Here's everything the Fed is worried about right now

• Myles Udland
 

• Aug. 17, 2016, 2:38 PM
• 1,573

Flickr / Federal Reserve

The minutes from the Federal Reserve's July meeting just crossed the tape.

The big takeaway is that we are seeing yet more evidence that the Federal Open Market Committee is a house divided.

But the best part of the minutes is that, for all of the lack of specifics on who said what, the minutes provide a great overview of what Fed officials are thinking about the economy, what looks good, and what looks bad.

Here's the key passage from the section on the Fed's view of the current economic situation and the outlook that sums up what is top of mind when it comes to what Fed officials were worried about during the July meeting (line breaks and emphasis added):

"In the discussion of developments related to financial stability, it was noted that while the capital and liquidity positions of U.S. banks remained strong, European banks, particularly Italian banks, were under pressure--as evidenced by the sharp declines in their equity prices--from a weaker economic outlook for that region, thin interest margins, and concerns about the quality of their loan portfolios.

"In U.S. markets, overall financial vulnerabilities were judged to remain moderate, as nonfinancial debt had continued to increase roughly in line with nominal GDP and valuation pressures were not widespread. However, during the discussion, several participants commented on a few developments, including potential overvaluation in the market for CRE, the elevated level of equity values relative to expected earnings, and the incentives for investors to reach for yield in an environment of continued low interest rates.

"Regarding CRE, it was noted that the recent SLOOS reported that a significant fraction of banks tightened lending standards in the first and second quarters of the year and thatovervaluation did not appear to be widespread across markets.

"It was also pointed out that investors potentially were becoming more comfortable locking in current yields in an environment in which low interest rates were expected to persist, rather than engaging in the type of speculative behavior that could pose financial stability concerns."

Read the full text of the minutes here »

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Japanese exports drop in July on surging yen

• AFP

• 19h
• 167

Gloomy export figures for July come despite Japan logging a bigger-than-expected trade surplus as imports also dropped at their fastest rate since 2009 © AFP/File Toshifumi Kitamura

Tokyo (AFP) - Japan's exports in July suffered their sharpest monthly fall in seven years, data showed Thursday, as a surging yen clouds the country's trade picture, with shipments of cars, ships and steel all tumbling.

The gloomy export figures come despite Japan logging a bigger-than-expected trade surplus as imports also dropped at their fastest rate since 2009.

The finance ministry said the value of exports last month fell 14 percent from a year earlier, the 10th straight monthly fall, while imports dropped nearly 25 percent, leaving Japan with a trade surplus of 513 billion yen ($5.1 billion). 

That reversed a year-earlier deficit and was bigger than the 273.2 billion yen surplus expected by economists.

But Thursday's export data are the latest reminder that Tokyo's policy remedies for stoking growth in the world's number three economy have failed to gain traction.

Japan's economy stalled in the April-June quarter, separate GDP figures showed this week, confounding Tokyo's massive spending and monetary easing campaign.

The world's third-largest economy registered zero growth on-quarter, falling below economists' expectations for a modest 0.2 percent expansion, as weak exports and a fall in business spending dented activity.

Japan's major exporters have seen their bottom line dented by a sharp rally in the yen, which makes them less competitive overseas and shrinks the value of repatriated profits.

Wild volatility on global financial markets since the start of the year and Britain's shock vote to leave the European Union have stoked demand for Japan's currency, which is seen as a safe investment in times of turmoil.

"Movements in trade values continue to reflect the plunge in import and export prices over the past year," Marcel Thieliant from research house Capital Economics said in a commentary.

"This is mostly the result of the stronger exchange rate, as the majority of both imports and exports are invoiced in foreign currency rather than in yen. 

"By contrast, the drag from cheaper energy costs on import prices has started to fade."

The 2011 Fukushima nuclear disaster forced Japan to shut down its nuclear reactors and turn to pricey fossil fuels to plug the gap.

That sent energy import bills soaring and led to a string of trade deficits, but falling energy prices have eased the pain in the past year.

Japan's shipments to the United States, China and European Union all declined.

Among the declines last month, vehicle shipments fell 11.5 percent, but analysts said they may rebound.

"In the United States, cheaper gas prices and low interest rates... are boosting vehicle demand," said Junichi Makino from SMBC Nikko Securities.

"US new vehicle sales are likely to stay at a high level, which should put Japanese auto exports on a solid footing."

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It looks like Britain's jobs market is shrugging off Brexit

• Will Martin
 

• 7h
• 500
 
• 2
 

REUTERS/Kieran Doherty

The numbers of people claiming benefits in the UK surprisingly fell in July, with the claimant count dropping by 8,600 people in the month, against an expected rise of 9,500, according to the latest numbers released by the Office for National Statistics on Wednesday,suggesting that for the time being at least, the British jobs market is shrugging off the EU referendum result.

British unemployment also stayed at a record low in June, but a huge impact is still expected from the Brexit in the medium-term, with unemployment set to soar as high as 6.5%.

UK unemployment stood at 4.9% in the three month period up to June surveyed, the Office for National Statistics data showed.

That reading is unchanged from May's reading, when unemployment fell below 5% for the first time since 2005. Economists had largely forecast no change.

Employment in the UK also rose to a new high in June, hitting 74.5%, a record since records formally began in 1971.

Here's the chart:

Office for National Statistics

And here's the unemployment chart:

Office for National Statistics

While the headline figure remains impressive, it only takes into account roughly one week of post-referendum time. By contrast, the claimant count reflects the month of July, the first full month after the referendum.

As Pantheon Macroeconomics' chief UK economist Samuel Tombs noted on Tuesday, rising claimant counts and falling job vacancies have in the past been strong indicators of recession, saying (emphasis ours):

"Both the claimant count and vacancy data gave early warnings of the 2008 recession. They deteriorated in April, two months before the unemployment rate began to rise, as our first chart shows. What’s more, these data were released in May, five months before GDP data revealed that the economy had begun to contract, in Q3. Revised GDP figures show that the labour market data were correct to signal that the recession actually began in Q2."

Here's Tombs' chart illustrating his point:

Pantheon Macroeconomics

As a consequence, it seems that any economic impact from the referendum has yet to hit the UK's jobs market, which still remains remarkably buoyant. However, given the short period of time that has passed since the vote, it is clearly too early to jump to any conclusions.

In a post-release note, Pantheon points out that job vacancies fell in the month of July, pointing to a slowdown, although "not recession yet." Here's the quote and chart:

The 7K fall in the three-month average number of job vacancies between April and July is smaller than the 20K decline that would be consistent on past form with recession. Still, the vacancy measure is a three-month average, so it is not a “clean" post-referendum sample. We expect bigger declines in vacancies over the coming months.

Pantheon Macroeconomics

Since the Brexit vote, various economists and financial institutions have predicted that the UK's unemployment rate will shoot up as a result of the vote to leave. Credit Suisse, for example, predicts an increase to 6.5% for the base rate, equivalent to roughly 500,000 jobs being lost. 

In their July 13 note, reassuringly titled "Mayday! Mayday!" Credit Suisse's Boussie et al. also note that they expect rising unemployment to trigger a slackening of the "robust" consumer sector, which in turn could cause even more serious problems for the economy.

The Bank of England expects unemployment to rise to 5.5% once the full effects of the referendum are felt across the economy.

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DEUTSCHE BANK EXEC: We should waive our bonuses for a second year running

• Andreas Cremer, Reuters

• 10h
• 1,235

A logo of a branch of Germany's Deutsche Bank is seen in CologneThomson Reuters

BERLIN (Reuters) - Deutsche Bank's top management should waive executive bonuses for a second year if the lender's results remain poor, retail bank head Christian Sewing told Bild in comments published on Wednesday.

"What's clear is that if we don't pay our shareholders a dividend, then our own bonus must be put up for debate," the newspaper quoted Sewing as saying.

Germany's biggest lender has warned it may need deeper cost cuts to turn itself around after profit and revenue fell sharply in the second quarter amid challenging markets and low interest rates.

Deutsche Bank's top management earlier this year denied itself bonus payments for 2015.

The lender is standing by its plans to sell retail unit Postbank, although it is under no pressure to divest the division, Sewing added.

"The price must be right," the executive said. "We can wait."

Deutsche Bank said last year it wanted to sell Postbank, mainly to free up regulatory capital, but Chief Executive John Cryan acknowledged in May that a flotation would be challenging in the current capital market environment.

Sewing ruled out that the lender would impose penalty interest on private customers as the European Central Bank is keeping its main refinancing rate at 0 percent and the rate on bank overnight deposits in negative territory.

But many German banks will be forced to raise account maintenance charges, Sewing said, without being more specific.

Interest rates in the euro zone will remain low for at least three more years, he said, adding that rates may likely rebound to 1 percent or higher levels after that period.

Although Deutsche Bank showed a weaker reading last month in the European Union's banking stress test than most of its peers, the bank is completely stable, Sewing said.

"Our capital is sufficient and satisfactory," he said. "The question of a capital increase is not an issue at the moment." 

(Reporting by Andreas Cremer; Editing by Peter Cooney)

Read the original article on Reuters. Copyright 2016. Follow Reuters on Twitter.

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Barnes & Noble fires CEO Boire, board says not a 'good fit'

A woman looks in from a window panel of a Barnes & Noble store in New York October 24, 2012. REUTERS/Brendan McDermid

Barnes & Noble Inc said on Tuesday Chief Executive Ronald Boire would leave, after less than a year at the helm, as its board had decided he was not a "good fit" for the bookstore chain operator.

Executive Chairman Leonard Riggio would postpone his retirement and would assume Boire's duties, along with other executives, the company said.

Riggio, who is also the company's founder, was scheduled to retire in September following the annual shareholder meeting.

Barnes & Noble said its board had determined that "it was in the best interests of all parties for (Boire) to leave the company", but did not provide further details.

Barnes & Noble spokeswoman Mary Ellen Keating declined to comment beyond the company's statement.

Sales at Barnes & Noble, which operated 640 bookstores in the United States as of April 30, have been falling for the past two years due to rising competition from Amazon.com Inc.

Amazon's Kindle tablets and rich reading content have weighed on demand for Barnes & Noble's e-reader Nook.

Sales in the Nook business fell 20 percent in the fourth quarter ended April 30, as the company shut its Nook UK, app and video businesses.

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The company said on Tuesday it would continue to work on its strategic initiatives, which includes winding down its Nook business and expanding its product catalog to include hot-selling items such as adult coloring books, art supplies, music vinyls and toys.

Barnes & Noble said it would immediately start the search for a new CEO to replace Boire, who joined from Sears Canada Inc in September last year.

(Reporting by Ankit Ajmera and Anya George Tharakan in Bengaluru; Editing by Maju Samuel and Srir

Subprime credit card lending is making a big comeback

• Tina Wadhwa
 

• 12h
• 3,228
 
• 2
 

REUTERS/ Benoit Tessier

Subprime lending is making a comeback.

TransUnion's Q2 2016 Industry Insights Report, released on Tuesday August 16, found that 10 million new consumers have entered the credit card marketplace in the last year, bringing the overall total number of consumers with a balance on at least one credit card to 133 million.

Subprime borrowers, which TransUnion defines as those with credit scores below 660, have helped drive this increase, with subprime balances making up 11% of the total, up from 10.3% a year ago. 

Given total general purpose card balances stand at $662 billion, that means subprime borrowers have around $72.8 billion in credit card balances, up from $64.2 billion a year ago. 

Consumers with lower credit scores have also been building up their balances the most, according to the report, with balances in the subprime space rising nearly 14% in the last year. Those with better scores have actually been more actively deleveraging credit card balances and paying off debt. 

It is still early days in the subprime comeback, and a part of this rebound is a result of subprime accounts closing during the Great Recession. 

Nearly half of all credit card closures in 2010 and 2011 belonged to those with credit scores of 660 or less, and those consumers are reapplying for cards in the current market, according to a Liberty Street Economics blog at the Federal Reserve Bank of New York.

In addition, the subprime delinquency rate, at 11.65%, is relatively stable. 

“While more subprime consumers are receiving loans and their balances are rising, we do not see alarming delinquency levels," said Nidhi Verma, senior director of research and consulting in TransUnion’s financial services business unit.  

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It looks like Apple will release the iPhone 7 on September 23

• Antonio Villas-Boas
 

• 16h
• 14,550
 
• 3

You might be able to buy the iPhone 7 on September 23 if this leaked photo — spotted by9to5Mac supposedly showing this "reset hours" September calendar for AT&T stores — is to be believed.

9to5Mac

The website suggests that the reset hours could indicate times when AT&T begins advertising for iPhone 7 preorders on September 9, which lines up nicely with the rumors that Apple's fall iPhone event is going to take place on September 7. Apple tends to release its new iPhones roughly two weeks after it unveils them.

Since the September 23 date is the only scheduled reset after September 9, it looks like AT&T will sell the iPhone 7 in retail stores starting September 23.

If this leaked schedule from AT&T is legitimate, then it's likely that other carriers will also have the same dates lined up for the iPhone 7's preorders and release, but we have yet to see any "leaked" schedules from Verizon, T-Mobile, or Sprint.

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