Date: September 20, 2018
Trade Tensions Push Finance Chiefs’ Outlook to Worst in a Year
As the Trump Administration keeps piling on tariffs, U.S. stock traders are averting their gaze and holding on tight. Corporate finance chiefs are having a more difficult time. North American chief financial officers’ optimism fell across the board in the third quarter, driven by worry over trade policy and internal risks such as recruiting and maintaining top talent, according to a survey released by Deloitte LLP on Thursday. After hitting an all-time high in the first quarter of this year, a measure of CFOs’ optimism about their own companies’ prospects fell for the second straight period to the lowest in a year. “CFO optimism, while still strong, appears to be on the retreat amid concerns around global trade and interest rates, combined with the evolving challenge to both identify finance talent and equip teams with the analytical skills they need,” Sandy Cockrell, the Deloitte Global CFO Program leader, wrote in an accompanying report. Deloitte collected responses from more than 130 CFOs in North America, most from companies with more than $1 billion in annual revenue. The survey was conducted from Aug. 6 to Aug. 17, a period engulfed with discussion of the potential for the U.S. to implement further trade tariffs on China and a lead up to Nafta negotiations. Most respondents work in the financial services and manufacturing industries. The findings echo a similar tone expressed in the Federal Reserve’s latest beige book, an anecdotal publication about economic conditions gleaned from interviews and questionnaires across the 12 Fed districts. Businesses are generally optimistic about the near-term outlook, though there is concern about trade tensions, particularly among manufacturers, according to the August report.
Trump Presses OPEC to Reduce Prices as Crude Trades Near $80
U.S. President Donald Trump resumed his criticism of OPEC, saying on Twitter that the cartel “must get prices down now!” Trump’s fresh intervention in the oil market comes before a meeting of ministers from the Organization of Petroleum Exporting Countries and its allies in Algeria on Sunday. His complaint follows signals from Saudi Arabia that it was content to see prices climb above $80 a barrel. That’s been a red line for the White House in the past, provoking the president to direct his first social-media barb against the cartel since July 4. Brent crude futures were 0.6 percent lower in London, erasing an earlier gain of as much as 0.5 percent to trade at $78.92 a barrel at 1:07 p.m. local time. Trump’s tweet makes sense “with oil prices close to the highs of the year,” said Giovanni Staunovo, commodity analyst at UBS Group AG. “Considering the upcoming OPEC meeting in Algiers, he wants to keep pressure on the group ahead of the mid-term elections.” The president is returning to a playbook that’s won him significant victories already this year. His first attack on OPEC came on April 20, just hours after Saudi Arabia’s Oil Minister Khalid Al-Falih said that OPEC would continue its production cuts so that oil prices could rise further. Within a month, the kingdom had performed a dramatic U-turn and by June the cartel and its allies were promising to add 1 million barrels a day to the oil market. Prices dipped as low at $70 in London in August, but have since risen as American sanctions began to significantly curb Iran’s oil exports. While Saudi Arabia and Russia have recently boosted output to compensate, it’s unclear whether they’re willing or able to offset all the losses from Iran. Saudi Arabia is now comfortable with Brent oil prices rising above $80 a barrel, at least in the short term, as the global market adjusts to the loss of Iranian supply, people familiar with the kingdom’s view said this week.
Norway Raises Benchmark Rate for First Time in Seven Years
Norway’s central bank raised interest rates for the first time in seven years as policy makers in Scandinavia’s richest economy start unwinding the record stimulus put in place to fend off the worst oil crisis in a generation. Norges Bank increased its benchmark rate by a quarter point to 0.75 percent, as predicted by all 23 economists surveyed by Bloomberg before the decision. The bank flagged it will raise rates again at the start of next year, but also unexpectedly lowered its longer term projections. The krone slid 1 percent to 9.6148 per euro as of 11:03 a.m. “There are limits to how fast we can raise rates,” Governor Oystein Olsen said at a press conference, citing developments abroad and the krone as important factors.
Deal or No-Deal, BOE Interest-Rate Bets Are Set to Change
Uncertainty about the terms of Brexit are muddling expectations about the Bank of England’s monetary policy. The yield curve can always be thought of as a weighted average of different outcomes, but at this point, the risks are bigger than usual and more binary than dispersed — there will either be a Brexit deal or there won’t. Bloomberg Economics’ analysis based on the Overnight Index Swap curve suggests that a deal is the difference between a 25-basis point rate cut or rate hike in May 2019.
Turkey Finance Minister Vows to Back Banks, Though Details Scant
Turkey announced a plan to monitor banks’ health, while stopping short of laying out measures to alleviate worries about a bad-loan burden. Future policies “will help the banking sector to strengthen, and the real economy to have access to credit at affordable rates, while creating room for credit restructuring if needed,” Treasury and Finance Minister Berat Albayrak said in a news conference in Istanbul on Thursday. The situation is still being studied, and policies will take heed of “global examples and Turkish past experience,” he said, as he announced the nation’s economic program for 2019-2021 and a “health assessment” watch for lenders. “Making sure that the banks continue financing businesses is one of the priorities,” he said, without giving more detail. His remarks failed to assuage investors concerned that a crunch is coming from the sinking lira, surging interest rates and struggling borrowers. The lira initially jumped almost 2 percent after Albayrak announced revised economic targets, before erasing those gains. It was down 1.2 percent as of 3 p.m. local time. “The press conference has been a disappointment both on the forecasts and the announcements,” said Guillaume Tresca, a strategist at Credit Agricole SA in Paris. “First, there is nothing really concrete on the foreign-exchange financing of the corporate and banking sectors. Likewise, there is no announcement about a ‘bad bank’ or how they will deal with non-performing loans; nothing about a more independent central bank.” People familiar with the government’s plans said earlier this week that one of the options being considered to clean up banks’ balance sheets, if needed, was the transfer of non-performing loans to a state-designated entity. However, the head of Turkey’s banking regulator, Mehmet Ali Akben, told the Dunya newspaper that such a move isn’t in the plan. Turkish businesses had $331 billion of foreign liabilities at the end of June. When netted against their foreign-exchange assets, the shortfall is $216 billion. Lenders have also been struggling to deal with a rising number of restructurings after the lira dropped 40 percent against the dollar this year, second only to the Argentine peso as the world’s worst-performing currency. The plunge is hurting firms’ ability to repay foreign-currency loans. On Wednesday, the Banks Association of Turkey began implementing a regulator-approved framework of rules on loan restructuring. The new rules may help a large swathe of industries, with the energy sector alone owing $51 billion to local lenders.