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BofA CEO says leveraged-loan stress could ripple through economy –



Bank of America Corp., which tops the league table for U.S. leveraged-loan issuance, is watching that market closely for signs of stress.

“The real concern is: Is there too much leverage in the system in certain companies, and if they have trouble, will that impact the economy?” Chief Executive Officer Brian Moynihan said in a Bloomberg Television interview. “We get concerned about that because it usually reverberates back” to banks.

The Charlotte, North Carolina-based lender manages that risk by focusing on debt-underwriting terms, client selection and diversifying its loan book, Moynihan said. In June, he warned that potential “carnage” could ensue in the market that his bank has dominated for a decade.

Bank of America’s market share in U.S. leveraged-loan issuance has remained broadly stable at nearly 11%, even as issuance fell 33% on year. That comes at a time when commentators such as Fitch Ratings have flagged more loans of concern and the potential for an uptick in defaults going forward.

Direct lenders such as hedge funds and buyout firms are snatching business away from syndicated-debt players. Alternative asset managers have made inroads into the US$1.2 trillion leveraged-loan market by often offering speedier financing and more comprehensive structures than the public markets.

As private credit shops have also amassed massive amounts of capital — with US$296 billion of dry powder globally, according to London-based research firm Preqin — they’ve been able to finance larger and larger deals.

“For a given deal that they might do a structure, that might be a competitor, but they’re major clients of ours too,” Moynihan said. “On a given deal they may do a tranche of financing that we’d have done, but typically they’re doing a different tranche, honestly, and so we’re more focused on the shorter-term revolvers.”

Here are other takeaways from the interview:

  • Moynihan is pleased with the bank’s trading performance, alongside its efforts to revamp the investment bank.
  • The company plans to boost its ranks of relationship managers by 2%-3%.
  • He’s still optimistic about the U.S. economy, driven by strong consumer spending and a robust labor market.

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Why stock markets are up 44% amid the worst economic contraction in history –



The economy is in a ditch, and millions of Canadian workers still find themselves unemployed or underemployed compared with where things were before COVID-19. And still the stock market is posting some record gains.

You can’t blame anyone who throws their hands in the air and asks: Just what on earth is going on?

“It’s surprising how quickly they came back,” Robert Kavcic, senior economist at the Bank of Montreal, said of the markets. 

In March stocks crashed. They fell so steep and so far that many assumed it would take years to rebound. In the end, the stock market recovery took just 150 days. Since it bottomed out on March 23 of this year, the broadest marker of the U.S. stock market — the S&P 500 — is up 44 per cent

So, what gives?

It’s always important to remember that the stock market is not the economy. Stocks are meant to reflect the future value of a given company’s stock, not the state of Main Street today.

Kavcic said the sharp rise in equities shows how the pandemic has hit different sizes of businesses in different ways. For the most part, the big fish are doing OK, but the little ones are hurting.

Technology stocks that primarily trade on the Nasdaq have been on a tear during the pandemic, as demand for digital services has boomed from milllions of people being locked down in their homes for months on end. (Michael Nagle/Bloomberg)

“If you look where most of the economic damage was, it was and still is in smaller businesses and Main Street-type businesses that don’t necessarily trade on the equity market,” Kavcic said. “You don’t have a hair salon or a restaurant trading on the Nasdaq.” 

And yet, he said, digital companies like Netflix and Cisco and Microsoft have fared incredibly well. And those are the companies driving stock market gains. 

The suffering is happening among small and medium-sized businesses, which make up 70 per cent of private-sector employment in Canada. They are most exposed to a lockdown at least in part because they have the least cushion to weather bad times.

Companies in the digital sphere have prospered throughout the lockdown.

By almost every measure, we live in a digital world. The stock market is just reflecting that.

Marc Benioff, CEO of cloud computing company Salesforce, said the world has turned digital.

“We’re in a new digital world. An all digital world,” he said in an appearance on CNBC. “We are now in this new digital future, and we need to rebuild our companies and our organizations.”

Benioff didn’t mention the stock market. But he didn’t have to. Salesforce stock is up 74 per cent in the past six months.

Low rates fuelling the stock market fire

The other major factor driving equity gains is the sheer volume of cheap money out there.

Philip Petursson, chief investment strategist and head of capital markets research at Manulife Investment Management, said the world has never seen fiscal and monetary support like it’s seeing now.

“As of the end of July, global central banks had cut interest rates 164 times in 147 days and committed $8.5 trillion US in stimulus,” he said in a note to clients.

Petursson said investors were so sure stocks would remain low for a long time that they pulled staggering amounts of money out of markets. The Canadian mutual fund industry had its worst month ever in March, he said, with more than $14 billion Cdn in net redemptions — that’s people pulling their money out.

Investors pulled huge amounts of money out of the markets when the pandemic hit. The Canadian mutual fund industry had its worst month ever in March, with more than $14 billion Cdn in net redemptions. In the U.S., investors pulled $326 billion US from mutual funds and ETFs. (Cole Burston/Bloomberg)

“South of the border, investors pulled $326 billion US from mutual funds and ETFs, more than three times the $104 billion US in outflow in October 2008 during the Great Financial Crisis,” Petursson wrote.

But stock markets have a way of confounding even the best experts.

U.S. election volatility

And if you thought the wild ride was coming to an end, hold onto your hat.

The U.S. presidential election looms as the next major event on the volatility calendar.

No one knows what will happen on Nov. 3. And markets hate uncertainty. We also don’t really know how markets will react if either President Donald Trump, a Republican, or Democratic candidate Joe Biden wins.

When Donald Trump, right, won the 2016 U.S. presidential election, it was assumed to be bad news for stocks, but instead they continued their multi-year bull run. Regardless of whether Joe Biden, left, or Trump wins this November’s race, expect more of the unexpected on the markets. (Carlos Barria, Leah Millis/Reuters)

Kavcic said markets had it very wrong the last time, in 2016.

“Everyone thought Trump was negative for equities on election night, and it turned out to be the opposite,” he said.

Adding to this year’s uncertainty, there’s now a real possibility that the Democrats could sweep election night — winning the presidency and control of the House of Representatives and Senate.

Many Wall Street types have expressed concern that would lead to dramatic change, such as tax hikes that would hurt growth and slow markets.

But Frances Donald, managing director and chief economist at Manulife, said that may not be the case.

“While the popular perception is that a Democratic sweep would be broadly market negative,” she said in a report published this month, “we’d caution that we believe such fears are likely exaggerated.”

Donald said 2021 will be another “exceptionally challenging” year for the economy, with high levels of unemployment and an ongoing health crisis.

This year started out as another bull run for stock markets, but in March stocks crashed as the COVID-19 pandemic took hold of the economy. Many assumed it would take years for the market to rebound, but the recovery took just 150 days. (Mark Lennihan/The Associated Press)

“It isn’t likely to be an environment that can plausibly absorb higher tax rates on either the corporate or individual level,” she wrote. “Rather, it will be an environment that necessitates large-scale, continuous stimulus.”

That’s music to the ears of investors who are driven by hopes of further fiscal and monetary support.

Expect the unexpected

One final note of weirdness.

Stock markets have begun to show some jitters this week.

The S&P, the Dow Jones and the Nasdaq all fell sharply on Monday.

Some of that has been an overstretching of valuations of those tech companies that have performed so well since the pandemic struck.

But Kavcic has another theory.

He said traditionally, equity markets reflect a bet on what will happen in the future. So maybe some of the spring’s bull run was a reflection of how much things would improve over the summer.

“And maybe what we’re seeing today is reflective of what we’re going to see in the winter, which might be a rolling back of the economy again at least in some parts,” he said.

Winter, as they used to say, is coming. It will bring a whole host of unknowns and challenges. Whether the cold months to come will bring investors an icy chill or warm glow from fiery markets is anyone’s guess, but one thing is for certain: Even in the worst economic crisis since the Great Depression, hope springs eternal.

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Euro zone firms continue to load up on credit as economy reopens: ECB data –



FRANKFURT (Reuters) – Euro zone companies continued to load up on bank credit in August, European Central Bank data showed on Friday, two months after most economies had eased restrictions on economic activity aimed at controlling the coronavirus pandemic.

Bank loans to firms rose by 7.1% year on year, extending a borrowing boom that started in March when large parts of the euro zone’s economy came to a standstill and entrepreneurs were forced to draw from their credit lines to pay their bills.

(Reporting By Francesco Canepa; Editing by Toby Chopra)

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Pandemic's impact to influence economy, social order for long time, forum told – Assiniboia Times



BANFF, Alta. — The COVID-19 pandemic is fundamentally changing the way the world’s economic and social orders function and some of those effects will be permanent, speakers at the Global Business Forum in Banff said on Thursday.

In a series of online sessions broadcast to a ballroom at the Banff Springs Hotel with just three people per table to prevent spread of the disease, subject experts from around the world said the virus has accelerated and amplified trends they were already seeing, as well as taking a few surprising turns.

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The pandemic has drawn attention to food security and that stands to boost a technological revolution in agriculture in Canada, said Murad Al-Katib, CEO of Saskatchewan food processing giant AGT Food and Ingredients Inc.

The expansion of plant protein crops such as peas, lentils, and other legumes in Prairie fields has boosted productivity of the industry, and processing those crops into value-added products will continue to grow, he said, while calling on government to help that process.

“Governments are paying attention now. COVID has everyone spooked,” he said.

“COVID wasn’t a slap in the face, it was a punch in the nose for governments to recognize that they can’t just leave food and food systems entirely to fragmented private sector imports and distribution.”

South of the border, meanwhile, recent civil unrest and violence has been escalated by a pandemic that has disproportionately hurt poorer families and Black people, while adding greatly to the fortunes of the richest Americans, said Trevor Noren, executive director of New York analytics firm 13D.

He said COVID-19 is “gasoline for a fire that had already been lit” that could accelerate generational change in ways that historically have been caused by wars.

“We believe COVID could prove to be that catalyst today, the event that forces a reckoning with the inefficiencies and vulnerabilities of excessively concentrated wealth and power,” he said.

“It will mean a backlash against the three primary forces that have driven consolidation: globalization, digitization and financialization.”

World oil demand has recovered to about 90 million barrels per day and that’s less than the 100 million bpd that existed before the COVID-19 slump, but it doesn’t mean the world has reached “peak oil,” said Michael Tran, managing director and energy strategist for RBC in New York.

“With COVID comes the idea of slower mobility, the demise of travel, we’re all working from home, this has really altered how we think about oil demand, but in my experience, acute events that impact oil demand have a shorter term impact than (government) policy shifts do,” he said.

He said events like the 9-11 attacks sharply affected oil demand, but it was short-term, while former president Barack Obama’s fuel efficiency standards had a more lasting affect.

Demand in the developed world peaked long ago, he added, but oil demand in the developing world is expected to continue to grow.

Cross-border trade between Canada and the United States has remained strong despite restrictions on in-person travel, said Kirsten Hillman, Canada’s ambassador to the U.S., adding she expects the partners’ traditional ties to recover fully when those restrictions are lifted.

She said the recent decision by the U.S. to withdraw threatened tariffs on aluminum shows that the new U.S.-Canada-Mexico trade agreement is working as a defence against protectionism.

The pandemic first erupted in China and that’s where it is expected to begin to meet its end, said Jeongmin Seong, a partner with McKinsey Global Institute in Shanghai, in a presentation.

Dealing with the pandemic forced the country, already an earlier adopter of digitization, to take it in new directions such as using remote communication in health care, real estate and education, and many of those applications will continue, he said.

He added Chinese business leaders have become more focused on its domestic customers and less interested in developing markets with the rest of the world, while Chinese consumers have become more financially prudent and more debt averse.

This report by The Canadian Press was first published Sept. 24, 2020.

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