US banks start the earnings season next week

The US banks will start the earnings season during next week. For example Citigroup, Wells Fargo, JP Morgan, Goldman Sachs and Bank of America will be in the headlines. One of the big questions is the low interest rates and how the banks are coping with the margins.

It is also a question about the timing. How quickly the banks can swift the low rates to deposits? On the other hand mortgage loans are expected to have shown good trend for banks during the third quarter.

For investment bankers, the recent office-rentals company WeWork´s failed IPO listing might show some write offs in the balance sheet. The market valuation for the WeWork was expected to be around 47 billion dollars before the financial worries started.

The financial markets in general have faced the US China trade talks as an issue for market volatility. Now, when the first phase of the deal between the US and China, has been announced on Friday, the situation is expected to calm down a little when more information of the deal will be revealed.

The market speculation of the low interest rates policy in Europe, US and other Asian countries, is expected to continue while for example the US Central Bank Federal Reserve, Fed is expected to make one rate cut in October, according to Reuters.

The reason for low interest rates policy is the global growth concerns due to geopolitical differences, several trade talks and Brexit. In the UK, the Prime Minister Boris Johnson has said on Sunday that he believes the deal can be reached. On the other hand, the EU´s opinion is that the Brexit Plan is not good enough for the EU leaders Summit on the 17-18th October in Brussels.

 

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US stocks turned up in late trading – Fed rate cut?

The US stocks turned up in the late trading on Thursday. The stocks were pressured by the three year low services index ISM indicating for a recession in the service sector. The market optimism was however back after the expectation of a growing Federal Reserve rate cut.

For example the UBS portfolio manger said in the Bloomberg Market Closing – program that the bank expects two more Fed rate cuts in order to mitigate the recession and to boost the economy.

Dow Jones index closed up 0,35 % to 26169 points, the S&P 500 -index closed up 0,81 % to 2910 points and the tech-index Nasdaq closed up 1,12 % to 7872 points.

The global recession question was also in the UK, where the service sector was  showing a downturn in September.

 

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US companies to issue bonds fuelled by low yields

Many big US companies are now using the benefit of record-low yields and increasing demand for corporate bonds. According to Wall Street Journal there were 21 companies with investment-grade credit ratings to raise 27 billion dollars only on Tuesday and about the same amount of companies are in the pipeline for the rest of the week.

Investors are eager to invest in big, well-know brands like Apple which yields better than the negative government bonds. The 10-year Treasury bond yield is now 1,46 % when it was trading around 2 % in July. In the euro-area, the 10-year bond is trading at -0,59 %, while it was -0,52 % a month ago.

The US airline company United Airlines (UAL)  sold 1,2 billion dollars of secured bonds to finance the purchase of new aircraft. Apple (AAPL) Walt Disney and Deere (DE) all issued 30-year bonds with yields below 3%. For example the Walt Disney bond yield was 2,83% according to WSJ information from MarketAxess.

The companies can use the new debt to refinance the existing debt with lower yielding bonds and they can also extend the maturity of the debt.

The US central bank, the Federal Reserve might also make a new rate cut during this month. According to CME market estimates, the Fed is expected to lower the interest rates on a quarter-percentage-point  at September policy meeting on the 17-18th.

 

 

 

 

 

 

 

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Draghi: ECB rates unchanged – stimulus needed

The European Central Bank (ECB) kept its key interest rates unchanged in today’s Governing Council meeting. According to President Mario Draghi, the central bank is determined to keep the rates at least at the present or even lower level until the first half of 2020.

The tone of voice about the slow economic growth and the needed stimulus package has become more serious. The bank is now also considering the asset purchase program (APP) again.

-This outlook is getting worse and worse, and it is getting worse and worse in manufacturing and getting worse and worse in countries where manufacturing is very important, Mr Draghi said in the press conference.

He reminded about the geopolitical situation, trade tensions, lower manufacturing figures, hard Brexit and the low growth rate of Chinese economy as the main reasons for the low economic outlook. And he also said many times: We do not like what we see (referring to the low inflation figures).

The central bank said already in the previous press conference that it has helped banks to boost the financing and liquidity of corporate lending as part of the financial stimulus.

-Teltra 3 will help bank lending and access to finance especially for small and medium size companies in the euro-zone, Draghi reminded.

The financial markets are expecting that the ECB would lower its rates in September meeting, while the Federal Reserve is expected to do it already next week.

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Stocks down in NY – strong job data

Stocks closed slightly down on Friday trading in New York. The main reason for the decrease was the strong US data related to jobs and thus sifting the possible Federal Reserve rate cut, which was expected to be in the Fed´s July meeting.

Dow Jones index closed down 0,16 % to 26922 points, S&P 500 index closed down 0,18 % to 2990 points and technology-heavy Nasdaq-index 0,10 % to 8161 points.

The Friday losers included for example the health care, industrials and real estate sectors. The gaining side included financials. From the new listings sector, the ride-hailing companies Uber and Lyft were down, -1,58 % and -2,00 % respectively. Slack, the it-company, closed down 1,33 % to 35,52 dollars and Pinterest also down 0,80 % to 27,25 dollars.

The euro was down 0,51 % to 1,1225 dollars due to the weak German economic data.

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