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Bank of England’s Brexit-Induced Rate Cut: Is It Enough?
European stocks are rising, government bond yields falling, and the pound weakening after the Bank of England cut interest rates, and in a surprise move to many, restarted bond purchases. All this in a bid to ease the economic hit from Brexit.
The central bank cut its main rate by a quarter percentage point to a record low 0.25%, its first rate change since March 2009 It also said it would buy 60 billion pounds of government debt, along with 10 billion pounds of high-grade corporate debt.
The rate cut was widely expected but the other measures came as a shock to many forecasters, but not if you read our Wednesday Situs Newswatch. If you did you would have been in the know: “We expect a 0.25% cut to the bank lending rate making it 0.25%,” said Situs Managing Director Chip Good. “Plus other measures to increase credit availability to the U.K. economy.”
The European Central Bank has been buying government bonds since March 25 in a bid to lift euro zone inflation and growth.
Situs CEO Steve Powel is hopeful but cautions, “Unless the U.K. spurs economic growth, there will continue to be a domino effect across Europe. At some point all of Europe could be affected.”
The pound has declined 11% against the dollar since the UK opted for Brexit. Many from outside the UK see this as a buying opportunity for high value commercial real estate.
“Despite the usual summer holiday slowdown and Brexit, there remains CRE activity both in the UK and on the Continent,” said Good. “Possibly a result of the expected rate decrease and its contribution to improving market certainty.”
For Europe’s Elite the Party Lives On After Brexit
Europe’s political elite may have missed the Brexit memo.
Six weeks since U.K. voters rebuked the ruling class by choosing to leave the European Union, the region’s establishment has reacted by carrying on as before.
The revolving door of former policy makers joining the finance industry has spun again, with European Commission President Jose Manuel Barroso signing up with Goldman Sachs Group Inc. and former Bank of England Governor Mervyn King joining Citigroup Inc. Meanwhile departed Prime Minister David Cameron is facing criticism for nominating numerous aides for honors, including his wife’s stylist.
The perception of elite coziness risks further disenfranchising those backing Brexit, and peers across the continent who share the feeling of being left behind by the powerful and wealthy in the era of globalization and financial crises. A potential upshot is more support for populist parties that tap into alienation such as the U.K. Independence Party or France’s National Front.
Brexit Blamed for Fall in Crowdfunding Deals
Crowdfunding platforms have experienced a slowdown in deal flow for the first time in five years, in a sign that “armchair investors” are taking a more cautious approach to alternative investments.
However, the number of investments offered online fell 17 per cent in the first half of 2016, compared with levels seen in the last half of 2015, according to research company Beauhurst. The fall follows 10 consecutive half years of growth in terms of the number of deals offered to investors.
Beauhurst’s head of research Pedro Madeira said the slowdown in crowdfunding was “particularly noteworthy”.
Beauhurst’s data also show that venture capital and private equity firms slowed investment into UK start-ups and high-growth companies in the same period.
Bruce Davis, spokesman for the UK Crowdfunding Association (UKCFA), the trade body of crowdfunding platforms, said the dip in deals offered was just “a pause”. The UKCFA said it was confident deal numbers would begin to grow again.
Jobs Beat “Expert’ Forecasts
Leading up to the all-important U.S. Jobs report, due this morning (Friday), ADP reports
Private-sector employers added 179,000 jobs in July after a revised 176,000 job gains in the prior month.
Economists had expected a July gain of 165,000, compared with an originally reported increase of 172,000 in June.
Economists use ADP’s data to get a feeling for the Labor Department’s employment report, which covers government jobs in addition to the private sector.
Economists polled by MarketWatch expect the government’s report to show that nonfarm-employment rose by 185,000 last month compared with the strong June gain of 287,000 jobs.
ADP has shown steady job growth while the government data has been volatile.
The strong nonfarm-payrolls report in June followed a gain n May that was cut to a paltry 11,000.
HSBC Climbs on $2.5 Billion Stock Buyback Plan
HSBC shares rose the most since April after it announced a $2.5 billion stock buyback for this year and said it plans more share repurchases while keeping its dividend at the current level for the foreseeable future.
Chief Executive Officer Stuart Gulliver is returning half the equity freed up from selling the bank’s Brazil unit, with the rest boosting the firm’s capital ratio to 12.8 percent. That outweighed concerns about profitability, as pretax earnings fell 45 percent to $3.61 billion from a year earlier, and the bank removed a target of surpassing a 10 percent return on equity by the end of next year.
“There is absolutely an intention to be in a position to do further buybacks,” using capital no longer needed by its shrinking U.S. operations, Finance Director Iain Mackay said on a conference call with analysts. The Federal Reserve approved the firm’s U.S. unit returning “substantial” capital to the parent company next year, which “could lead to another buyback,” he said.
Goldman Sachs Fined $36 Million by Fed Over Leaked Documents
Goldman Sachs Group Inc. agreed to pay $36.3 million over allegations that former employees obtained confidential documents from the Federal Reserve in a settlement that requires the bank to beef up its policies to prevent another lapse.
The Fed is also pursuing a fine and a permanent banking ban against a former Goldman Sachs managing director, Joseph Jiampietro, over his unauthorized use and disclosure of Fed secrets, according to a statement Wednesday from the agency. The Fed said Goldman Sachs’ employees used confidential supervisory information in presentations to clients to try to solicit business.
Atlantic City’s Trump Taj Mahal to Close Amid Labor Strife
Atlantic City’s Trump Taj Mahal casino will close at the end of the Labor Day weekend amid labor strife stirred by the last in a series of bankruptcies for the former gambling empire of Donald Trump.
The Republican presidential nominee hasn’t been involved in the management of the casino for years, but his name remains on the facade of the boardwalk property, which is owned by billionaire Carl Icahn.
Represented by Unite Here Local 54, some 1,000 Trump Taj Mahal workers went on strike July 1, asking for the restoration of health-care benefits lost in the company’s most recent bankruptcy.
In a statement, Tony Rodio, president and chief executive of Tropicana Entertainment Inc., which is also controlled by Icahn, blamed striking workers for the demise of the Taj.
UnderWater in the Desert
Michael Hutchings bet it all when he built his 3,300-square-foot dream home on a strip of rock-strewn desert gazing west toward the Las Vegas Strip. He had made a fortune building custom homes as Vegas boomed higher and higher, and for his own, he chose red Spanish tiles, wrought iron and silky white plaster. A guesthouse? Sure. Swimming pool? Of course.
That was 2006. You know what happened next. Today, more than eight years after the housing crash, Mr. Hutchings, 49, owes about $800,000 on a property that has not recovered its value from the bubble days. As neighbors lost their homes to foreclosure, he started to hear gunshots and see stray dogs roaming the streets here around Sunrise Mountain. A drug dealer moved in down the block. Over the protests of his wife, Terrisa, Mr. Hutchings now stashes an unloaded shotgun in the bedroom closet and a handgun in the kitchen cabinets, tucked beside the glassware.
He could walk away from his mortgage and lose the $580,000 he has paid, or he can keep pouring his savings into the same hole. It is a mess with no good choices, he said, just like the presidential election. He will vote Republican, but Clinton or Trump — either way, it feels like a losing wager, he said.
Have a great weekend, kick-back and enjoy watching the Olympics!
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