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Trudeau Tightens Up Mortgages After Macklem Sounds Housing Alarm

(Bloomberg) -- Canadian officials escalated efforts to cool the nation’s booming housing market, moving ahead with tighter mortgage qualification rules after the central bank issued a fresh warning against buyers taking on too much debt.Prime Minister Justin Trudeau’s government set a new benchmark interest rate on Thursday afternoon to determine whether people can qualify for mortgages that are insured by Canada’s housing agency. The move matches an April decision by the nation’s banking regulator to do the same for uninsured mortgages.The regulator -- the Office of the Superintendent of Financial Institutions -- announced earlier Thursday it would implement its new rules June 1.Those steps coincided with a stern warning from Bank of Canada Governor Tiff Macklem in the morning cautioning that Canadians should neither assume interest rates will remain at historic lows nor expect recent sharp gains in home prices to continue.“It is vitally important that homeownership remain within reach for Canadians,” Finance Minister Chrystia Freeland said in a statement.The moves come amid a surge in housing prices that’s raising concern among policy makers and economists. Cheap mortgages and new remote-working conditions have spurred a frenzy of demand for more spacious homes, with house hunters bidding up prices across the country.Canadians are so alarmed by the red-hot housing that nearly half the respondents in a Nanos Research Group poll for Bloomberg News say they’d like to see the Bank of Canada raise borrowing costs to curb demand for real estate and stabilize prices.Still, the measures announced Thursday are seen as incremental steps rather than representing a fundamental shift in policy.With the changes, home buyers will have to show they can afford a minimum rate of 5.25%. The current threshold, based on posted rates of Canada’s six largest lenders, is 4.79%. Economists have been estimating the tighter qualification restrictions would reduce the buying power of households by about 5%.The changes will have little impact on current housing price dynamics, according to Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce.“This is not a game changer by any stretch of the imagination and it was highly expected,” Tal said by phone from Toronto.The measures from the government and the regulator came only hours after the Bank of Canada released its annual financial stability report, which highlighted the growing vulnerabilities associated with overleveraged households and speculative housing activity. It flagged three urban markets -- Toronto, Hamilton and Montreal -- as showing excess “exuberance,” with the national capital of Ottawa on the cusp of crossing that threshold.‘Not Normal”At a press conference, Macklem said some people have taken on “significantly” more debt, with many carrying very large mortgages relative to income. Borrowers and lenders need to understand that interest rates won’t always be at historic lows, and home buyers won’t be able to rely on rising values, he said.“It is important to understand that the recent rapid increases in home prices are not normal,” Macklem said. “Counting on ever higher house prices to build home equity that can be used to refinance mortgages in the future is a bad idea.”Outside of the warnings Thursday, it’s not clear how much the central bank can do to cool the market.Growing household vulnerabilities could give policy makers more reason to consider raising borrowing costs, for example, but higher rates would also inflate risks -- such as slow growth or a price correction. Macklem’s next interest-rate decision is due June 9 and the Bank of Canada has said it won’t consider raising its 0.25% benchmark rate until he economy is recovers fully from the Covid-19 pandemic.The Bank of Canada’s financial system review did find that Canada’s lenders could absorb a significant amount of losses in the case of another shock. The central bank said household debt and housing market vulnerabilities probably don’t pose a significant systemic threat to bank solvency, even though they could undermine future growth.“We have to look at the whole economy,” Macklem said at the press conference. “There are important parts of the economy that remain very weak, and the economy needs our support.”(Updates with context throughout.)More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.


Huarong Bond Losses Spread Onshore, Risking Downward Spiral

(Bloomberg) -- Concern over China Huarong Asset Management Co.’s financial health is deepening among domestic investors, threatening to worsen a selloff offshore.The firm’s thinly traded 19 billion yuan note due 2022 fell 12% to 70.2 yuan on Thursday, according to Bloomberg-compiled data, while its 3.54% domestic bond maturing in November dropped 24% to 75.3 yuan, both on pace for record lows. The company’s dollar bonds also declined, with a 3.75% bond due 2022 falling 5.5 cents on the dollar to 73.6 cents, its weakest level in more than a month. Its 4.5% perpetual dollar note was on track to close at a record low of around 53 cents in U.S. hours, Bloomberg-compiled prices show.Huarong’s domestic bonds had held up better than its dollar notes since the start of April as speculation grew over a possible debt restructuring at the company. The risk now is that a loss of confidence among mainland investors may reinforce nervousness offshore, creating a downward spiral. Several of China Huarong’s dollar notes are trading near their lows reached during the depths of the initial selloff last month.“Many factors could be involved in China Huarong’s debt resolution and it will take time for any proposal to be finalized,” said Li Gen, chief executive officer of Beijing BG Capital Management Ltd. “Although Huarong could get some liquidity support from banks, it’s still unclear whether bonds will be repaid at a discount in the long term.”There’s been little clarity from authorities over the distressed debt manager’s future in recent days, despite conflicting media reports about whether the central government will allow the company to default. Failure to repay its debts would upend the long-held expectation by investors that Beijing will support companies owned by the central government. That’s helping to fuel volatility in the bonds.Right now, the risk of a broader fallout in China’s credit market is low. Spreads on the nation’s domestic, lower-rated corporate bonds over comparable government notes are at about their lowest in two months, while yield premiums on offshore investment-grade bonds have improved since hitting a nine-month high at the height of the panic, Bloomberg-compiled data show.While this is positive for Beijing’s efforts to create better market discipline without triggering financial turmoil, some analysts have said the lack of market contagion could embolden authorities to limit support for the company.Caixin Media’s WeNews reported on May 12 that authorities had urged Huarong to solve its issues on its own. The New York Times said on Tuesday China’s government is “strongly committed” to making sure both foreign and domestic bondholders don’t receive full repayment of their principal.Huarong has been repaying its maturing bonds on time and said it had seen no change in government support. The company has the equivalent of about $2.83 billion in offshore and onshore bonds coming due through August, including a dollar note that matures Thursday, data compiled by Bloomberg show.A unit of the firm, China Huarong International Holdings Ltd., said it has wired funds for principal and interest payment on a $300 million bond due May 20, according to a company statement Thursday. The firm was profitable in the January-April period, it added.The financial giant owes domestic and international bondholders the equivalent of about $41 billion, following an ill-fated expansion under former Chairman Lai Xiaomin, who was executed for crimes including bribery in January. Huarong is majority owned by China’s Ministry of Finance and is deeply intertwined with the nation’s $54 trillion financial industry.(Updates with U.S. dollar bond trading in second paragraph.)More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.


Will bankers embrace sensors under their desks when they return to work?

Technology that has swept the world for convenience, curiosity, and accountability is arriving at workstations of U.S. bank employees, as they prepare to return to offices in coming months because of the pandemic easing, industry sources and outside vendors said. Banks including JPMorgan Chase & Co, Goldman Sachs Group Inc, Citigroup, Deutsche Bank AG and HSBC Holdings PLC plan to have workers commute to buildings in New York and other U.S. cities as soon as this month, after more than a year of largely work-from-home situations. In some buildings, that could mean cameras that monitor a room's occupancy level and even sensors that tell building management whether someone is sitting at a desk.


US STOCKS-U.S. stocks end mixed as Dow extends recovery after strong economic data

The Dow Jones Industrial Average rose with the help of Boeing, which jumped as industry sources said the planemaker has drawn up preliminary plans to increase in 737 MAX output to as many as 42 jets a month in fall 2022.. Banks, including Goldman Sachs and JP Morgan , also lifted the Dow. On S&P 500, economy-linked financials and energy are providing the biggest boost.


Municipal Market Sales Slacken, Raising Supply Alarms

(Bloomberg) -- State and local governments, helped by the arrival of federal stimulus money, are in no rush to issue debt as they wait for Congress to consider sending them infrastructure funding.Municipal bond issuers are anticipated to sell $7.3 billion in bonds over the next month, the lowest visible supply mark since late March and well below the average pace of about $10 billion this year, according to data compiled by Bloomberg. The 30-day supply projection usually accounts for about half of what is actually sold, since deals can be priced with less than a month’s notice.The drop in visible supply comes at a time of year where issuance has been historically strong. A combination of an economic rebound and the $350 billion American Rescue Plan, of which $105.3 billion has already been disbursed, has left the nation’s municipalities less dependent on borrowing, said Barclays Plc municipal strategist Mikhail Foux.“Going into the year a lot of people were thinking municipalities would have to issue bonds to fund deficits. The economic recovery was stronger than people believed,” Foux said. “Clearly we’re not going to have that much issuance over the course of the summer.”Issuers may also be waiting for federal infrastructure plans, which could serve as the catalyst for billions of dollars of debt sales. This week, Democrats in both the House and Senate advocated for leaning on the state and local government debt market in any infrastructure package and the revival of a technique to refinance debt that was rolled back during the Trump administration.For now, the lull in sales has yet to scare off participants in a muni market that has become historically expensive by some metrics. Money has continued to pour into the market unabated, with investors adding an additional $725 million to municipal-focused mutual funds, marking the 11th straight week of inflows.Those funds have been sitting on more cash than ever before, perhaps waiting for the right time to deploy. The 10 biggest mutual fund families all have higher cash holdings than 2016 levels, with some holding nearly 10% more, according to Barclays. If there’s rate volatility during the summer it could be an opportunity to put that money to work, Foux said.“If rates move higher, munis will outperform somewhat,” Foux said. “Everyone understands valuations and how rich they are and people don’t want to chase at current levels.”More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.


Factbox-Five things to know about Epic's epic legal fight with Apple

Apple Inc Chief Executive Tim Cook takes the witness stand on Friday to defend the lucrative App Store against "Fortnite" maker Epic Games' allegations that it is a monopoly that Apple illegally abuses. After years of complaints about Apple by app companies like music service Spotify Technology, Epic sued the most valuable U.S. public company for allegedly using its dominance to rake in bigger profits. Epic has waged a public relations and legal campaign, arguing that Apple acts anticompetitively by only allowing apps it approves on the world's 1 billion iPhones and by forcing developers to use Apple's in-app payment system, which charges commissions of up to 30% on sales.

Bitcoin Is Sliding Again as Threats of Regulation Mount

FEATURE Bitcoin’s slide resumed on Friday as it tumbled to $37,400, down 10% from early morning prices around $41,400. The threat of stiffer government regulation is mounting, causing a new round of price jitters, with a statement from Chinese Vice Premier Liu being blamed for Friday’s tumble.

FX Empire

Major Forces Behind Bitcoin’s Worst Losses Since 2013

The dramatic sell-offs in the past few days in the crypto market was catalysed by a flurry of negative macros, coming from Elon Musk to reports that China was excluding crypto from its financial system, yet recent reports revealed that Crypto exchanges largely contributed to the seismic price swings sighted on Wednesday.


Bitcoin bros mock Paul Krugman for comparing the crypto craze to ‘a natural Ponzi scheme’

The self-described “crypto skeptic” writes that while he often uses Venmo to split checks and buy groceries, and the PayPal-owned PYPL peer-to-peer payment service launched when bitcoin (BTCUSD) did in 2009, he still hasn’t seen bitcoin, Dogecoin (DOGEUSD) or other digital tokens become as readily adopted for daily transactions by the masses. “This may sound to you like a speculative bubble, or maybe a Ponzi scheme.” Krugman says that all long-running Ponzi schemes need a narrative, which crypto has in spades.


McDonald's is sued for $10 billion for alleged bias against Black-owned media

McDonald's Corp was sued on Thursday for at least $10 billion by two companies owned by media entrepreneur Byron Allen, who accused the fast-food chain of racial discrimination for not advertising enough with Black-owned media outlets. The complaint filed in Los Angeles County Superior Court said McDonald's violated federal and state civil rights laws through its "racial animus and racial stereotyping" in allocating ad dollars.


China's industrial commodities slide after Beijing warns of market crackdown

Prices of key steelmaking ingredients iron ore and coking coal, as well as steel products such as rebar and hot-rolled coil, all dropped more than 5% as traders offloaded supplies and speculators placed short-sided bets that Beijing's measures will trigger a further pullback in metals markets. China's cabinet announced on Wednesday that it will strengthen management of commodity supply and demand to curb "unreasonable" prices and investigate behaviour that bids up commodity costs, spooking China's hoards of metal traders. "Some of the measures could have an immediate impact on the supply demand balance, for example if the government decides to release some state reserve into the market," said Wood Mackenzie senior economist Yanting Zhou.

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