Connect with us

The U.S. high-yield index has widened 115 basis points and investment grade 30 basis points over the last month, leading many to ask whether these credit bonds are the real canary in the coalmine for global markets.

One catalyst for the underperformance in the investment grade space has been the acceleration of rating downgrades at the upper end of the capital structure. According to Goldman Sachs analyst Lotfi Karoui: “$90 billion worth of bonds have migrated into ‘BBB’ territory (from A); this is the highest amount since the fourth quarter of 2015.” A triple-B bond is rated one notch above junk so investors get a high return to something that’s perceived to be quite a risky investment.

The risk is for further negative actions especially as, according to Deutsche Bank research, ‘BBB’ bonds constitute about 60 percent of the overall U.S. investment grade market.

A continual downgrade drift would exert pressure on lower parts of the capital structure and could eventually increase the size of the high-yield bond market — a cohort that has also been struggling this year as interest rates have gone up.

The high-yield market also continues to exhibit a higher risk factor to oil prices and that has had a big impact on that market. According to the Goldman Sachs report, almost a quarter of the gross issuance in these bond markets this year has been in energy-related industries (albeit a large chunk has gone into refinancing and debt repayments) and constitutes about 16 percent of the outstanding market.

As the price of oil has slumped 30 percent since October, downside risks for high yield have increased especially as the oil plunge in 2014 elicited a wave of defaults in the energy sector and subsequently in the high yield market. This time around though, the breakeven level for many of these high-yield shale companies appears to be about $20 lower than it was back in 2014 to 2016, at around $51 per barrel, according to Goldman analysts.

Any further drop in the oil price from here would be a worrying development — credit investors are hence also keeping a close eye on the OPEC meeting.

Source link

World

An expansive Ford, VW alliance could echo across global auto industry

Published

on

How much more is now the central question, but in conversations with senior Ford and VW executives they do little to hide the likelihood that the answer will be “lots.” About the only thing off the table, said an executive with frequent C-suite access, is any sort of cross-equity swap.

Along with the possible collaborations on vans and other commercial vehicles, the talks now have expanded to include:

  • The sharing of assembly plants in the U.S. and other markets;
  • The possibility of combining marketing and distribution operations that would leverage each company’s strengths. Ford could play lead in the U.S., for one thing, while VW would be dominant in Europe and China, both markets where the American carmaker is struggling;
  • They may work jointly on products in other segments. While VW has been struggling to expand its presence in the booming light truck market, that’s one of Ford’s real strengths;
  • Perhaps the most far-reaching collaboration would see Ford and Volkswagen partner up on the development of autonomous and electrified vehicles.

Right now, autonomous and fully driverless vehicles remain largely the stuff of science fiction but the technology is expected to begin playing a major role in the transportation world within a decade. A study released late in 2017 by the Boston Consulting Group forecast nearly a third of the miles Americans clock on the road each year could be in fully driverless vehicles operated by ride-sharing services such as Lyft and Uber by 2030.

Those vehicles are also expected to be powered by electric drivetrains. Collectively, hybrids, plug-ins and pure battery-electric vehicles captured barely 4 percent of the U.S. market in 2017, but that has begun to surge, particularly in China, which has enacted strict new regulations promoting zero-emissions vehicles.

Ford’s focus on new technology is underscored by its repositioning as a “mobility company,” rather than an automotive manufacturer. The Dearborn, Michigan-based company was an early player in electrification but is playing catch-up now when it comes to longer-range models capable of challenging the likes of Tesla. Volkswagen, however, is going flat out.

Its Audi brand recently debuted the e-tron SUV that will be the automaker’s first Tesla fighter. A second all-electric Audi, the e-tron GT debuted at this month’s Los Angeles Auto Show. The all-electric Porsche Taycan follows next year, as does the first long-range battery electric vehicle (BEV) under the new sub-brand Volkswagen I.D. The second I.D. model, reports Reuters, will start as low as $23,000, sharply undercutting the Tesla Model 3. There’s an all-electric reincarnation of the legendary VW Microbus, to be called the I.D. Buzz, coming, as well. All-told, the dozen VW retail brands will have close to 50 battery-electric vehicles by mid-decade.

Source link

Continue Reading

World

Trump announces John Kelly to depart White House by year’s end

Published

on

John Kelly is expected to depart his role as White House Chief of Staff by the end of the year, President Donald Trump said on Saturday, ending a tenure marked by tensions with his boss and confrontations with other key administration figures.

The president announced the news on the front lawn on the White House, following days of swirling speculation around the retired Marine Corps general’s exit for months amid disagreements with Trump. Nevertheless, in his brief remarks to reporters, Trump called Kelly “a great guy” and that he appreciated his service.

“We’ll be announcing who will be taking John’s place” over the next day or two, Trump said, en route to the annual Army-Navy football game. Vice President Mike Pence’s chief of staff, Nick Ayers, is reportedly among the candidates who could succeed Kelly.

Kelly has increasingly clashed with both national security officials and first lady Melania Trump, NBC reported last month. Trump has reportedly shown frustration with Kelly during the chief of staff’s tenure.

Kelly’s departure follows several months of controversy and turmoil. He reportedly told staff that he would stay in the job until at least 2020.

It also comes at a time when Trump faces increasing pressure over high-stakes trade talks with China, an economy showing signs of shakiness for the first time in his administration, and the special counsel’s investigation into potential ties between the Trump campaign and Russia.

The president will also have to contend with a divided Congress, as Democrats are slated to take over the House in January. Kelly isn’t known as a political operator.

Kelly succeeded Reince Priebus, the former head of the Republican Party. The president’s chaotic management style made the job particularly difficult for both men. Kelly’s disciplined management.

Source link

Continue Reading

World

China’s real endgame in the trade war runs through Europe

Published

on

Some call it political warfare, using a nonmilitary toolbox of overt and covert means to exert its influence on political and economic elites, academia and public opinion. With these efforts, it weakens Western unity (and US attraction) and improves its image as an alternative to liberal democracy, the report concluded.

Growing Sino-US tensions have brought Europe new export chances in China but at the same time China has shifted considerable export and foreign investment efforts to Europe to replace lost American markets. In the first six months of this year, newly announced Chinese mergers and acquisitions into Europe were nine-fold the North America number at $20 billion compared to $2.5 billion and completed investments were six times higher at $12 billion compare to $2 billion.

At the same time, a new Trump-Xi trade deal could shake Europe as well, as China’s state driven economy could decide overnight to replace European products with US goods for political purposes.

The potential for an escalated Beijing-US struggle has left European experts scratching their heads over how they would choose sides or navigate the perils, particularly in the case where some countries and industries have much more at stake in China.

Some European officials speak of the need for “strategic autonomy” in the face of US sanctions extraterritorial reach on Iran and Secretary of State Mike Pompeo’s speech in Brussels this week where he questioned multilateralism and the European Union. At the same time, they worry more about what some call China’s “political warfare” of gathering economic, financial and thus also diplomatic influence.

The European Union hasn’t yet applied anything as restrictive on foreign investment as the US Committee on Foreign Investment in the United States (CFIUS), an interagency committee that reviews the impact of foreign investments on US national security. However, the EU this month passed a bill creating an unprecedented, if non-binding, screening scheme aimed at predatory Chinese investments.

Germans this week increased their focus on questions regarding a company called KUKA Robotics, which has become the poster child for the perils of high tech sales to the Chinese. With its industrial robotics production, KUKA was one of the nation’s greatest innovators for the 21st century economy until it was taken over by the Chinese company Midea in 2016.

Just last month, Midea was reversing previous assurances that it would not remove KUKA’s highly respected and long-time CEO, underscoring China’s ultimate control over cutting-edge robotics technology.

Despite facing new scrutiny, China is undeterred in its European strategy, taking advantage of European divisions, America’s trade strains with Europe and the urgent investment needs of particularly Southern and Eastern European countries.

Source link

Continue Reading

Trending