Thursday, June 30, 2016

Today's Headlines

  • Carney Says BOE Summer Action Likely as Brexit Infects U.K. (video) Mark Carney said the Bank of England will probably have to loosen policy within months to deal with the fallout of the Brexit vote as he warned that there’s only so much he can do to protect the economy. In his second televised address since the country voted to leave the European Union, the governor said the central bank won’t hesitate to act when it comes to safeguarding the economy or the resilience of the financial system. The BOE will also continue its liquidity auctions for banks on a weekly, rather than monthly, basis and consider a “host of other measures.” “It now seems plausible that uncertainty could remain elevated for some time,” Carney said. “The economic outlook has deteriorated and some monetary policy easing will likely be needed over the summer.” The pound dropped 1.2 percent as Carney spoke, weakening to $1.3262 at 4:38 p.m. London time. U.K. gilts advanced, with the 10-year yield touching a record-low 0.878 percent.
  • Principal Dials Back Risk as Brexit Seen as First Domino to FallPrincipal Financial Group Inc.’s asset manager is scaling back from risks in the bond market on the prospect that the U.K. vote to leave the European Union signals more turmoil ahead. “The Brexit vote is only the first domino to fall in a chain of events that could take days, weeks, months, and even years to unfold,” Byron Carson, portfolio manager at Principal Global Fixed Income, said in a blog post dated Wednesday.
  • Stanford's Admati: Italian Banking 'Incredibly Sick'. (video)
  • World’s Riskiest AAA Currency Exposed as Brexit Divides Markets. Norway. A currency that became a safe haven in 2012 is now being traded almost as an emerging market. That’s despite boasting three AAA ratings, the world’s biggest sovereign wealth fund and a sizable current account surplus. When the U.K. shocked the world by voting to exit the European Union, investors piled into markets they deemed safe, like the yen, the franc and Denmark’s krone, and promptly dumped assets they thought were risky, like the pound, the zloty and Norway’s krone.
  • Soros Says Brexit Has ‘Unleashed’ a Financial-Markets Crisis. (video) Britain’s decision to leave the European Union has “unleashed” a crisis in financial markets similar to the global financial crisis of 2007 and 2008, George Soros told the European Parliament in Brussels. “This has been unfolding in slow motion, but Brexit will accelerate it. It is likely to reinforce the deflationary trends that were already prevalent,” the billionaire investor said on Thursday. Continental Europe’s banking system hasn’t recovered from the financial crisis and will now be “severely tested,” Soros said. “We know what needs to be done. Unfortunately, political and ideological disagreements within the euro zone have stood in the way” of using the European Stability Mechanism as a backstop, he said.
  • Rents Are Falling for Luxury Homes in Financial Capitals: Chart. 
  • Europe Stocks Rise as Carney Flags Stimulus, Brexit Angst Eases. (video) European shares advanced for a third day as investor concerns over the long-term impact of Britain’s decision to leave the European Union faded, and Governor Mark Carney said the Bank of England could loosen policy within months. The Stoxx Europe 600 Index gained 1 percent to 329.88 at the close. The equity gauge fell as much as 0.9 percent in early trading, before recovering to spend most of the session little changed, and then strengthening as Carney spoke.
  • Oil Bulls Beware Because China’s Almost Done Amassing Crude. One of the pillars of oil’s recovery from the lowest price in 12 years may be on the verge of crumbling. China is likely close to filling its strategic petroleum reserves after doubling purchases for it this year as prices plunged, JPMorgan Chase & Co. analysts including Ying Wang wrote in a June 29 research note. Stopping shipments for the reserve would wipe out about 15 percent of the country’s imports, according to the bank. Chinese crude imports have risen 16 percent this year, and the country is rivaling the U.S. as the world’s biggest oil purchaser. That demand, along with supply disruptions from Canada to Nigeria, has helped boost oil prices about 80 percent since January. “China has taken the opportunity of lower oil prices since early-2015 to accelerate the strategic petroleum reserve builds,” Wang said in the report. “This volume might be close to the capacity limit, in our view, and together with potential teapot utilization pullback and slower-than-expected demand from China could increase near-term risks to global oil prices.”  
  • Fed’s Kaplan Sees Spillovers as Most Significant Brexit Fallout. Federal Reserve Bank of Dallas President Robert Kaplan said Britain’s vote to exit the European Union could slow growth and the most significant question raised by the decision lies in potential spillover effects as other countries ponder their own place in Europe. “Is there contagion? What does Ireland do? What does Scotland do? What do other EU countries do?” Kaplan told Bloomberg in an interview Thursday in Washington. “In this case, political and economic are intersecting. And it will take a significant amount of time to see how all that unfolds.”
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