China Slowdown

China’s economic activity contracted further in November amid a record Covid outbreak, with growth likely to remain weak and the central bank expected to add more stimulus to bolster the recovery. The International Monetary Fund may have to trim its forecast for China’s economic growth as Covid-19 related restrictions and difficulties in the property sector weigh on prospects, its chief said.

British Banks

The UK government will relax the ring-fencing of banks as part of efforts to deregulate the City of London and get a “Big Bang” out of Brexit, according to a person familiar with Treasury plans. Ring-fencing requires banking groups to separate their retail banking services from their investment and international banking activities. It was part of the government’s response to the global financial crisis in 2008 and was aimed at protecting UK retail banking from shocks emanating from elsewhere. 

Debt Burden

Banks in the US and Europe with around $42 billion of buyout debt stuck on their balance sheets are making the most of their last chance to get rid of it this year. Stabilization in the leveraged loan and high yield bond markets has led to an opening for deals as banks try to reduce debt on their balance sheets before the holidays. Offloading the so-called hung debt, even at steep discounts, confines losses to this financial year while also appeasing risk departments and regulators.

Return to Normal 

Federal Reserve Bank of St. Louis President James Bullard repeated his call for additional interest-rate hikes to a level that will restrict economic growth, which he said sets the stage for a return to more ordinary monetary policy in 2023. “The policy rate has not yet reached a level that could be considered sufficiently restrictive,” Bullard said in an article posted online Tuesday, saying estimates show a rate of at least 4.9% would be needed.

Coming up

European stocks are headed for gains as investors weigh China’s Covid policy and await a speech from Fed Chair Jerome Powell. German Chancellor Olaf Scholz and Norway’s Prime Minister Jonas Gahr Store participate in a conference. Italy GDP and CPI, inflation numbers also across France to Portugal are among expected data. Salesforce unveils earnings, and is tipped to post its slowest sales growth ever as its customers delay software purchases. RBC, CPI Property Group and Allegro also report.

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(Source: Bloomberg, Nov. 30-2022)