Aurelia Butler

Europe needs to urgently overhaul rules holding back securitisation, a finance lobby group and former EU finance commissioner said, as fresh data shows the continent’s shrinking market for bundling loans contracted by a further 7 per cent last year.The EU and UK are both considering reforms to the securitisation market, which was all but blacklisted by European policymakers after it was blamed for stoking the 2007-08 financial crisis by exaggerating the safety of products that packaged inherently risky loans. In a joint appeal, the Association for Financial Markets in Europe and Lord Jonathan Hill said the continued penal treatment of securitisations by EU and UK financial regulators was starving the region of much-needed financing for their economies. AFME highlighted the 6.7 per cent fall last year in the volume of outstanding securitisations in the EU and UK which, together with previous falls, means the combined market has shrunk by 12.5 per cent since 2014. In contrast, the outstanding volume of US securitisations grew by 38.1 per cent from 2014 to 2021, the latest data available. “It is 15 years since the great financial crash, yet it still seems to dominate our thinking,” Hill, who served as commissioner for financial stability, financial services and capital markets from 2014 to 2016, will tell a global securitisation conference in Barcelona next week, referring to Europe’s attitude to its use. “The biggest risk we face today is lack of growth, but we pursue regulatory approaches that make growth more difficult,” Hill added, in remarks released on Tuesday. “We need to be honest about the trade-offs involved and ask ourselves whether we have struck the right balance, particularly when our international competitors are striking that balance in a different, more growth-friendly place.” EU leaders and lawmakers will be asked later this year to approve an amendment on securitisation that was added to the bloc’s omnibus financial services legislation, a package primarily designed to give legal status to the latest iteration of global banking rules. The amendment, originally proposed by French MEP Gilles Boyer, is designed to make it easier for banks and insurers to invest in securitisations and to reduce costs. However, the finance industry is pushing for broader reform. The UK parliament, meanwhile, is also reviewing its securitisation rules. AFME research to be presented at the conference also shows how small the EU and UK’s securitisation markets are relative to their economies. The EU issued securitisations equal to just 0.3 per cent of gross domestic product in 2022, AFME said, while the UK’s issuance was 0.9 per cent of GDP. The US’s was 1.4 per cent in 2022. “Europe’s securitisation market remains depressed while other large global capital markets reap the economic rewards of this financing tool,” AFME chief executive Adam Farkas will tell the conference. “At a time when inflation continues to rise, monetary policy is tightening and capital becomes increasingly scarce, now is the time to address this gap.”Europe’s financing needs are “unprecedented, especially in light of recent economic shocks and the green and digital transitions”, he will add. “Banks can help finance economic growth through freeing up their balance sheets to facilitate lending through securitisation. Securitisation is a fundamental bridge to channel liquidity from the capital markets to the real economy in both the EU and the UK.” More

ISLAMABAD (Reuters) -Pakistan has proposed a GDP growth target of 3.5% with a 21% inflation projection in estimates for its budget for the 2023-24 financial year, an official source told Reuters on Tuesday.Prime Minister Shehbaz Sharif’s government is set to present the annual budget on Friday, at a time when the South Asian country faces its worst economic crisis with months of delay in securing funding from the International Monetary Fund (IMF).Pakistan, which is also in political turmoil, has been caught up for months in an acute balance of payments crisis, with its central bank’s foreign exchange reserves dipping to as low as to cover hardly a month of controlled imports. The numbers have been shared in meetings ahead of the budget announcement, which could see changes in reviews in the lead-up to the presentation by Finance Minister Ishaq Dar in parliament, the source added.The total outlay of the budget, or total spending, is expected to be 14.5 trillion Pakistani rupees ($50.70 billion), said the source who is privy to the budget planning exercise. He added that the proposals also included a fiscal deficit target of 7.7% of GDP and a revenue collection target of 9.2 trillion Pakistani rupees ($32.17 billion).Sharif is chairing a meeting of the National Economic Council on Tuesday to review the numbers, his office said in a statement. The budget is being keenly watched as the government is caught between a painful fiscal adjustment reforms agenda set by the IMF, and to make room for any relief to the people ahead of a national election scheduled in early November. For the outgoing fiscal year 2022-23, which ends on June 30, the country’s GDP growth fell to 0.29% against last year’s annual budget target of 5%, and a revised projection of 2% by the central bank.Inflation posted at 38% in May is the highest in Asia. The IMF’s $1.1 billion funding, stalled since November, is critical for Pakistan to unlock other bilateral and multilateral financing to avert a debt default. ($1 = 286.0000 Pakistani rupees) More

SYDNEY (Reuters) -Australia’s central bank on Tuesday raised interest rates by a quarter-point to an 11-year high, and warned that further tightening may be required to ensure that inflation returns to target.The hawkish message sent the local dollar surging and bond yields spiking, as markets quickly moved to price in an above even chance of a further rate increase next month.Wrapping up its June policy meeting, the Reserve Bank of Australia (RBA) hiked the cash rate to 4.1%, saying inflation is still too high and removed a reference that stated “medium-term inflation expectations remain well anchored,” which had been in policy statements since July last year. “We think the Bank is no longer as confident as it was before on the trajectory of medium-term inflation expectations given that it dropped the sentence,” said TD Securities’ Asia-Pacific rates strategist Prashant Newnaha.”The omission of this sentence reads hawkish in our view and may spell further rate hikes ahead from the RBA.”The Australian dollar jumped 0.8% to $0.6667, the highest in 2-1/2 weeks after the policy statement, while three-year government bond yields advanced 12 basis points to 3.660%, the highest since February. Markets have also moved to price in a 60% chance of another hike in July. Adam Boyton, head of Australian economics at ANZ, expects the RBA to raise interest rates by another quarter-point in August. “The Bank could well move ahead of that… Risks are likely skewed toward the RBA needing to move more than just once more,” said Boyton. In the policy statement, Lowe said the latest rate increase will “provide greater confidence that inflation will return to target within a reasonable timeframe.” “The Board remains alert to the risk that expectations of ongoing high inflation contribute to larger increases in both prices and wages, especially given the limited spare capacity in the economy and the still very low rate of unemployment.”INFLATION CHALLENGEMarkets had been leaning towards a pause, although they had priced in a sizeable 40% chance that the RBA would hike by 25 basis points. Many economists had seen the June meeting outcome as a tight call. [AU/INT] The RBA has increased interest rates by a whopping 400 basis points since May last year, the most aggressive tightening cycle in its modern history. It had surprised markets by hiking again in May after pausing for just a month to assess its earlier tightening.Global policymakers are grappling with still-high inflation despite sharp increases in borrowing costs over the past 12-18 months, with some already pausing and others set to do so as their economies teeter on the brink of recessions.The Federal Reserve is expected to end a run of 10 straight rate increases next week while leaving the door open to a future rise in borrowing costs. RECESSION RISKSThe RBA currently forecasts headline inflation – which was running at 7% last quarter – to return to the top of its target range of 2-3% by mid-2025, a slower path than many other economies as Lowe wants to preserve strong gains in the labour market.The economy has started to show signs of slowing, but inflation for April surprised on the upside and a large bump to minimum wages led many economists to predict higher rates for longer. Australia will report the first-quarter gross domestic product figures on Wednesday, which is expected to show growth slowed to 0.3% from the previous quarter when the economy expanded by 0.5%.On Tuesday, Lowe acknowledged the risks of a more pronounced downturn in the economy, saying the path to “achieving a soft landing remains a narrow one”, as the RBA walks a tight policy rope between tamping down on price pressures and keeping the economy growing at a steady pace.”As the RBA takes rates higher, the risk of a greater slowing in the economy is rising,” said Tapas Strickland, head of market economics at NAB. More

This could encourage Chinese firms, especially exporters, to settle foreign exchange receipts in yuan, which has weakened to six-month lows against the dollar. The buoyant U.S. currency and the Federal Reserve’s interest rate hikes have prompted many Chinese companies to hoard dollar receipts. Interest rates offered by the Chinese banks on dollar deposits of $50,000 and above would now be capped at 4.3%, the people, who declined to be named as they were not authorised to speak to the media, told Reuters. The change came into effect on Tuesday, they said, adding the new rates the big banks can offer is set to be lowered by as much as 100 basis points from the previous ceiling of 5.3%.Disappointing economic data, widening yield differentials with the United States, upcoming corporate dividend payments and continued capital outflows through foreign selling of stocks and bonds have combined to pile pressure on the yuan.The yuan has lost more than 6% against the dollar since highs hit in January, when China reopened its borders, making it one of the worst performing Asian currencies this year. It last traded at 7.1199 per dollar. [CNY/]China’s central bank said last month it would resolutely curb large fluctuations in the exchange rate and study the strengthening of self-regulation of dollar deposits.A widening interest rate gap between the world’s two largest economies had fuelled a so-called carry trade, where investors borrow in a low-yielding currency to fund purchases of the other high-yielding one in order to make a profit.”Subsequent carry trade will have to bear higher FX risks, and the move (to lower the cap on dollar deposit rates) could be considered as an official counter-cyclical measure,” a yuan trader said of the move.China’s central bank has so far appeared calm after the yuan breached the psychologically important 7 per dollar level in May. But analysts and traders believed the People’s Bank of China (PBOC) would roll out policy measures if the pace and the size of the losses made it uncomfortable.The PBOC did not immediately respond to a request for comment.During previous rounds of depreciation, the central bank has sent verbal messages against one-way bets on the yuan. It has also used a ‘counter-cyclical factor’ to price the yuan’s daily guidance rate to lessen possible “herd effects” in the market and adjusted its FX risk reserve ratio to defend the yuan. More

NEW YORK (Reuters) – Subway reached an agreement with a master franchisee to open nearly 4,000 new sandwich shops across mainland China over the next 20 years, it said on Tuesday.International expansion is a key growth strategy for the privately owned U.S.-based chain, which is in the midst of a turnaround plan that also relies on remodeled restaurants, updated menus and a splashy marketing campaign.While it seeks to expand overseas, the company has been closing thousands of U.S. locations amid a host of problems including over-expansion and discounts that eroded franchisees’ profits.Even so, Subway’s global comparable sales rose 12.1% in the first quarter.Other companies are also beefing up their presence in China, including Starbucks (NASDAQ:SBUX), which plans to open 3,000 new stores there by 2025.Subway’s deal with master franchisee Shanghai Fu-Rui-Shi Corporate Development Co Ltd (FRS) is the largest such agreement in Subway’s history. FRS is funded by a consortium of private investors including Asia Investment Capital.FRS will get exclusive rights to manage and develop all Subway locations in China. The 4,000 new restaurants would be a seven-fold increase in Subway’s current footprint there.”China is a key market with significant long-term growth opportunity, and we look forward to bringing the Subway experience to even more guests in the region,” Subway Chief Executive John Chidsey said in a statement. More