, which supply about half of all farm credit, slowed from 6.4% in December 2015 to 3.9% in March 2019. Growth in holdings of comparable farm loans in the Farm Credit System has also slowed.
Many smaller, rural banks are more dependent on their farm lending portfolios than the national banks because they have few other options for lending in their communities. As farming towns have seen populations shrink, so have the number of businesses, said Curt Everson, president of the South Dakota Bankers Association.
“All you have are farmers and companies that work with, sell to or buy from farmers,” Everson said.
As the perils have grown, some smaller banks have turned to the federal government for protection, tapping a U.S. Department of Agriculture program that guarantees up to 95% of a loan as a way to help rural and community banks lend to higher-risk farmers.
Big Wall Street banks have steadily trimmed their farm portfolios since 2015 after boosting their lending in the sector in the wake of the financial crisis.
Capital One Financial Corp’s (COF.N) farm-loan holdings at FDIC-insured units fell 33% between the end of 2015 and March 2019. U.S. Bancorp’s (USB.N) shrunk by 25%.
Capital One Financial Corp did not respond to requests for comment. U.S. Bancorp declined to comment.
The agricultural loan holdings at BB&T Corp (BBT.N) have fallen 29% since peaking in the summer of 2016 at $1.2 billion. PNC Financial Services Group Inc (PNC.N) - which ran full-page ads in farm trade magazines promoting “access to credit” during the run-up – has cut its farm loans by 12% since 2015.
BB&T said in a statement that the decline in its agricultural lending portfolio “is largely due to aggressive terms and pricing” offered by competitors and its “conservative and disciplined” approach to risk.
PNC said its farm-loan growth is being held back by customers who are wary of taking new debt, along with increased competition from the Farm Credit System.
LOAN DEMAND STILL RISING
Lenders are avoiding mounting risks in a category that is not core to their business, said Curt Hudnutt, head of rural banking for Rabobank North America, a major farm lender and subsidiary of Dutch financial giant Rabobank Group.
In March of this year, FDIC-insured banks reported that 1.53% of their farm loans were at least 90 days past due or had stopped accruing interest because the lender has doubts it will be repaid. This so-called noncurrent rate had doubled from 0.74% at the end of 2015.
The noncurrent rates were far higher on the farm loans of some big Wall Street banks. Bank of America Corp’s noncurrent rate for farm loans at its FDIC-insured units has surged to 4.1% from 0.6% at the end of 2015. Meanwhile, the bank has cut the value of its farm-loan portfolio by about a quarter over the same period, from $3.32 billion to $2.47 billion, according to the most recent FDIC data.
Bank of America (BAC.N) declined to comment on the data or its lending decisions.
Gordon A. Giese and his son Paul Giese get ready to fill a manure tank at the family farm, God Green Acres in Mayville, Wisconsin, U.S., June 24, 2019. Picture taken June 24, 2019. REUTERS/Darren Hauck
For PNC Financial Services, the noncurrent rate was nearly 6% as of the end of March. It cut its farm-loan portfolio to $278.4 million, down from $317.3 million at the end of 2015.
David Oppedahl, senior business economist for the Federal Reserve Bank of Chicago, said the banking community is increasingly aware of how many farmers are struggling.
“They don’t want to be the ones caught holding bad loans,” he said.
Reporting by P.J. Huffstutter in Chicago and Jason Lange in Washington; Additional reporting by Elizabeth Dilts and Ayenat Mersie in New York, and Pete Schroeder in Washington; Editing by Caroline Stauffer and Brian Thevenot
Norwegian Air Shuttle founder and CEO Bjørn Kjos will step down effective immediately, the company has announced.
The 72-years old Kjos took over as CEO of the company in 2002 and is responsible for the rapid expansion in previous years. He transformed the 1993-established Norwegian regional carrier into Europe’s third biggest low-cost airline with subsidiaries in Sweden, the UK, Ireland and Argentina.
At the same time, the struggling carrier has announced a Q2 net profit of US$9.2 million and says it will cut several year-round long-haul routes to summer seasonal routes.
Norwegian has accumulated a debt of over US$500 million during the past years and has seen two failed takeover bids from British Airways parent IAG (International Airlines Group).
The airline originally started only with short-haul flights in Norway before Kjos took the role as CEO and transformed Norwegian into a rapidly expanding airline. Long-haul flights were started in early 2013 with flights from Oslo and Stockholm to New York and Bangkok. Norwegian and its various subsidiaries operate a combined fleet of 162 aircraft, most of them being Boeing 737-800 and the currently grounded 737 MAX 8 as well as 36 Boeing 787 Dreamliner aircraft.
Previously, the airline announced that it will close several crew bases to improve its overall operation. The Argentinian subsidiary is also not doing as well as expected and has been given a few more months to improve load factors and revenue, otherwise it would be shut down. 90 ordered Airbus A320neo family aircraft (ordered by Norwegian’s leasing company Arctic Aviation Assets) have also been put up for sale.
Jan-Hendrik is an aviation enthusiast from southern Germany, loves to travel the world and fly on as many aircraft as possible. His first flight was with a Condor 757 to Spain and has been into aviation ever since. He is most interested in aircraft deliveries and passenger experience (PaxEx).
Yes, it's not your imagination: Avocados are more expensive. But no, Trump's tariffs aren't to blame.
But there are a few reasons the price of the popular fruit has spiked and is expected to continue to rise in the coming weeks.
For the first week of July, the wholesale prices of mid-sized avocados from Mexico were 129% higher than this time last year, said David Magaña, vice president and senior analyst at Rabobank based in Fresno, California.
“This is the highest price for this time of the year in at least a decade probably more,” Magaña said, noting the wholesale price was $84.25 for a 25-pound box compared to $37 the week of Independence Day 2018.
The increased wholesale price has been making its way to grocery stores.
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According to the most recent U.S. Department of Agriculture weekly retail price report, the average national price of a Haas avocado was $2.10 July 5, compared to $1.17 from the July 6, 2018 report.
Liz Garrison, a nurse in St. Louis Park, Minnesota, said she was shocked when the bag of six small avocados she normally buys at Trader Joe's was $6.50 this week. She's paid $2.50 for the same bag on past trips.
“I eat an avocado a day. That’s a lot to spend on something I’m eating so frequently,” Garrison said.
Why are prices up?
Magaña outlined three main reasons fueling the increase.
"One is expanding global demands including U.S. demand, it just continues to grow,” he said. “Avocados are not only consumed now for Super Bowl or during Cinco de Mayo celebrations but year-round consumption.”
California's avocado season is coming to an end and was the smallest crop in more than a decade, he said.
“These high prices have to do with seasonal production in Mexico,” Magaña said. “It’s normally the lowest at this time of the year.”
Mexico is the top supplier of fruits and vegetables to the U.S. with $13 billion imported from the country last year. Almost 90% of avocados come from Mexico.
“We’ve had the possibility of (Mexico) tariffs and the border closing and also a few weeks ago the probability of tariffs on all commodities coming from Mexico and we’ve observed a few price spikes,” Magaña said. “But now is only a supply and demand combination.”
How long will this last?
While prices may continue to increase over the next couple of weeks, the high prices may only be temporary.
“They should come down when the new Mexican production ramps up three, four weeks from now,” Magaña said.
Garrison hopes the high prices aren't long-term. After rationing her last avocado from last week's Trader Joe's haul, she ended up picking avocados at the nearby Cub Foods two for $4.
“If it’s something that’s short-lived like for a week or two, I wouldn’t mind spending the extra money,” she said.
Contributing: Paul Davidson
Follow USA TODAY reporter Kelly Tyko on Twitter: @KellyTyko
Pedestrians walk past the People's Bank of China headquarters in Beijing, China, on Monday, Jan. 7, 2019.
Giulia Marchi | Bloomberg | Getty Images
A widely expected interest rate cut by the U.S. Federal Reserve would give China more breathing room in shoring up its slowing economy, some analysts said.
A looser monetary policy environment would reduce pressure on China's central bank to ease monetary policy. Amid trade tensions with the U.S., China's economy has struggled to gain momentum.
Private surveys released last week by Caixin showed services activity fell in June to its lowest since February, and the manufacturing sector contracted, after three months of expansion.
Among several measures to support the economy over the last several months, the People's Bank of China (PBoC) has made targeted attempts to lower financing costs to privately run enterprises, which account for the majority of the country's economic growth and employment.
"If the Fed does go ahead and cut rates, which I don't think is a given ... it simply means the PBoC has a little breathing room to see if the policies it has implemented have an impact on the real economy," Hannah Anderson, global market strategist at J.P. Morgan Asset Management, told CNBC on Thursday by phone.
The central bank will also face less pressure to allow the yuan to depreciate, making it easier to maintain a goal of keeping the exchange rate stable, she said, while higher Treasury prices would boost the paper value of the PBoC's holdings, increasing confidence.
The U.S. dollar index fell about 0.4% overnight amid Powell's comments. The People's Bank of China set the mid-point of the yuan mildly stronger against the greenback on Thursday at 6.8677.
Some analysts expect if the Fed cuts rates, it will go so far as to prompt China's central bank to take similar action.
"If (make that when) the Fed cuts rates then it's quite likely the PBOC will follow suit," Leland Miller, chief executive officer of China Beige Book, said in an email. The firm publishes a quarterly review of the Chinese economy based on a survey of more than 3,300 Chinese firms.
"But a benchmark interest rate cut is almost purely a symbolic move that won't affect most corporates," Miller said. He noted that "only a small subset of (state-owned enterprises) pay the benchmark rate, and most of those firms don't have to repay their loans anyway."
A Reuters poll released on Wednesday showed economists anticipate the People's Bank of China will keep its benchmark rate unchanged this year, while reducing banks' reserve requirement ratio twice in the second half of this year.
While easing monetary policy would help support growth, Beijing has also turned to fiscal tools such as tax cuts to boost the economy in the latest round of stimulus.
However, Larry Hu, chief China economist at Macquarie, said he does not expect the Chinese central bank to follow the Fed in cutting the benchmark interest rate, since economic data doesn't indicate enough of a slowdown to warrant a major policy change right now.
"In the US, it's significant for the Fed to cut rate(s)," Hu said in a note Wednesday. "But in China, stimulating infra(structure) and property ... is what really matters."
Instead, he anticipates policymakers will wait until the fourth quarter to possibly cut the benchmark rate, or take some similar action. China's benchmark 1-year lending rate has stayed the same since 2015, Hu noted.
Reuters' poll showed China's economic growth is expected to slow to a 29-year low of 6.2% this year, amid uncertainty from the ongoing trade dispute with the U.S.
The world's most powerful central banker has brushed off criticism from Donald Trump, saying he would not step down if the US president asked him to.
Federal Reserve chairman Jerome Powell told a hearing in Washington: "The law gives me a four-year term and I fully intend to serve it."
Mr Trump has criticised the Fed for not cutting interest rates.
But the president could soon get his wish, as Mr Powell also hinted at a cut soon to bolster the US economy.
Mr Powell is giving evidence to the House of Representatives Financial Services Committee, the first of two days of testimony on Capitol Hill.
He and the Fed have faced sustained criticism for not cutting rates, which Mr Trump blames for unnecessarily slowing the US economy. "Our Federal Reserve doesn't have a clue!" was one of the president's tweets.
Asked at Wednesday's hearing if Mr Powell would step down if requested, he replied "no". Pressed on whether he thought the president did not have the authority to remove him, he said: "What I have said is the law gives me a four-year term and I fully intend to serve it."
Disagreement over interest rate policy could ease, however, as Mr Powell signalled that a cut could come soon in remarks that sent the S&P 500 surging past 3,000 points for the first time and prompting a fall in the dollar.
He told the committee that "uncertainties about the outlook have increased in recent months". Although he expected continued US growth, he warned of economic weakness in other major economies, and a downturn in business investment driven by trade war worries.
"Concerns about the strength of the global economy continue to weigh on the US outlook," Mr Powell said.
"Apparent progress on trade turned to greater uncertainty, and our contacts in business and agriculture reported heightened concerns over trade developments."
The comments come despite last week's strong US jobs figures and an easing of trade tensions with China.
Analysis by Andrew Walker, BBC economics correspondent
As ever in a Federal Reserve Chair's remarks, there was no commitment to cut interest rates.
But the emphasis on economic uncertainties and below target inflation suggests an increasingly high probability that the Fed will do just that.
The concerns he raised included weaker momentum in some foreign economies which could affect the US. He also mentioned "government policy issues that have yet to be resolved".
His reference to trade developments was partly about the tension between the US and China. But there was one item on this list that isn't for the US to address- Brexit.
He didn't spell out the reasons, but the fact that he flagged it up indicates a concern that the UK's departure from the EU might have an adverse impact on the US economy.
"Powell is setting it up, certainly for a July rate cut," said Jack Ablin, chief investment officer at Cresset Capital.
And Briefing.com analyst Patrick O'Hare said Mr Powell's comments "gave the market what it was looking for".
The financial markets are indicating that the Fed at its 31 July meeting will cut interest rates by 25 basis points, although some analysts have seen the possibility of a larger cut.
His appearance on Capitol Hill comes at a sensitive time for both the Fed and Mr Powell personally, with President Donald Trump lashing out in a series of tweets for not cutting interest rates and needlessly slowing the economy.
At the same time, some blame Mr Trump's own policies, in particular higher tariffs, and his unpredictable approach, for increasing the economic risks.
Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., July 1, 2019. REUTERS/Brendan McDermid
July 10, 2019
By Medha Singh
(Reuters) – The benchmark S&P 500 briefly crossed the 3,000 points mark for the first time on Wednesday, as bets for a sharp interest rate cut later this month were boosted by Federal Reserve chairman Jerome Powell’s dovish comments.
The Nasdaq and the Dow Jones Industrials also hit all-time highs after Powell said the central bank stands ready to “act as appropriate” to support record U.S. economic growth.
Gains of near 1% each in Amazon.com, Apple Inc and Facebook Inc also lifted the Nasdaq and the S&P.
“Investors already got what they wanted when Powell’s statement was released. They got news that the Fed was ready to cut (interest rates) in July,” said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee.
“What the bulls are really hoping for is that this is just a growth scare. That the Fed steps in with an insurance cut in July and that’s it, so the economy can continue at its ‘muddle-along’ pace of growth.”
Alluding to the strong jobs data that tempered hopes of a sharp rate cut at the end of the month, Powell said the report did not fundamentally change the central bank’s outlook and that there is important economic data before the meeting.
Traders raised the chances of a 50 basis point reduction to 23% following the comments, according to the CME Group’s FedWatch tool. They had nearly abandoned hopes of an aggressive reduction while still expecting the first U.S. rate cut since the financial crisis at the July 30-31 meeting.
Investors will now parse minutes from the Fed’s June policy meeting when it will be released at 2 p.m. ET.
At 11:06 a.m. ET, the Dow Jones Industrial Average was up 71.72 points, or 0.27%, at 26,855.21, the S&P 500 was up 9.57 points, or 0.32%, at 2,989.20. The Nasdaq Composite was up 37.25 points, or 0.46%, at 8,178.98.
Nine of the 11 major S&P sectors were higher, with energy, technology and communication services leading the gainers.
Energy stocks benefited from a jump in oil prices as U.S. crude inventories shrank more than expected and major producers evacuated rigs in the Gulf of Mexico ahead of an expected storm.
Shares of rate-sensitive banks retreated 0.89% after Powell’s comments. The financial sector shed 0.3%.
Generic drugmaker Mylan NV’s shares fell 4% after rival Amneal Pharmaceuticals Inc cut its 2019 core earnings forecast.
Advancing issues outnumbered decliners by a 1.76-to-1 ratio on the NYSE and by a 1.04-to-1 ratio on the Nasdaq.
The S&P index recorded 63 new 52-week highs and one new low, while the Nasdaq recorded 78 new highs and 28 new lows.
(Reporting by Medha Singh, Manas Mishra and Shreyashi Sanyal in Bengaluru; Editing by Sriraj Kalluvila)
