Economy

Most mortgages have terms of five years or less, compared with the 30-year term that is the norm in the United States.It is common practice to switch lenders in search of improved interest rates but without changing the amount or repayment schedule – a so-called straight switch.From Nov. 21, borrowers will no longer need to prove their income meets the Minimum Qualifying Rate when seeking a straight switch.The change will increase lender options for borrowers who have to renew at interest rates higher than those prevalent during the lower interest rate environment of recent years. More

Yellen, in excerpts of remarks to be delivered at a Treasury markets conference in New York, said reforms instituted after the 2007-2009 financial crisis have helped the system weather turbulence including the pandemic and more recent regional bank difficulties.”Work to build and maintain a resilient financial system is never over. We’ll never be able to just declare victory,” Yellen said in the remarks to the conference hosted by the Federal Reserve Bank of New York.”A resilient financial system is critical to a strong economy. And strengthening it requires insisting on thoughtful regulation, including in the face of challenges from those who advocate to roll back policies and regulations,” she added.Yellen said that when she took office in January 2021, she worked to rebuild the government’s focus on financial stability to ensure a system that could serve households and businesses and support prosperity.This included a focus on safe and sound financial institutions, financial market utilities, central clearing counterparties and protections for investors and consumers.This framework helped enable Treasury to take steps to protect the banking system from contagion in the spring of 2023 after the failure of Silicon Valley Bank and Signature Bank (OTC:SBNY), Yellen said.”At home, there were some who strongly opposed the Dodd-Frank Act, arguing that its regulation would hold back innovation and economic growth,” Yellen said, referring to the 2010 financial reform law. “I and many others have insisted on the opposite. Appropriate regulation is critical to supporting a resilient financial system that serves as an engine for innovation and growth.”Warnings that Dodd Frank would leave the U.S. banking sector uncompetitive failed to be realized while higher-quality capital required by the law allowed banks to extend credit to households and businesses that needed it during the pandemic, Yellen said. More

Speaking during a campaign event on Sept. 24, Trump threatened to slap 100% tariffs on every car coming into the US from Mexico, adding that he would reward US-based manufacturers with research and development tax credits. Earlier this week, the former president also said he would hit agricultural equipment maker John Deere (NYSE:DE) with a 200% levy on its imports into the US should the firm go ahead with plans to shift production to Mexico.Trump has previously vowed to impose a blanket tariff of 10% to 20% on almost all US imports, including a 60% import tax on items coming in from China.Trump has argued that such moves would help lift US manufacturing activity. Recent polling suggests that a majority of likely voters back the proposal and believe Trump would be a better steward for the economy than his Democratic rival Kamala Harris, Reuters reported.But economists have warned that the tariffs could refuel waning inflationary pressures.In a note to clients on Thursday, the Wolfe Research analysts said that, despite the potential downsides posed by the stance, tariffs have “increasingly become the answer to every question for the Trump campaign.””He has doubled down on his main tariff proposals and pointed to them as his solution for boosting domestic manufacturing, lowering the US deficit, subsidizing childcare costs, stopping de-dollarization, and deterring wars,” they wrote.Meanwhile, Harris also laid out more details of her economic agenda this week in an 82-page booklet. Among the proposals, the vice president, who has called Trump’s tariffs plans a “sales tax” on American households, offered to provide tax incentives to domestic businesses to keep their operations in the US.The Biden administration, however, has recently instituted its own tariffs and hiked import duties on certain Chinese goods. Harris has not explicitly said if she would extend these policies, but her campaign’s website says she “will not tolerate unfair trade practices from China or any competitor that undermines American workers.”When analyzing the two economic plans, the Wolfe Research analysts noted the “fundamental asymmetry of the 2025 policy outlook.” In their projections, Republicans are likely to gain control of the US Congress, which would make it easier for Trump to pass his proposals and harder for Harris to carry out hers.”This is clearest on tariffs, where Trump plans to rely on existing presidential authorities,” the Wolfe analysts said. “So incremental signals on how serious Trump is about tariffs are meaningful for markets, but investors probably won’t need to worry about the details of Harris’ tax plans.”(Reuters contributed reporting.) More

HONG KONG (Reuters) – As China steps up efforts to stabilise its economy with fresh stimulus, the country’s top banks would need to be capitalised at the earliest to help them boost lending to revive faltering growth and manage asset quality strains, analysts said.Chinese banks’ profitability, which has already been under pressure due to the economic slowdown and the property sector crisis, is set to take another hit by a further reduction in mortgage rates announced on Tuesday. While the top banks are likely to lower their deposit rates to cushion the impact on their margins, analysts say they would need fresh capital injection to offset growing asset quality woes and, potentially, bail out the smaller peers.China’s big state-owned banks are generally tapped to rescue the struggling small and mid-sized lenders, many of whom reel from lower capital buffers, poor asset quality, and fewer sources of raising fresh capital. China’s four biggest banks, including Agricultural Bank of China (OTC:ACGBF) and Bank of China, needed 738 billion yuan ($105 billion) of total loss-absorption capacity (TLAC) capital as of end-June, as per S&P Global Ratings.Bloomberg News reported on Thursday China was considering injecting up to 1 trillion yuan ($142.39 billion) of capital into its biggest state banks to increase their capacity to support the struggling economy.The funding will mainly come from the issuance of special sovereign bonds, it said, in what would be the first time that authorities have capitalised the Chinese banks since the global financial crisis. “It (capital injection size) depends on what condition the regulators want the banking system to reach. If sticking to the bottom line of preventing systematic financial risks, the work could be focused on small and medium banks, because big banks for now have sufficient capital,” said Xiaoxi Zhang, China finance analyst at Gavekal Dragonomics.”If regulators are looking to digest the bad loans accumulated in recent years in the banking system, much more capital injection will be needed to reset the balance sheets of the banks.”Top Chinese lenders have been struggling with their falling net interest margins (NIM), shrinking profits, and rising bad loans amid slowing growth in the world’s second-largest economy and a protracted property sector crisis. Four of China’s five largest lenders reported lower second-quarter profit after responding to a government nudge to lower lending rates to stimulate extremely weak loan demand from households and businesses.The People’s Bank of China (PBOC) and the National Financial Regulatory Administration (NFRA), the country’s banking sector regulator, did not immediately respond to a Reuters request for comment.PROFITABILITY PRESSUREIn Tuesday’s broad policy stimulus measures unveiled by Beijing, it also announced a 50-basis-point reduction on average interest rates for existing mortgages and a cut in the minimum downpayment requirement.While most analysts expect the banks to lower their deposit interest rates to cushion the impact on their profitability, the lenders are still expected to take a hit on their net interest margins, which has already dropped to the lowest on record.The net impact of the rate cuts on NIM will be around 3 basis points for 2025, according to JPMorgan research note.The central bank said on Tuesday that the impact of the “rate adjustment plan” on banks’ income will be neutral, while NIMs of banks will remain largely stable due to cut in banks’ borrowing costs and the repricing of deposit rates.China would lower the reserve requirement ratio and implement “forceful” interest rate cuts, according to an official readout of a monthly meeting of top Communist Party officials, the politburo, released on Thursday. “The policy combo is positive to the banking sector in the near term … and we estimate the net impact of (the) rate cut is only less than 3% on earnings,” JPMorgan analysts wrote in a research note on Wednesday.However, investors could book profits on some state bank shares now and revisit them when more clarity emerges on capital infusion, it said, as “there may be concerns on rising national service risk and questions on medium-term profitability.”The outstanding value of individual mortgages stood at 37.79 billion yuan ($5.31 billion) at the end of June, down 2.1% year-on-year, according to the central bank data. That accounted for about 15% of banks’ total loan books, the data showed.”Authorities will prioritize riskier institutions for capital injections and balance sheet cleanup,” said Ming Tan, director at S&P Global Ratings, adding regulators are expected to encourage the stronger banks to absorb weaker players.($1 = 7.0246 Chinese yuan renminbi) More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is Head of Pictet Research InstituteUS Treasuries have rallied strongly in recent months as investors look towards interest cuts. Yields on the benchmark 10-year note have dropped around a percentage point since April with prices moving inversely higher.But that strong rally has still not allayed longer-term worries among some investors about this cornerstone asset for financial markets — mainly questions about the rising debt burden of the US and whether geopolitical tensions will see some foreign investors scale back purchases of Treasuries.Washington cannot simply run up budget deficits indefinitely and some investors have grown jittery ahead of US elections, worried that neither candidate for the presidency has a convincing plan to address the sustainability of the US federal debt, which reached 124 per cent of GDP in 2023 and is projected to grow to 129 per cent by 2033. By 2028, interest expenses will represent over 60 per cent of the US federal deficit. Therefore, a possible tipping point for US debt sustainability could occur when additional borrowing is required mainly to cover interest servicing costs.The wrong US foreign policy could also undermine confidence. The sustainability of US debt depends — until Washington balances its books — on the country’s ability to maintain its privileged position in the global financial system. In addition, it requires that the rest of the world both create sufficient surpluses and be willing to then transfer them to the US through the purchase of financial assets.Countries like China will continue to find it difficult to find alternative places to park their huge surpluses. But geopolitical fragmentation and increased demands in the rest of the world for domestic investments — in infrastructure and green energy — still threaten to diminish the surpluses available for funnelling into US markets. This raises the stakes for the strength and stability of US international alliances, which support its central role in the world economic order.Washington cannot afford to alienate too many countries in the short- to medium-term when it needs foreign capital to fund its debts, even if it intends to balance the budget in the medium to longer term and reduce its reliance on foreign capital to fund its deficits.Already, US foreign and economic policies are out of kilter. Faced with a frosty US trade stance, China has forged closer ties with emerging markets, creating a loose trading bloc that is increasingly conducting transactions in non-dollar currencies. This eats away at the dollar’s dominance — an issue that risks growing more serious if other trading partners lose trust in the US.For now, however, such concerns are outweighed by the unique financial status of the US — part of what former French president Valerie Giscard d’Estaing famously called the “exorbitant privilege” accorded to the country.Under this equilibrium, the rest of the world owns 28 per cent of US gross debt and 40 per cent of US public and private equities. This system is effectively the “glue” that sustains the current financial system. The rest of the world is invested across the capital structure of USA Inc, and would have a lot to lose should the system come unstuck. This gives the official sector in the rest of the world a major incentive to hold the existing system together, or at least to reduce its US dependency slowly.Political tensions may make some foreigners sceptical about investing further in US markets but the country’s investment proposition is unmatched. Its leadership in innovation translates into highly attractive equity returns that act as reassurance for debt investors of the country’s tax-raising capacity. Markets are likely to remain vigilant about public debt, experiencing episodes of volatility, elevated yield levels and higher exchange rate movements. But against the broader backdrop, any weakness in US Treasuries may present buying opportunities. The outcome of the US elections in November will not fundamentally alter the existing equilibrium or the US capacity to be a producer of safe assets. And despite longer-term concerns, the US remains an investment beacon. The US knows its rivalry with China is existential and that to retain its privileged position it needs to remain a leader in innovation. It is doing that with its semiconductor investments dwarfing rivals. Such dynamism helps the US generate superior equity returns, making it a safer borrower and securing Treasuries’ haven status — for now, at least. More