“U.S. Stocks Advance as Middle East War Talk Cools: Markets Wrap.”
U.S. stocks rose and Treasuries retreated as investors speculated that tensions in the Middle East won’t escalate into a destabilizing conflict. Crude slid after climbing more than 7 percent this week and the dollar gained.
The major equity benchmarks were all up at least 1 percent following hints from President Donald Trump that military action in Syria may not be imminent and toned-down war rhetoric from Russia. The calls for geopolitical calm helped equities ignore overnight trade rumblings from China, which dragged most Asian gauges lower.
Banks and finance firms led gainers after asset management giant BlackRock Inc. reported first-quarter earnings that topped analysts estimates. JPMorgan Chase & Co. and Citigroup Inc. are scheduled to release theirs on Friday.
The euro fell after a report that European industrial output unexpectedly declined for a third consecutive month. Government bonds of most euro-region countries rose after minutes of the latest ECB policy meeting struck a dovish tone.
Investors seem wedged between competing catalysts. On Wednesday, a key U.S. inflation measure sped to the highest in a year, but traders were still rattled after Trump warned Russia in a tweet to “get read” for missiles to be launched at Syria. Separately, a bipartisan effort emerged in Congress to protect special counsel Robert Mueller from being fired, a move that points to escalating political risk in the U.S.
Meanwhile, Fed minutes showed officials leaned toward a slightly faster pace of policy tightening at their March meeting, even as they saw clear “downside risks” for the biggest economy from retaliatory trade duties. China will “unquestionably” retaliate if the U.S. further escalates trade tension, a senior Chinese trade official said.
“Spotify puts bank IPO paydays under fund manager scrutiny.”
After shaking up the music industry, Spotify (SPOT.N) is now prompting investors to question the value they get from investment banks underwriting new listings with its low-cost IPO.
The music streaming firm effectively deprived banks of hundreds of millions of dollars in fees by shunning them in its $26.5 billion New York Stock Exchange float on April 3.
Banks can charge companies as much as 7 percent of the amount raised in a U.S. listing and fund managers in London, another of the main centers for initial public offerings (IPOs), say Spotify’s success means underwriters will now have to show more clearly what value they bring to companies and their backers.
Banks have been richly rewarded for co-ordinating IPOs and ensuring companies raise the money, pocketing annual fees of $33.6 billion in the U.S. and $14.4 billion in Europe over the last decade, Thomson Reuters data shows. (tmsnrt.rs/2GRVTV2)
And although tussles between investment banks and asset managers over these fees are not new, evolving technology, more freely available capital for privately-held companies and regulatory pressures mean changes could now be on the cards.
But while critics claim that high costs have discouraged some firms from joining the stock market, crimping their prospects and hindering the growth of the economy, bankers say few are likely to be able to replicate Spotify’s direct listing.
This was only possible because a large number of founding shareholders wanted to sell and it was not raising a large sum of capital, meaning that for now, the route may only be open to well-known, highly valued internet firms like Spotify.
“Syria ‘chemical attack’: France’s President Macron ‘has proof’.”
France’s President Emmanuel Macron says he has «proof» that the Syrian government attacked the town of Douma with chemical weapons last weekend. He said he would decide «in due course» whether to respond with air strikes. Western states are thought to be preparing for missile strikes in response to the alleged attack.
The British Cabinet is due to discuss the government’s response later. Sources have told the BBC that Prime Minister Theresa May could be ready to join military action without seeking parliamentary consent first. Also on Thursday, the UN Security Council is to hold an emergency meeting to discuss on the crisis.
The French leader had previously said any strikes would target the Syrian government’s «chemical capabilities». He did not give the source of his information but said: «We have proof that last week chemical weapons, at least chlorine, were used by the regime of Bashar al-Assad.»
Activists and medics say dozens of people died when government aircraft dropped bombs filled with toxic chemicals on Douma on Saturday. But President Assad’s government denies being behind any chemical attack.
Douma was the last major rebel stronghold near Damascus. Local activists say the main leaders of the group that held it have left, following an agreement between Russia and the rebels.
“Surging Libor, Once a Red Flag, Is Now a Cash Machine for Banks.”
A surge in one key short-term interest rate 10 years ago was a harbinger of a crisis that nearly broke the U.S. banking system. A similar jump this year will probably add billions to the industry’s bottom line.
The largest U.S. lenders could each make at least $1 billion in additional pretax profit in 2018 from a jump in the London interbank offered rate for dollars, based on data disclosed by the companies. That’s because customers who take out loans are forced to pay more as Libor rises while the banks’ own cost of credit has mostly held steady.
Since banks aren’t dependent on the short-term overseas markets the way they were 10 years ago, they’re funding much of their operations through deposits. The companies pay those customers interest rates that stayed low even after the Federal Reserve raised its benchmark rate three times in 2017, for a total of 0.75 percentage point. The average rate paid by the largest U.S. banks on their deposits climbed only about 0.1 percentage point last year, according to company filings. Still, some of the benefit could be eroded by higher rates the banks will end up paying on long-term debt that’s hedged using Libor-based swaps. The firms don’t disclose how much of their debt is hedged.
Most banks don’t reveal how much of their lending is at variable rates, or if they do, how much of it is indexed to Libor. JPMorgan Chase & Co., the biggest U.S. bank, said in its 2017 annual report that $122 billion of wholesale loans were at variable rates. Assuming those were all indexed to Libor, the 1.19 percentage-point increase in the rate in the past year would mean $1.45 billion in additional income.
Citigroup Inc.’s $149 billion of floating-rate consumer-mortgage and corporate loans as of the end of last year could be counted on for as much as $1.77 billion in additional pretax profit, based on the same assumption.
And Wells Fargo & Co. said in its annual report that it had stopped hedging the interest rate on $86 billion of Libor-based commercial loans to benefit from rising rates. A pile that large would generate $1.02 billion this year, not counting any other loans indexed to the benchmark that were never hedged.