Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading


Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading


Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

Continue Reading


RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

Continue Reading


China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading

Categorized | Banks

Pain felt by Japanese banks wakes up BoJ

Posted on September 27, 2016

Japanese 10,000 yen banknotes are arranged for a photograph at the Korea Exchange Bank headquarters in Seoul, South Korea, on Monday, March 16, 2015. The yen fell this month to the weakest against the greenback since 2007 as the Bank of Japan sustains its record stimulus to support the economy while the U.S. recovery raises prospects of higher interest rates. Photographer: SeongJoon Cho/Bloomberg©Bloomberg

There were plenty of warning signs that the Bank of Japan’s policy of negative interest rates was doomed.

The first — and most immediate — sign was a rise in the yen in January, when the policy was introduced. It was both unanticipated and unwanted since a handful of exporters such as Toyota, which benefit from a cheap currency, have been a major source of growth for decades.

    Then there were also sounds of distress from GPIF, the Japanese pension fund, and Japan Postal Savings. They quietly feared that the prices of financial assets were increasingly artificial thanks to central bank policies. Invest today and lose tomorrow when the stimulus policies cease or reverse.

    By April, even the head of the Financial Services Agency, Nobuchika Mori, delicately criticised the BoJ action at a speech at the annual ISDA meeting. However, it was only when the chief executive of Mitsubishi UFJ, Nobuyuki Hirano, joined in the chorus of naysayers and quit the government’s primary dealership, that it became clear the BoJ began to take notice. The central bank announced a review of its actions, which culminated in last week’s decision to not push interest rates further into negative territory.

    Across all of the markets that central banks have been engaged in unconventional monetary policies, there have been many victims in the financial community. They include pension funds, insurers and asset managers, as well as ordinary households hoping to earn something on their savings but that don’t have access to the leveraged opportunities of the wealthy. Yet it was not until the banks started feeling the pain that central banks seemed to reconsider.

    It is interesting, albeit somewhat puzzling, to note banks’ clout, which contrasts markedly with that of others in finance. And the muscle of banks persists, despite them mattering less and less.

    You need JavaScript active on your browser in order to see this video.

    No video

    Especially in Japan, banks still depend on the gap between the short-term rates at which they borrow and the long-term rates at which they lend for their profits. The Bank of Japan’s latest measures, announced last week, are intended to steepen the yield curve and address banks’ anxieties about their bottom lines. That’s especially true of Japan’s many smaller regional banks — the shares of which foreign fund managers are now shorting.

    Virtually all those who have been hit by central bank policies have, eight years after the crisis that gave rise to them, been reluctant to point out that they have proved ineffective and costly

    There is a similar dynamic elsewhere. Virtually all those who have been hit by central bank policies have, eight years after the crisis that gave rise to them, been reluctant to point out that they have proved ineffective and costly.

    One of the few insurers to speak out and destroy the myths has been Swiss Re. Indeed, 18 months ago it attempted to quantify the costs in foregone income to both American savers and to European insurers as a result of the respective central bank policies on both sides of the Atlantic.

    That is why earnings of American insurers have dropped (well before those of the banks). For example, Metropolitan Life warned in its most recent quarterly results it needed to bolster its reserves by $2bn largely because of a squeeze from low interest rates. It is also why a recent report from Morgan Stanley flags the difficulties faced by active fund management firms. “Low growth and low rates weigh on active manager performance, placing significant pressure on fees,” the report notes.


    The global pivot towards fiscal policy

    Fiscal policy activism is firmly back on the agenda, writes Gavyn Davies

    In the US, one reason insurers are so reluctant to criticise the policies of the Federal Reserve, analysts say, is that the insurance industry currently falls under the purview of local state regulators. “They fear above all else coming under the much more critical eye of a national regulator such as the Fed,” says one prominent investor.

    Meanwhile the plight of their clients, average Americans, continues to worsen, and as they age, their standard of living will drop further.

    “It is thus now impossible for retirees to ensure quality of life and others to save for secure retirement through the deposit and investment options suitable for and available to low/modest-income households,” argues Karen Petrou, managing partner of Federal Financial Analytics. “Current income-distribution distortions are thus likely only to get worse faster as savings fall into ever deeper holes. Contemplate rising inflation without rising savings returns and be particularly afraid.”