Category Archives: Investing

World’s biggest banks accused of price-fixing Fannie Mae, Freddie Mac bonds

More than a dozen of the world’s largest financial institutions conspired to fix the prices on more than $485 billion in bonds issued by Fannie Mae and Freddie Mac over a five-year period, according to a new blockbuster lawsuit.

The lawsuit was filed this week by the state of Pennsylvania, which claims that Bank of America; Barclays Capital; BNP Paribas; Citigroup; Credit Suisse; Deutsche Bank; Deutsche Bank Securities; First Tennessee Bank; FTN Financial Securities; Goldman Sachs; JPMorgan Chase; J.P. Morgan Securities; Merrill Lynch; and UBS Securities conspired to both overcharge and underpay investors on debt bonds issued by Fannie and Freddie between 2009 and 2014.

The lawsuit, filed by Pennsylvania Treasurer Joe Torsella, is a class action lawsuit that claims that the state invested in the bonds but was financially harmed by the financial institutions alleged actions.

The lawsuit seeks to have other aggrieved parties join it, but the lawsuit states that the groups’ supposed conduct may have harmed “at least thousands” of other investors.

It’s important to note that the bonds in question are not mortgage bonds. They are bonds issued by the government-sponsored enterprises to support their operations. The bonds are traded “over the counter,” which means that investors work with the bond trading desks at the named institutions to buy and sell the bonds.

Since the bonds are not traded on a public exchange, the broker wields more control over pricing, as comparative bond trading is not made public. Bond values must then be derived based on a price the buyer is willing to pay and what the seller is willing to sell for; known as derivative trading.

The lawsuit claims that the named institutions conspired to fix the prices on those bonds, which allowed them to underpay sellers and overcharge buyers.

“Because the FFB market is an opaque, OTC market, Defendants were able to charge fixed prices without revealing their conspiracy to their customers,” the lawsuit claims.

According to the lawsuit, the named financial institutions controlled more than 64% of the total underwriting of Fannie and Freddie bonds during the time in question, with each institution underwriting at least $28 billion in bonds.

“Defendants have consistently been the 10 largest FFB underwriters in the United States, and each underwrote more than $28 billion in FFBs during the Class Period,” the lawsuit claims. “Thus, Defendants as a bloc dominated control of FFB supply and were well-positioned to use that dominant position to fix the prices of FFBs charged to their customers, the Commonwealth Funds and the Class.”

And the lawsuit isn’t the only trouble those institutions are facing in this regard. According to the suit, the Department of Justice is also investigating the companies for price-fixing the GSE bonds, which was reported by Bloomberg last summer.

From the lawsuit:

On June 1, 2018, four confidential sources revealed that the DOJ Antitrust Division is conducting a criminal investigation into collusion among dealers to fix FFB prices.

These confidential sources revealed that the investigation concerns the prices that dealers in the FFB market charged to investors, such as the Commonwealth Funds and the Class. Specifically, the investigation focuses on illegal activities of bank traders suspected of coordinating to benefit the institutions they work for. Sources said prosecutors from the Justice Department’s antitrust division and criminal division are working on the investigation into the dealers’ behavior in the secondary market.

And the lawsuit states that market data shows conclusively that a conspiracy was indeed in effect.

“Consistent with the DOJ Antitrust Division’s investigation, empirical, economic price data and other market facts demonstrate that Defendants used their control over FFB supply to fix the prices of these instruments, causing the Commonwealth and the Class to pay too much (when buying FFBs) and receive too little (when selling FFBs) on their FFB transactions during the Class Period,” the lawsuit states.

According to the lawsuit, Torsella’s office obtained the pricing data for more than 13,117 unique FFBs and a total of 1.6 million FFB transactions. The lawsuit states that the data shows “highly anomalous” pricing on the Fannie and Freddie bonds, including highly inflated, “supracompetitive” prices on newly issued bonds.

Additionally, the lawsuit claims that the financial institutions inflated the prices of older bonds in the days leading up to the sale of new bonds to establish a higher benchmark, which then allowed them to sell the new bonds at higher prices to earn “excess, unlawful profits.”

Also, the lawsuit claims that evidence shows that the institutions, rather than competing with each other for Fannie and Freddie bond business, “agreed to inflate the prices at which they sold FFBs to investors (the “ask” price), or deflated the price at which they purchased FFBs from investors (the “bid” price), or both.”

According to the lawsuit, a comparison of the pricing of the bonds during the time period in question against the pricing of bonds after 2014 shows prices “markedly decreased” after that time “for no other apparent economic reason.”

The lawsuit claims that the questionable conduct appeared to “statistically diminish” in April 2014, when government regulators began looking into banks’ trading business after the LIBOR scandal first became public knowledge, wherein banks were accused of manipulating the LIBOR interest rate for profit.

According to the lawsuit, before April 27, 2014, the prices charged for new Fannie and Freddie bonds were eight times higher than what was charged after that date.

Torsella’s office claims that an initial analysis shows that four Pennsylvania Treasury funds lost “millions” as a result of the alleged price manipulation by the named institutions.

“Time and time again, we have witnessed Wall Street institutions enrich themselves at the expense of Main Street investors with little to no consequence,” Torsella said. “When I believe that Pennsylvania taxpayers have been taken advantage of, I intend to stand up and fight, and recover for Pennsylvanians what is rightfully theirs. It’s long past time that the big Wall Street institutions remember that the rules apply to them and that breaking them has consequences.”

To read the full lawsuit, click here.

Article source: https://www.housingwire.com/articles/48502-worlds-biggest-banks-accused-of-price-fixing-fannie-mae-freddie-mac-bonds

Study reveals generational divide in HELOC use

Most of the time, when a homeowner takes out a HELOC, the plan is to use the proceeds to fund home renovations. And, with tax laws put into place by the Trump administration in late 2017, there’s a disincentive to use the proceeds to finance other things, as the interest won’t be tax deductible.

But a recent survey of 1,003 HELOC or future HELOC borrowers by Citizens Bank revealed that younger borrowers are much more open to using the loan for things other than home renovation, shedding light on a generational divide in the way homeowners utilize their home equity.

While 70% of the time a HELOC is used to fund renovations, this is not always the case, and Millennials are more likely to use the loan for other purposes than borrowers over 40.

Here’s a list of other uses for the proceeds, and how Millennial usage stacks up against that of older borrowers:

  • Finance a new business venture (45% vs. 19%)
  • Make a big-ticket purchase (44% vs. 35%)
  • Take time off work to care for family (44% vs. 24%)
  • Take a vacation (36% vs. 17%)

Among all HELOC borrowers, the survey also revealed an overwhelming sense of optimism, with 87% saying they were optimistic about their home’s value.

The results suggest that even though home price growth is slowing down, many consumers are undeterred, focusing instead on the fact home prices are still strong.

And, the fact that U.S. homeowners have amassed record amounts of home equity is not lost on them.

When asked to specific reasons for their optimism, 65% of respondents cited the fact that they’ve seen their home value increase in recent years. Half credited affordability, while 43% named the strong economy and 31% said they are feeling good about the current state of the housing market.

Brendan Coughlin, president of consumer deposits lending at Citizens Bank, said the prevailing sense of optimism highlights the solution a HELOC affords those looking to take advantage of rising home values.

“Property values are at record highs across most of the U.S., driving increases in consumer optimism,” said Coughlin. “Having access to a HELOC provides real-time access to their growing home equity, giving customers flexibility to improve their home, manage their finances, and peace of mind in case of an unexpected expense.”

Article source: https://www.housingwire.com/articles/48504-study-reveals-generational-divide-in-heloc-use

Skittish investors pull more than $20 billion from stocks, rush into bonds: BAML

LONDON (Reuters) – Global equity funds saw massive outflows this week, a sharp reversal from last week’s inflows as pessimism over economic growth gripped investors once again, driving them instead to search for yield in credit and buy safer assets like bonds.

Some $20.7 billion was pulled from equity funds in the week to March 20, while $12.1 billion was ploughed into bond funds, the biggest inflows since January 2018, Bank of America Merrill Lynch (BAML) strategists said on Friday citing data from EPFR.

Despite big gains for stocks globally this year, positioning is decidedly negative with $66.8 billion outflows from equity funds year-to-date.

This week’s heavy outflows showed investors remain skittish, having re-entered equities with $14 billion inflows last week.

Investors are hunting for yield, the strategists said, noting the ninth straight week of inflows to investment-grade bond funds – $6.6 billion this week – while high-yield bond funds drew in $3.2 billion and $1.2 billion went into EM debt.

The market is struggling to digest a rapid about-turn from the U.S. Federal Reserve on interest rates as economic growth disappoints globally and fears of a deflationary environment return.

“Extraordinary abrupt end to central bank hiking cycle Fed paranoia of credit event are uber-bullish credit uber-bearish volatility,” the strategists wrote.

“Inflows to ‘deflation assets’… continue to trounce inflows to ‘inflation winners’,” they added.

Overall the bank’s “Bull Bear” indicator of investor positioning and sentiment held at a neutral level of 4.7 out of 10, signalling investors’ uncertainty over where the market might go next.

By region, the U.S. saw the biggest outflows with $13.2 billion, while $4 billion was pulled from European equities.

“Short European equities” was named by investors as the “most crowded” trade in a BAML survey on Tuesday, prompting some contrarian buying of European stocks, but not enough to move the needle in terms of flows.

Japanese equities also suffered outflows of $700 million, the sixth straight week of outflows. Emerging market equities have had outflows four of the past five weeks, and lost $400 million this week.

Investors turned on technology stocks, pulling $700 million from the sector. Defensive real estate stocks were the most favoured, attracting $400 million.

Cumulative flows into tech stocks, long-standing investor darlings, have stalled, BAML strategists noted, as doubts over their status as market leaders grew and sluggish economic growth weighed on performance.

Reporting by Helen Reid; editing by Josephine Mason

Article source: http://feeds.reuters.com/~r/news/wealth/~3/TJVRjOy3Aak/skittish-investors-pull-more-than-20-billion-from-stocks-rush-into-bonds-baml-idUSKCN1R3164

Dreamers denied: Evidence mounts FHA is not backing DACA mortgages

Despite the Department of Housing and Urban Development stating recently that its policies have not changed in regards to the Federal Housing Administration backing mortgages for Deferred Action for Childhood Arrivals recipients, it appears that the opposite is actually the case.

Or at least that’s how the mortgage lending industry is reacting.

In the wake of HousingWire’s original reporting, numerous lenders reached out and said that they’ve been told directly by a HUD representative that DACA recipients, also called Dreamers, are no longer eligible for FHA mortgages.

Now, a new HousingWire investigation has uncovered lender bulletins or guidelines from a dozen different lenders each stating that Dreamers are not eligible for FHA financing.

In most cases, the lenders do not list a reason for why Dreamers are ineligible for FHA financing, but two state housing finance agencies do provide a reason (click on any of the links below to see the original documents).

The Connecticut Housing Finance Agency, for example, recently published a lender bulletin that states: “FHA now stipulates that Non-Permanent Resident Alien Guidelines require lawful residence for FHA loans. Although Deferred Action for Childhood Arrivals (DACA) immigrants are in the United States legally, under the new administration they are not considered to have lawful residency.”

According to the bulletin, as of one month ago, “DACA applicants will not be eligible for first or second mortgage loan financing approval in any CHFA mortgage loan product, conventional or government.”

A similar notice was posted on the website of the Idaho Housing and Finance Association. The IHFA notice stated:

Effective immediately, Idaho Housing will not allow loans to be locked for DACA borrowers. For loans that are locked or already closed and not yet purchased by Idaho Housing, we will need the following documentation:

1. Underwriter acknowledgement in writing that the loan was approved with the knowledge that the borrower is a DACA borrower.

2. Indemnification letter from the lender indemnifying Idaho Housing and Finance Association of any and all losses directly attributed to the loan being approved and closed with a DACA borrower.

Gateway Mortgage Group also provides a more detailed explanation on its policies surrounding DACA borrowers. In an announcement data Aug. 3, 2018, Gateway states that is no longer accepting mortgage applications for DACA borrowers:

Due to recent Executive Orders and court actions regarding the Deferred Action for Childhood Arrival program (“DACA”), Gateway has reviewed the complex issue of whether we will purchase loans to participants in the DACA program.  Based upon its review of relevant agency, investor and insurer guidelines and requirements, Gateway has determined that unless and until there is formal action taken which clearly provides that DACA loans are eligible to be purchased, insured, guaranteed and securitized, Gateway will not accept loan applications or purchase loans for borrowers who are subject to a DACA (C-33 designation).  These same rules apply to any other non-resident who is unable to meet agency, investor, or insurer requirements relative to proof of legal residency.

Other lenders are far simpler in their declaration that Dreamers are not eligible for FHA mortgages.

NewRez, which recently changed its name from New Penn Financial, lists “Borrowers with Deferred Action for Childhood (DACA) approval” under a category titled “Ineligible Borrowers” on its FHA lending guidelines for correspondent and wholesale lenders.

Similar declarations are found with several other lenders, including:

  • loanDepot, which states that borrowers with DACA states are not eligible for a loan
     
  • JMAC Lending, which lists DACA borrowers as ineligible
     
  • CMG Financial, which states: “As category C33 work status is under a deferred action and does not provide lawful status, borrowers working under DACA authorization are not eligible for financing under CMG loan programs and are not considered for exception approval
     
  • Provident Bank, which states: “Borrowers with EAD Cards issued under DACA (Deferred Action For Childhood Arrivals) – Form I-821D (EAD Code C33) are ineligible for FHA Financing
     
  • Land Home Financial Services, which lists DACA under a section titled “Ineligible Borrowers,” adding “Deferred Action for Childhood Arrival do not have a path to a permanent resident status, however some recipients can obtain residency if they meet certain criteria. DACA is not a legal immigration status.”
     
  • REMN Wholesale, which lists “Loans where a borrower(s) has a Deferred Action for Childhood Arrivals (DACA) status,” under a section titled “Ineligible Transactions”
     
  • American Financial Network, which states on its FHA loans investor overlay matrix “Borrowers with Deferred Action for Childhood Arrivals (DACA) status are not allowed”
     
  • Michigan Mutual, which states: “Borrowers with an EAD Code of C33 (defined as aliens present in the United States under Deferred Action for Childhood Arrivals (DACA)) are not eligible.”

Other lenders have told HousingWire privately that they’ve been told by senior level HUD personnel that the FHA is not backing DACA mortgages.

The bottom line is that without clear and definitive information from HUD and the FHA about whether they’re backing DACA mortgages, lenders are taking matters into their own hands so they’re not left without a buyer for the mortgages they originate.

Without a buyer for the mortgage, they can’t originate another one. That’s how lenders make money. And investors aren’t going to buy a mortgage if they don’t think the FHA is backing it. That’s leading lenders to not originate FHA mortgages for Dreamers.

One lender previously told HousingWire that only one investor they work with is willing to buy Dreamer loans right now, but only if they are conventional loans, i.e. those backed by Fannie Mae or Freddie Mac.

Add all of this together and one starts to see that it’s becoming increasingly more difficult for a Dreamer to get any kind of mortgage, let alone an FHA one. In fact, one potential DACA borrower went so far as to reach out to us, emboldened by recent HousingWire coverage, to say he’d applied for an FHA mortgage, hoping he would be able to get one. He was denied.

Article source: https://www.housingwire.com/articles/48492-dreamers-denied-evidence-mounts-fha-is-not-backing-daca-mortgages

Morgan Stanley holds top spot as activist defense firm: data

BOSTON (Reuters) – Morgan Stanley was ranked as the top adviser to companies targeted by activist investors publicly for the third straight year in 2018 while Goldman Sachs vaulted past two competitors to the number No. 2 spot, according to Refinitiv data published on Thursday.

In 2018, Morgan Stanley advised on 22 campaigns, working with Akamai Technologies, SandRidge Energy and Cigna when those companies faced pressure from prominent agitators such as Elliott Management and Carl Icahn, the data showed.

Unlike announced mergers and acquisitions, many companies that fend off activists do so quietly and do not want their advisers making the situations public. This can create discrepancies in the data gathered in the league tables.

Goldman Sachs advised on 18 public campaigns in 2018. In 2017 Goldman advised on six public deals, trailing Morgan Stanley, Lazard and Raymond James, claiming the fourth spot, Refinitiv data shows.

Lazard dropped to the number three spot in 2018, advising 16 companies. In 2017, a less busy year overall, Lazard advised 14 companies.

Spotlight Advisors, founded by Greg Taxin, a lawyer who worked as an investment banker at Goldman Sachs and Banc of America Securities, made its first appearance on the list, capturing the No. 4 four spot ahead of UBS, Citi, Raymond James, Credit Suisse and Moelis Co.

Activists were busier than ever last year and launched 500 campaigns, 5 percent more than in 2017. They pushed companies to spin off divisions and asked for board seats, among other demands.

Consumer cyclical companies were the most heavily targeted last year, Refinitiv said, with 90 campaigns in the sector. One prominent campaign was at Campbell Soup Co, where Daniel Loeb’s Third Point tried to replace all directors and initially pushed for a sale of the company.

Elliott Management, which launched campaigns at BHP Billiton Ltd, Qualcomm Inc, Bayer AG and Pernod Ricard last year, was ranked as the busiest activist, having launched 27 campaigns in 2018.

It beat out GAMCO Investors for the top spot.

Starboard Value, ranked as the third-busiest activist with 11 campaigns in 2018.

Innisfree and Okapi were the top proxy solicitors, firms hired to gather shareholders’ votes, while Olshan Frome Wolosky beat out two competitors to rank as the busiest law firm with 101 mandates working for activists.

Reporting by Svea Herbst-Bayliss; Editing by Dan Grebler

Article source: http://feeds.reuters.com/~r/news/wealth/~3/3z02Q2sm9pA/morgan-stanley-holds-top-spot-as-activist-defense-firm-data-idUSKCN1R22HT

Investors favor equity ETFs, junk bonds as risk appetite grows: Lipper

(Reuters) – Investors poured money into equity exchange-traded funds and high-yield “junk” bond funds in the week ended on Wednesday, as U.S. President Donald Trump said he would extend a deadline to delay escalating tariffs on Chinese imports, citing “substantial progress” in talks between the two countries.

U.S.-based high-yield bond funds attracted $698 million, marking the sector’s fifth straight week of inflows, according to data from Refinitiv’s Lipper research service. U.S.-based equity ETFs attracted about $7.5 billion in the latest week, Lipper noted.

Investors’ risk appetite grew in the wake of “some positive” news about U.S.-China trade talks earlier in the week, said Pat Keon, senior research analyst at Lipper. He also cited the U.S. Federal Reserve’s statements that the central bank would be patient in hiking interest rate and that it would soon stop reducing its balance sheet.

“It was a good week overall, net inflows just shy of $16 billion with all four asset groups – money markets, taxable bond funds, muni bond funds, and equity funds – taking in net new money,” Keon said.

Taxable bond funds posted $4.3 billion in inflows, the largest outside of money market funds.

“It was the taxable bond funds group’s seventh straight weekly net inflow,” he said. “Ultra-short obligation funds (USO) drove the overall positive net flows for the group as they took in $1.47 billion. This is the continuation of a long-term trend as USO funds have had net inflows in 50 of the last 51 weeks for a total intake of over $69 billion.”

Equity ETFs, which attracted $7.5 billion, were responsible for all of the net inflows as equity mutual funds saw $5.1 billion leave, Keon noted.

“This was the second straight net outflow for equity mutual funds after six straight net inflows,” he said. “The net outflows for equity mutual funds were across the board as the majority of peer groups saw money leave, both for domestic and nondomestic funds.”

The two largest net inflows for individual ETFs belong to broad market U.S. equity products as SPDR SP 500 ETF and iShares Core SP Total U.S. Stock Market ETF took in $2 billion and $1.1 billion, respectively, Keon pointed out.

Reporting by Jennifer Ablan; Editing by Jonathan Oatis and Richard Chang

Article source: http://feeds.reuters.com/~r/news/wealth/~3/o0qHf24Yqrg/investors-favor-equity-etfs-junk-bonds-as-risk-appetite-grows-lipper-idUSKCN1QH2X7

Oil major Total CEO’s compensation drops 17 percent in 2018: company document

PARIS (Reuters) – The board of French oil and gas major Total has proposed total 2018 compensation for Chief Executive Patrick Pouyanne of 3.1 million euros ($3.55 million), compared with 3.8 million in 2017, company documents showed on Wednesday.

The total pay includes 1.4 million euros in fixed compensation, the same as in 2017, and 1.72 million in annual variable compensation, compared with 2.4 million in 2017, and 69,000 in other benefits, the documents showed.

The company said in a statement that the decrease in variable compensation resulted from criteria based on the average three-year change in Total’s adjusted net income in comparison with those of its peers. “The Board of Directors wants to emphasize that the decrease by 17 percent of Patrick Pouyanne’s cash remuneration due for the year 2018, resulting from the strict application of the rules,… doesn’t reflect in any way its appreciation of the exceptional work accomplished in 2018 by (him),” it said.

Pouyanne has often quipped that he is the least paid among the bosses of the global oil majors. The company reported a 28 percent jump in full-year profit in 2018 to $13.6 billion.

In comparison, Shell’s CEO Ben van Beurden’s 2018 pay package more than doubled to 20.1 million euros and Chevron Corp has said its Chief Executive Officer Michael Wirth is eligible for $19 million in total pay this year.

Total’s shareholders will vote on Pouyanne’s proposed package during an annual meeting on May 29.

Reporting by Bate Felix; editing by Leigh Thomas and Kirsten Donovan

Article source: http://feeds.reuters.com/~r/news/wealth/~3/eEUNv87dlvY/oil-major-total-ceos-compensation-drops-17-percent-in-2018-company-document-idUSKCN1R12JO

Big U.S. pension funds ask electric utilities for decarbonization plans

BOSTON (Reuters) – Top U.S. pension funds are asking electric utilities to accelerate efforts to cut carbon emissions but will not force the issue with proxy resolutions this spring, hoping market shifts and falling prices for renewable energy have already made executives and directors receptive to the goal.

Investors including New York City Comptroller Scott Stringer, who oversees retirement funds, and leaders of the California Public Employees’ Retirement System are asking the 20 largest publicly traded electric generators in the United States for detailed plans for achieving carbon-free electricity by 2050 at the latest, according to material seen by Reuters.

They also seek other steps like board commitments and tying progress to executive pay.

Stringer termed decarbonization a “financial necessity” in a statement sent by a spokeswoman. “This initiative makes clear that mobilizing for the planet goes hand-in-hand with protecting our pensions, and we need these commitments now.”

Making electricity carbon-free by 2050 will be key to meeting the goals of the 2015 Paris Agreement to constrain global warming, the investor group said in a separate statement. They praised a December announcement by Xcel Energy Inc that it will aim for carbon-free generation by 2050.

Large utilities receiving the letter include Duke Energy Corp and NRG Energy Inc. Each has already moved toward cutting emissions: Duke has set a goal of reducing carbon emissions by 40 percent by 2030 from its 2005 levels, and NRG aims to cut emissions in half by 2030 and by 90 percent by 2050 compared with 2014 levels.

Asked about the funds’ request, Duke spokeswoman Catherine Butler noted the goal and said via email, “We continue to evaluate options to further reduce emissions beyond that date.”

In a statement sent by a spokeswoman, NRG Vice President of Sustainability Bruno Sarda said the company agrees with the “urgency for decarbonization” and said it is reviewing its goals based on newly-available science.

Falling prices for wind and solar power will help the utilities’ efforts, while the pace of coal-fired power plant closures has accelerated in the face of price competition.

Funds involved in Stringer’s effort collectively manage $1.8 trillion and also include Hermes Investment Management and money overseen by New York State Comptroller Thomas DiNapoli.

Technically the group is asking for “net-zero” carbon emissions by 2050, meaning the amount of carbon utilities release must equal the amount they remove.

Reporting by Ross Kerber in Boston; Editing by Matthew Lewis

Article source: http://feeds.reuters.com/~r/news/wealth/~3/cSn7ltSkUAw/big-u-s-pension-funds-ask-electric-utilities-for-decarbonization-plans-idUSKCN1QH27D

Overdone? Short EU equities ‘most crowded’ trade for first time

LONDON (Reuters) – Fund managers have named bearish bets in European equities as the “most crowded” trade in Bank of America Merrill Lynch’s survey for the first time in its history, suggesting sentiment for one of the world’s most shunned markets may rise from here.

Investors have pulled cash from European stocks over the past year, betting the market would be weaker compared with the United States and other regions as euro zone economic growth slows and Britain’s chaotic exit from the European Union raises concerns about disruption to its economy.

Short European equities replaced long emerging markets, which held the title for just one month.

The shift in investor views reflects broader uncertainty about the direction of financial markets as the Federal Reserve and ECB keep interest rates on hold amid signs that growth is slowing.

The results also suggest that fund managers believe the gloom that has seen $30 billion leave European equities this year may have been overdone.

In a note on Sunday, Morgan Stanley chief European equity strategist Graham Secker said he believes Europe is set to surprise on the upside as issues that weighed on growth in the second half of last year start to fade.

The pan-European STOXX 600 rose 0.7 percent on Tuesday to its highest since Oct. 3 and was on track for its longest winning streak in six months.

Auto stocks led the gains after the bank’s auto analysts recommended contrarian investors buy select carmakers after the survey showed investors grew more bearish on the sector.

Tentative improvements in consumer and wage data – and the improving German car sector – are a good omen, Secker said, noting that China, whose slowdown has been behind much of Europe’s malaise, is finally showing a turnaround in new export orders PMIs.

(GRAPHIC: Evolution of FMS “most crowded trade” – tmsnrt.rs/2UDJerA)

CHINA SLOWDOWN

Still, BAML’s March survey – conducted between March 8 and 14, among 239 panelists managing $664 billion in total – also indicated that investor risk appetite had continued to fall, with global equity allocations remaining at September, 2016 lows.

“The pain trade for stocks is still up,” said Michael Hartnett, BAML’s chief investment strategist.

“Despite rising profit expectations, lower rate expectations and falling cash levels, stock allocations continue to drop. There is simply no greed to sell in equities.”

A slowdown in China, the world’s No. 2 economy, topped the list of biggest tail risks, ousting the trade war, which had been investors’ main concern for the previous nine months, according to the survey.

Third on this month’s list was a corporate credit crunch.

The slight improvement in investor outlook toward the protracted trade war which has rattled markets for the past year comes as Washington and Beijing make progress in talks to agree a truce.

But reflecting the broad spectrum of views on interest rate policy, about 55 percent of those surveyed say they think the Fed will continue to hike, while 38 percent believe the hiking cycle is done.

Reporting by Josephine Mason and Helen Reid, Editing by Ed Osmond

Article source: http://feeds.reuters.com/~r/news/wealth/~3/gbU6qde_H9o/overdone-short-eu-equities-most-crowded-trade-for-first-time-idUSKCN1R00ZY

This housing market clue predicts pending economic slowdown

When it comes to the health of the economy, the housing market is the canary in the coal mine, providing clear and early clues of pending trouble. And that’s why analysts track its performance intently, looking at a multitude of indicators that might signal the looming recession some are forecasting.

Now, one critical clue from the housing market has emerged to suggest economic growth is likely to backslide, and that is a steady decline in single-family authorizations.

In essence: Construction activity appears to be slowing.

Single-family housing authorizations – what some call a key predictor of economic recessions – represent building permits requesting permission to commence construction. In contrast, housing starts signal that construction has already begun. 

According to the latest data released by BuildFax, single-family housing authorizations fell for the third consecutive month in February, declining 4.24% from the previous month. This also represents a 5.75% decline year over year.

The data left BuildFax to conclude that, “without relief from this steady decline in single-family housing authorizations, an economic slowdown is likely forthcoming.”

Existing housing maintenance and remodeling volumes are also down, continuing a four-month decline. Maintenance volume was down 5.53% year over year, while remodeling volume was down 10.07%.

But at the same time, spend for both maintenance and remodeling increased, which BuildFax attributed to recent spikes in construction labor costs.

Interestingly, some cities are defying national trends, posting increases in new construction and maintenance in February.

Dallas, New York City, Chicago and Washington, D.C., saw activity in new construction and maintenance rise.

BuildFax said Chicago saw the greatest increases, with new construction up 60.15% and maintenance up 19.51%, which the report said could be a result of the city’s strategic five-year housing plan to solve affordability problems.

“It’s yet to be seen whether housing activity in these cities will eventually slow as it has on a national level or if these will be key metros to watch as the U.S. potentially heads towards an economic slowdown,” BuildFax wrote.

BuildFax CEO Holly Tachovsky said the performance of these indicators over the next several months will be key to determining the overall impact on the economy.

“There have been persistent declines across key housing indicators for four consecutive months. However, we anticipate some economic relief as we head into 2019’s spring home buying season,” Tachovsky said.

“Mortgage rates have reached recent lows leading to increased potential for home sales, which is oftentimes followed by a surge in remodeling activity,” she continued. “The performance of single-family housing authorizations, maintenance and remodeling activity through this next season will shed light on whether declines in the housing market will spread to the broader economy.”

Here is a map of new construction and maintenance activity in the 10 largest metros:

(Source: BuildFax)

Article source: https://www.housingwire.com/articles/48454-this-housing-market-clue-predicts-pending-economic-slowdown

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