From Jens Meyer:
Did the RBA just signal the end of rate cuts and no-one noticed?
Well, not exactly no-one. Goldman Sachs chief economist Tim Toohey reckons the speech RBA assistant governor Chris Kent delivered on Tuesday amounts to an explicit shift to a neutral policy stance.
Dr Kent spoke about how the economy has been doing since the mining boom, and in particular how its performance matched the RBA’s expectations.
Reflecting on the RBA’s forecasts of recent years, Dr Kent essentially framed the RBA’s earlier rate cut logic around an initial larger than expected decline in mining capital expenditure and subsequent larger than expected decline in the terms of trade, Mr Toohey said.
Having so closely linked the RBA’s easing cycle to the weakness in the terms of trade (and earlier decline in mining investment), Dr Kent’s key remark was to flag “the abatement of those two substantial headwinds” and highlight that this “would be a marked change from recent years”….
Source: Did the RBA just signal the end of rate cuts and no-one noticed?
Goldman Sachs has cut its long-term crude oil forecasts:
The inflection phase of the oil market continues to deliver its share of surprises, with low prices driving disruptions in Nigeria, higher output in Iran and better demand. With each of these shifts significant in magnitude, the oil market has gone from nearing storage saturation to being in deficit much earlier than we expected and we are pulling forward our price forecast, with 2Q/2H16 WTI now $45/bbl and $50/bbl. However, we expect that the return of some of these outages as well as higher Iran and Iraq production will more than offset lingering issues in Nigeria and our higher demand forecast. As a result, we now forecast a more gradual decline in inventories in 2H than previously and a return into surplus in 1Q17, with low-cost production continuing to grow in the New Oil Order. This leads us to lower our 2017 forecast with prices in 1Q17 at $45/bbl and only reaching $60/bbl by 4Q2017.
But these forecasts are premised on a Chinese recovery:
Stronger vehicle sales, activity and a bigger harvest are leading us to raise our Indian and Russia demand forecasts for the year. And while we are reducing our US and EU forecasts on the combination of weaker activity and higher prices than previously assumed, we are raising our China demand forecasts to reflect the expected support from the recent transient stimulus. Net, our 2016 oil demand growth forecast is now 1.4 mb/d, up from 1.2 mb/d previously. Our bias for strong demand growth since October 2014 leaves us seeing risks to this forecast as skewed to the upside although lesser fuel and crude burn for power generation in Brazil, Japan and likely Saudi are large headwinds this year.
While production growth continues to surprise:
…..This expectation for a return into surplus in 1Q17 is not dependent on a sharp price recovery beyond the $45-$55/bbl trading range that we now expect in 2016. First, it reflects our view that low-cost producers will continue to drive production growth in the New Oil Order – with growth driven by Saudi Arabia, Kuwait, Iran, the UAE and Russia. Second, non-OPEC producers had mostly budgeted such price levels and there remains a pipeline of already sanctioned non-OPEC projects. In fact, we see risks to our production forecasts as skewed to the upside as we remain conservative on Saudi’s ineluctable ramp up and Iran’s recovery.
We expect continued growth in low-cost producer output
Saudi Arabia, Kuwait, UAE, Iraq, Iran (crude) and Russia (oil) production (kb/d)
Tyler Durden has a more bearish view:
While there is much more in the full note, the bottom line is simple: near-term disruptions have led to a premature bounce in the price of oil, however as millions more in oil barrels come online (and as Chinese demand fades contrary to what Goldman believes), the next leg in oil will not be higher, but flat or lower, in what increasingly is shaping up to be a rerun of the summer of 2015.
Source: Goldman Cuts 2017 Oil Price Forecast Due To Slower Market Rebalancing | Zero Hedge
Goldman Sachs (GS), last of bank heavyweights to release their first-quarter (Q1) 2016 earnings, reported a 55 percent fall in diluted earnings per share ($2.71) compared to the first quarter of last year ($6.05).
Net revenues dropped 40%, primarily due to a sharp 53% fall in Market Making and a 23% fall in Investment Banking. A 29% cut in non-interest expenses was insufficient to compensate.
Basel III Tier 1 Capital (CET1) decreased slightly to 12.2% (Q1 2015: 12.4%) of risk-weighted assets, while Leverage (SLR) improved to 6.0% (Q1 2015: 5.9%).
The dividend was held at 65 cents (Q1 2015: 65 cents), increasing the payout ratio to a still modest 18%.
We have had six heavyweights, JPM, BAC, WFC, C, MS and GS all report declining earnings per share. Most had cut non-interest expenses but insufficient to compensate for falling revenues and rising provisions for credit losses. The results reflect a tough environment.
GS is in a primary down-trend, having broken primary support at $170. Long-term Momentum below zero confirms. Expect a rally to test resistance and the descending trendline at $170 to $175 but respect is likely and would warn of another test of primary support at $140. Breach would offer a target of $110*.
* Target calculation: 140 – ( 170 – 140 ) = 110
David Reilly reports on the Fed’s latest stress tests:
The passes show how far big U.S. banks have come since the financial crisis. But capital levels seen under the tests, and taking into account the capital-return plans, weren’t especially strong. Tier 1 common ratios for J.P. Morgan and Goldman, for example, were only marginally above the 5% minimum needed.
What’s more, leverage ratios including capital returns are particularly thin: Of the six biggest banks, four had ratios below 5%. While above the test’s 3% minimum, such levels wouldn’t give banks tremendous room to maneuver in a crisis.
The leverage ratios are particularly telling because they don’t allow for risk-weighting of assets. That approach is coming under increased criticism for potentially allowing banks to mask the true level of risk on their books.
Read more at HEARD ON THE STREET: J.P. Morgan, Goldman Get a Dose of Fed's Reserve – WSJ.com.
Barry Ritholz quotes Adam Parker at Morgan Stanley:
….88% of the S&P500 earnings growth for 2012 came from just 10 firms.
Makes you question whether earnings are sustainable — especially when the four biggest are Apple, AIG, Goldman Sachs, and Bank of America.
via 4 Companies Provided Half of SPX 2012 Earnings Growth | The Big Picture.
By REED ALBERGOTTI
After a year-long investigation, the Justice Department said Thursday that it will not bring charges against Goldman Sachs Group Inc. or any of its employees for financial fraud related to the mortgage crisis.
In a statement released Thursday, the Justice Department said “the burden of proof” couldn’t be met to prosecute Goldman criminally based on claims made in an extensive report prepared by a U.S. Senate panel that investigated the financial crisis.
via U.S. Won’t Pursue Goldman Charges – WSJ.com.
Question is: Should GS be allowed to get away with it? Can they be broken up? Are their other measures that could serve as a deterrent in the future?
Moody’s Investors Service dealt a fresh blow to the financial sector, downgrading more than a dozen global banks to reflect declining profitability in an industry being rocked by soft economic growth, tougher regulations and nervous investors. The move hit five of the six biggest U.S. banks by assets, including Morgan Stanley, which had mounted a campaign to persuade Moody’s not to cut its rating by three notches. It was downgraded instead by two.
…it also cut the ratings of giant European banks with substantial trading operations, including Deutsche Bank AG, Barclays PLC and HSBC Holdings PLC.
via Moody’s Downgrades Morgan Stanley, Other Banks – WSJ.com.
Greg Smith: I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.
Greg Smith is resigning today [March 14th] as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.
via Why I Am Leaving Goldman Sachs – NYTimes.com.
Since a significant chunk of the big banks’ profits – especially that of Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) – come from various forms of proprietary trading, the Volcker Rule stands to cost the industry billions in revenue.
To prevent cheating, complex compliance rules will require that banks prove that all their trading activities are for clients’ benefit, and not proprietary. Compliance alone is expected to tack on another $2 billion in costs.
via Big Banks Are About to Get Blasted by the Volcker Rule :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website.