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  Friday, 1 Jul 2016 | 1:23 PM ET

A week after Brexit panic, everyone is buying everything

Posted ByJeff Cox

Art Cashin: Market more powerful than Fed
Art Cashin: Market more powerful than Fed   

Apparently the Brexit wasn't the end of the world after all.

Just a week after the United Kingdom shook up the world by voting to leave the European Union, market behavior has done a 180-degree turn. Major stock market averages have recouped much if not all of the post-Brexit panic, bond yields are tumbling and even currency markets have settled down.

"We've worried a lot about the euro zone through this recovery. Whenever the fear peaks, the right thing to do: buy," said Jim Paulsen, chief investment strategist at Wells Capital Management.

Paulsen considers the Brexit "a wimpy crisis" in that it jangled market nerves but showed little signs of being a fundamental disruption to markets.

"It might be a serious political problem, but the markets are rightly finding it's not going to be a major economic and financial hit," he added. "You can listen to the public rhetoric and you can listen to Mr. Market. Which side do you want to be on? I think the market message will be more accurate."

The message in recent days, indeed, has been to buy.

The S&P 500 is up about 5.5 percent since hitting a post-Brexit bottom Monday and looked to close the week out with modest gains Friday. Investors have been scooping up bonds, with the benchmark 10-year yield falling more than a quarter point from its pre-Brexit level. Yields and prices more in opposite directions.

Both bonds and stocks have gotten a bid from expectations for even looser central bank policies, said Aaron Kohli, fixed income analyst at BMO Capital Markets.

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  Friday, 1 Jul 2016 | 11:00 AM ET

Fed's Mester sees danger in waiting too long to hike rates

Posted ByJeff Cox
Loretta Mester, president of the Cleveland Federal Reserve.
David Orrell | CNBC
Loretta Mester, president of the Cleveland Federal Reserve.

Cleveland Fed President Loretta Mester believes the central bank was right to delay raising rates before the Brexit vote, but shouldn't wait too long.

Part of the Federal Open Market Committee's hawkish contingent, Mester said she still feels moving ahead with rate hikes is appropriate, particularly in light of an improving economy.

In explaining the vote at the June FOMC meeting not to raise rates, Mester said, "The reason was timing."

"It was clear there was going to be volatility in financial markets surrounding the vote," Mester said in prepared remarks for a speech Friday at the European Economics and Financial Center in London. "If the vote favored exit, there was the potential for disruption in markets. Given that I do not think U.S. monetary policy is behind the curve yet, I saw little cost in waiting to take the next step."

Britons voted in favor of exiting the European Union a week ago, setting off a brief but sharp market reaction that has since partially reversed. Global bond yields have tumbled, with the U.S. 30-year bond yield hitting a record low Friday and other sovereign yields around the world falling into negative territory.

After the Brexit vote, fed funds futures markets showed almost no chance that the FOMC would be raising rates this year. In fact, there's a small chance of a rate cut being priced in.

In her speech, Mester did not set out a timetable of when the Fed should resume the path to normalcy. But she expressed confidence in U.S. economic growth and said there's danger in waiting too long to move.

"If we fail to gracefully navigate back toward a more normal policy stance at the appropriate time, then I believe there is a non-negligible chance that these tools will essentially be off the table because the public will have deemed them as ultimately ineffective," she said. "This is a risk to the outlook should we ever find ourselves in a situation of needing such tools in the future."

Mester said she believes the labor and housing markets are improving, though business investment remains soft.

"Some parts of the U.S. economy have fared better than others," she said. "But overall, economic growth has proven to be resilient and at a pace slightly above trend. The pace has been sufficient to generate significant progress in labor markets."

Earlier in the day, Fed Vice Chair Stanley Fischer told CNBC he was taking a "wait and see" approach to where yields should go in light of the recent turmoil.

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  Friday, 1 Jul 2016 | 10:15 AM ET

Wall Street is having a bad deal year thanks to Washington

Posted ByJon Marino

Hershey declines $23B Mondelez takeover bid   

A big business is down for Wall Street, and bankers may soon start pointing their fingers at Washington for their woes.

Global mergers and acquisitions activity fell in the first half of the year, with the respective quarters coming in at $758.5 billion and $951.6 billion, after three consecutive quarters above $1 billion, financial data firm Dealogic reported Friday.

In the first half of 2016, there was more than $600 billion worth of M&A withdrawn, making for the highest first half value of undone deals on record, according to Dealogic.

"These types of deals have a high level of risk assumed with them," said Jeffrey Nassof, vice president of consulting services at Freeman & Co.

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  Thursday, 30 Jun 2016 | 2:31 PM ET

Citi, Goldman, Morgan Stanley have biggest Brexit exposure

Posted ByJeff Cox

US banks not out of the woods yet: Pro
US banks not out of the woods yet: Pro   

At a time when banks face pressure on a number of fronts, the Brexit situation in Europe doesn't help.

Regulatory issues as well as a low interest rate environment that looks like it could last for years to come are just two unfriendly forces against the institutions, which as a group have lost more than 11 percent year to date, as measured by the KBW Nasdaq Bank index.

Now, disruptions in Europe with the potential that Britain may leave the European Union could cause more trouble.

Just how much, though, is hard tell. Fitch Ratings believes some damage could come, but there also will be opportunity.

"A lot of the U.S. banks in Europe have consolidated their operations in the U.K., so they've gotten a lot of cost efficiencies out of that," Joo-Yung Lee, head of North American financial institutions at Fitch Ratings, told CNBC. "With the Brexit, we think there will be some restructuring changes ahead of them in terms of potentially having to pivot away from the U.K. So clearly it depends on how the trade agreements are worked out."

One area banks could benefit is from the associated volatility. The Dow industrials lost more than 800 points in a two-day period following the vote, but have been in rally mode the past three sessions.

"Volatility does help the banks, as long as it's not too much volatility that keeps investors on the sidelines," Lee said. "What were are seeing is there has been quite a bit of volume, so that is good for the banks."

At an institutional level, Citigroup has the highest dollar exposure to the U.K. at $118.9 billion, However, that's only a fraction of the bank's $1.8 trillion in assets and just 16.4 percent of its non-U.S. exposure, according to S&P Global Market Intelligence. Other financial institutions, though, face higher risks.

S&P compiled a list that provides perspective on total exposure:

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  Thursday, 30 Jun 2016 | 11:51 AM ET

KKR exec: Credit beats stocks in 'adult swim' market

Posted ByJon Marino

Political chaos in the UK
Political chaos in the UK   

Credit could offer better and more stable returns compared to stocks in a market increasingly beset by volatility, according to an executive at one of the largest private equity firms.

"We remain in an 'adult swim only' environment," Henry McVey, private equity and investment management firm KKR's head of global and macro asset allocation, wrote Thursday in a report, later adding, "we still prefer credit to equities."

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  Wednesday, 29 Jun 2016 | 4:53 PM ET

Fed flags Morgan Stanley, Deutsche unit, Santander in tests

Posted ByJon Marino

The Federal Reserve objects to capital distribution plans proposed at Deutsche Bank Trust and the Santander U.S. operation, meaning that the banks cannot issue dividends or make share buybacks until they establish a new plan, the central bank said Wednesday.

Further, regulators are requiring Morgan Stanley to submit a new capital plan by the end of the fourth quarter of 2016, but said they did not object to the bank's capital plan.

The Fed's Wednesday announcement of the results of its Comprehensive Capital Analysis and Review marks the second and final portion of the annual, two-part stress tests aimed at gauging Wall Street's ability to adequately respond to an economic crisis.

There were only three objections out of 33 institutions tested.

The Fed's objections to Santander Holdings USA and Deutsche Bank Trust, the bank's U.S. transaction bank and wealth management business, mark the second consecutive year regulators flagged both banks.

"The capital adequacy of Deutsche Bank Trust Corporation has never been in doubt," Bill Woodley, CEO of DB USA and deputy CEO of Deutsche Bank Americas, said in a statement. "We appreciate the Federal Reserve's recognition of our progress, and we will implement the lessons learned this year in order to strengthen our capital planning process for future CCAR submissions."

Santander's U.S. unit also saw objections from the Fed in its 2014 stress test, however. A senior central bank official said Wednesday that "serious deficiencies remain in a number of areas" for each of the companies' U.S. units.

"If a firm were to have a repeat [fail], it would be serious," David Wright, managing director of banking and securities at Deloitte, who previously held various roles within the Fed, said before test results were announced. "Multiple objections are something to be avoided."

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  Wednesday, 29 Jun 2016 | 4:46 PM ET

Big banks dial up buybacks and dividends after stress-testing win

Posted ByJon Marino

Who survived the stress tests?
Who survived the stress tests?   

A number of banks are ratcheting up buybacks and dividends after passing stress tests, which marks good news for their investors in a difficult year.

The announcement of dividends and buybacks comes in a year where big banks in the U.S. and abroad have seen their share values hammered by market volatility and decreasing expectations that the Fed will raise interest rates this year, which is expected to have a substantial impact on their revenue and forward-looking projections.

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  Thursday, 30 Jun 2016 | 1:49 PM ET

Major GOP donor Paul Singer says Trump would cause a depression

Posted ByJeff Cox

Trump could cause global depression: Singer
Trump could cause global depression: Singer   

A hedge fund executive and major Republican donor believes Donald Trump's policies would spell big trouble for the U.S. economy.

Paul Singer, head of $27 billion Elliott Management, said Wednesday that he may not vote for anyone in the race between presumptive nominees Trump and Democrat Hillary Clinton, and joked he is considering writing himself in.

"The most impactful of the economic policies that I recall him coming out for are these anti-trade policies," Singer said during a panel discussion at the Aspen Ideas Festival in Colorado. "And I think if he actually stuck to those policies and gets elected president, it's close to a guarantee of a global depression, widespread global depression."

Trump has pledged hefty tariffs against nations including China if they don't renegotiate trade policies he says are detrimental to U.S. interests.

Singer supported Florida Sen. Marco Rubio in what was once a 17-person race for the GOP nomination. Singer most recently gave $1 million in April to the Our Principles PAC, which was part of the campaign to stop Trump, according to OpenSecrets.

The Trump campaign did not respond to a request for comment.

See more of Singer's comments today on CNBC's "Closing Bell" from 3-5 pm.

»Read more
  Wednesday, 29 Jun 2016 | 10:36 AM ET

There are now $11.7 trillion worth of bonds with negative yields

Posted ByJeff Cox

$1 trillion worth of advice on rates
$1 trillion worth of advice on rates   

The level of negative-yielding global debt is continuing its climb into the stratosphere.

Following the turmoil of the British vote to leave the European Union and the desire for the safety of government bonds, the amount has jumped to $11.7 trillion. That's a 12.5 percent increase since the end of May, according to a Fitch Ratings report Wednesday.

What's more, the holders of such bonds are willing to hang onto them for even longer, which Fitch said was the biggest factor in the increase. The total of negative-yielding debt with maturities of seven years or longer has swelled to $2.6 trillion, nearly double the amount in April.

"Worries over the global growth outlook, further fueled by Brexit, have continued to support demand for higher-quality sovereign paper in June," Fitch said. "Widespread adoption of unconventional monetary policies, including large-scale bond-buying programs and negative deposit rates, have driven the large increases in negative-yielding debt seen this year."

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  Wednesday, 29 Jun 2016 | 9:07 AM ET

Mortgage association: Fed's still going to hike this year

Posted ByJeff Cox

In the face of the destabilizing Brexit vote and increasingly dovish views from the Fed, the Mortgage Bankers Association still thinks a rate hike is on the way.

(Update: An earlier version stated the MBA believed there would be two hikes this year. After the story published, the association said it was changing its forecast to one increase this year.)

The view is contrary perceived wisdom, with traders expecting no chance of a hike this year while in fact pricing in a small probability of a rate cut. Fed officials, at their June meeting, indicated that two hikes were still on the table for 2016, but that was before British voters opted to leave the European Union, a move that jolted financial markets and considerably diminished rate hike expectations.

The association subsequently said it was changing its forecast from two hikes to one. An official said an analysis issued Tuesday erred in referencing the Brexit vote in the past tense.

"MBA now predicts that the Fed will hike only once this year, likely in December. If the financial market disruption from Brexit persists, the likelihood of even a December hike would be reduced," Mike Fratantoni, chief economist at the MBA, said in an emailed statement.

Kan said he still projects U.S. gross domestic product to gain 2 percent for the rest of the year, and with other economic gains will give the Fed clearance to resume the rate normalization process.

Traders, however, disagree.

The CME's FedWatch tool, which tracks fed funds futures contracts and assigns probabilities for hikes at each of the Federal Open Market Committee meetings, shows a 98.8 percent chance that the Fed in July will hold the line on its current target range of 0.25 to 0.5 percent for the overnight rate. There is a 1.2 percent chance of a cut, with no chance assigned to a hike.

In fact, the probability of a rate increase doesn't come into play until November, and even then there's just a 1.9 percent chance. Traders assign a 19.3 percent chance of a hike in December.

»Read more

 

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