Tag: US Federal Reserve

The Reason Global Banks are Selling Off

The Reason Global Banks are Selling Off

With another trading session comes another bloodbath for the banks. In the month of January, global share markets seemed to be at the mercy of the change in the oil price. In fact, the markets were closely monitoring the course followed by oil prices. In the month of February, the financials have gained more importance.

A rough session with the European investors showed that Deutsche Bank is yielding 9.5%. This in turn is dragging the German DAX index down by almost 3.3%. Wall Street took its hint from Europe and eventually the American bank stocks crumbled down. Goldman Sach suffered a fall of 7.5 percent and Morgan Stanley toppling over 6%. Thereby, the four big banks of America collapsed by 3% in the morning trade with the investors bracing up to sell off the banks.

Profitability of Banks in Europe

20% of the bank stocks have been shed this year. However, this is much more than bad debts, emerging market jitters and tumbling energy prices. Exceptional low interest rates in Europe are the cause behind the serious profitability crisis of the banks. The profit that they make on the loans is also slashed when the interest rate falls down to 0%. It seems that this monetary policy is going to stick around for some time. Investors are worried that these banks might not even be able to repay back their loans. The realtors have come to terms with the reality that negative are not going to help the profitability of the bank.

Oil Residue

Most of the banks have invested heavily in the large projects of oil. As the prices of oil slumped down, several companies that were behind the project crashed. As per the list complied by Hanes and Boone, the Houston law firm, about 42 companies of the United States have been bankrupted in the beginning of the year 2015. It is more likely that others will follow.

With oil price being the lowest in the last 12 years, banks like JPMorgan Chase, Citigroup and Well Fargo are stuck with huge loans in the energy sector and are hoarding money to cover up for the potential loss in their gas and oil loans.

The Absence of Liquidity

With US Federal Reserve putting an end to the quantitative easing program in the year 2014 and particularly after it began lifting the interest rate in December 2015; the liquidity in the financial market has been drying up. The new regulatory and the capital requirements that had been carried out restricted the bank trading activity and also cut down the number of rooms the banks appeared to have in their balance sheet to offer to the liquidity market. All of this was due to the fall in the commodity prices that led to the severe sell-offs in the potential market and also high-yield debt. This consecutively caused the shift of the liquidity risk to the buy-side from the bank.

Sovereign Funds

The sovereign wealth funds of the nations that produce oils are dragging out money from the market to fill the shortfalls in their budget that have been created by cheap oil. The fiercely selling asset is setting off the oil prices.

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Market Outlook for February 10, 2016.

  • Indian equities are likely to witness a gap down opening today after a hefty sell off yesterday following weak global cues and SGX Nifty which was trading lower at 7,264.50, down by 63.5 points or 0.87% at 11:00 am Singapore time, a sign that Dalal Street may witness a bearish opening today.
  • On the Asian market front, while markets in China and Hong Kong remained closed for Lunar New Year holidays, Japan’s Nikkei 225 extended yesterday’s slide, falling over 2% as fears over market volatility pushed up the yen, raising concerns over Japan’s economic recovery.
  • Traders also turned cautious ahead of Fed Chair Janet Yellen’s testimony to the Congress on Wednesday in which she may offer some cues over when the Fed is likely to raise interest rates next.
  • Further, a plunge in crude oil prices which fell below USD 28 a barrel mark after the IEA forecast the global oil surplus would be larger than previously expected in the first half of 2016 was weighing on the sentiments.
  • Back home, investors focus will be on ACC and Ambuja Cements ahead of the quarterly earnings today.
  • Further, shares of Apollo tyres would remian in focus in today’s trade as the company reported 51.35% increase in consolidated net profit at Rs 278.5 crore for the third quarter ended December 31, 2015. Further, the net sales during the quarter stood at Rs 2,929.45 crore as against Rs 3,037.29 crore in the corresponding period of the previous fiscal.
6 Risk Events investors need to watch out for this month (July 2015)

6 Risk Events investors need to watch out for this month (July 2015)

Investors, beware of these six events.

The Greek Economy is coming down crashing like nine pins and a recent report by BoFA-ML suggests there are at least 6 event risks investors need to be aware of and prepare in case need be.

India economists, Indranil Sen Gupta and Abhishek Gupta at Bank of America suggests that there would be no immediate resolution of the Greek Crisis with rising Grexit risks.

Here are the six events that BofA-ML lists:

May IIP: BofA-ML estimates that May industrial growth will slow to 2.8 per cent on July 10 from 4.1 per cent in April. The report also suggests that the recovery shoud be back-ended as lending rates take about six months to support growth. They also comprehend GDP (gross domestic product) growth slowly bottoming out to 6 per cent (in the old series) in FY16 from 5.5 per cent in FY15.

June Inflation: BofA-ML pegs consumer price inflation (CPI) at 5.4 per cent, higher than May’s 5 per cent, which will be driven by higher prices of pulses; increase in service tax could raise CPI inflation by around 20 bps (basis points); and fall in petrol deflation to -2.6 per cent in June from -8.9 per cent in May that could impact CPI inflation by 10-15 bps. In this backdrop, they expect the Reserve Bank of India (RBI) cut rates by 50 bps by early 2016 with inflation well on track to its ‘under’-6 per cent January 2016 target.

Monsoons: Let’s face it, monsoons are unpredictable. So even if June runs smoothly, the standard monsoon accounts for only 15.2 % of the seasonal rainfall. So be on your toes, as a clearer picture can only be expected by mid-July according to the report.

Parliament Session: According to BofA, the recent controversies in the political scenario do not send positive signs for a seamless passage of GST or amendments to Land Acquisition Act during the upcoming monsoon session of Parliament beginning 26 July. Currently, the market is over rating the contribution of either legislation to grow.

BofA comments, “We believe that lending rate cuts, rather than reforms, hold the key to an immediate cyclical recovery by say, end-2015. Reforms will support growth only over, say, 5 years and so, it does not really matter where they are legislated in this parliamentary session or next,” in the report.

Corporate results: Though overall turnaround is expected around September onwards, analysts at BofA-ML expect Sensex profit growth to recover to about 4 per cent in the June quarter from -0.1 per cent in March on standalone basis.

FOMC meet: “Despite improving data, the bond market is pricing in only about a one-in-five chance of a rate hike in September,” BofA-ML says. The reports also suggests, the US Federal Reserve (US Fed) could give clues to the possibility of a hike in interest rates in the upcoming policy meet on 28/29 July.