Some hedge funds struggled this year, but they would be in a far worse position had they not correctly called the flattening yield curve and the US dollar's rise, Jamie McGeever writes. The trend appears set to continue as hedge funds remain long on the dollar against a basket of currencies, while they maintain their position that the gap in yields between two- and 10-year Treasury bonds will flatten.
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Pessimism among retail investors is at the highest level since April 2013, according to a survey by the American Association of Individual Investors. The survey finds 48.9% of respondents expect the S&P 500 to be negative in mid-2019, 18.4 percentage points higher than the result last week.
A poll of 60 economists shows an almost unanimous expectation that the Federal Reserve will announce an interest-rate increase this month. But a significant number of respondents expect only two further increases in 2019, instead of the three that were widely predicted in a similar survey in November.
Global systemically important banks had a different composition of exposure as measured under the leverage ratio through 2017, with derivatives and repo accounting for less exposure at Japanese and eurozone G-SIBs than at US, UK and Swiss G-SIBs.
Benchmarks indicate China's trade dispute with the US is damaging the Chinese economy. Industrial output had the smallest gain in almost three years last month, while retail sales increased at the slowest pace since 2003, according to the National Bureau of Statistics.
Investors are exiting raw material commodities because of slowing growth, trade tensions and a strong US dollar, analysts say. The Bloomberg Commodity Index has dropped more than 6% this year, and EPFR Global data show investors have withdrawn more than $11 billion from commodity funds during the past six months.
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The US government's budget deficit stood at $305 billion in October and November, the first two months of fiscal 2019, compared with $202 billion in the same period a year earlier, according to Treasury Department figures. A shift in the timing of some payments and lower receipts from individual taxpayers due to the tax cuts earlier in the year are cited as factors contributing to the increase.
If stress tests of US and EU clearinghouses are to identify consequences of bank and clearinghouse collapses for the financial system, they must include more jurisdictions, banks and risk scenarios and must be performed more frequently, according to a Federal Reserve working paper. Clearinghouse testing by US and EU regulators "is in its infancy," the paper says.
The IRS is giving foreign banks that do business in the US broad flexibility in the way they calculate what they owe under the Base Erosion and Anti-Abuse Tax, which was designed to prevent companies from shifting profits to offshore jurisdictions. The BEAT tax will apply only to a portion of foreign banks' profits.
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SIFMA's Economic Advisory Roundtable forecasted that the US economy will grow by 2.9% in 2018 and by 2.6% in 2019, unchanged from its mid-year predictions. All but one chief economist predicted the FOMC would raise rates in December, while for 2019 respondents continued to be divided in their predictions for rate hikes, although the most oft-cited prediction was for two rate hikes. "The current outlook for 2019 is steady with a forecast of 2.6% growth," said Michael Feroli, chief U.S. economist, J.P. Morgan, and chairman of SIFMA's Economic Advisory Roundtable. "Trade policy and monetary policy were both important considerations in the forecast, with the latter generally expected to remain on a path of gradual tightening."