In this briefing:
- Asian Bank Asset Quality: “One Overdue, Two Bad” 一逾两呆 The Complex Journey of the NPL
- RBA’s Debelle Strikes Optimistic Tone; Remains Lazor Focused on the State of the Labour Market
- Wynn’s Whale Of A Deal For Crown Off the Hook
- Watch Out for Dovish Noises from the Fed and RBA
- China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success
1. Asian Bank Asset Quality: “One Overdue, Two Bad” 一逾两呆 The Complex Journey of the NPL
- Asset Quality recognition is something of a black art with varied definitions for non-performing loans (“NPLs”).
- Firstly, we analyse what a NPL is.
- We then evaluate provisioning changes across Asia. We rank countries.
- We further analyse specific underlying NPL recognition issues in China.
- We then rank a sample of regional banks and countries by NPL recognition.
- Later, we take a look at how different systems come under NPL stress and how they cope often in a crisis environment.
- Finally, we wrap things up with some concluding insights about the cultural backdrop which defines systemic asset quality.
2. RBA’s Debelle Strikes Optimistic Tone; Remains Lazor Focused on the State of the Labour Market
We had warned to watch out for dovish noises from the RBA this week after it changed its monetary policy meeting statement earlier in the month to say they are monitoring developments, suggesting they may be willing to consider a rate cut in coming months if downside risks to growth materialize.
Watch out for dovish noises from the Fed and RBA; 10 April – AmpGFXcapital.com
However, the speech on the “State of the Economy” on Wednesday by Deputy Governor Guy Debelle sounded relatively optimistic that the deterioration in the outlook since mid-2018 both in Australia and globally may be temporary. The RBA is more watchful, but not yet ready to cut rates.
Debelle highlighted risks to the Australian growth outlook including the clampdown on shadow financing in China and trade tensions, slower household consumption in Australia and a weaker housing market.
However, he sounded more optimistic on the state of the global economy than many market commentators, noting ongoing strength in service sectors and employment and wage growth (globally and in Australia).
He tended to downplay the negative influence the housing market decline may have on the Australian economy.
He suggested that the RBA is lazor focused on the labour market. Provided employment growth continues, unemployment declines and wages growth accelerates, the RBA is unlikely to cut rates. At this time, the RBA still sees strength in leading indicators of the labour market, even though job ads have fallen in recent months. It appears to prefer the vacancy data that rose to a new high in February from three months earlier.
Understandably, in response to Debelle’s glass half full speech, Australian rates and the AUD have firmed.
It is fair to predict that the RBA will cut rates later this year, as most market economists have done. However, Debelle and the RBA are not yet convinced this will be necessary. In particular, it appears to need evidence that the labour market is losing momentum, and this may take several months.
3. Wynn’s Whale Of A Deal For Crown Off the Hook
After a brief pause in trading yesterday morning, Crown Resorts (CWN AU) announced it is in confidential discussions with Wynn Resorts (WYNN US) concerning an acquisition of Crown by way of a Scheme. The announcement states that Wynn has approached Crown on more than one occasion.
That was in the morning.
WYNN confirmed it and released an 8K in the early hours of the 9th saying they would not comment further.
Several hours later, WYNN apparently said it was terminating deal talks with Crown because of the “premature disclosure of preliminary discussions”.
Oops.
This will surely knock Crown shares back down after their 19.7% gain on Tuesday.
But it does not remove the reason for a deal. The Crown commentary clearly indicated that they were not averse to doing a deal. That would suggest James Packer is not either.
The proposal arrived at a unique time for both companies after the CEOs and major shareholders of both companies relinquished their roles in 2018: Packer for health reasons, and Steve Wynn after allegations of sexual harassment.
If Wynn wants to expand its footprint into the hemisphere and James Packer wants to arrange his affairs, a deal somewhere should be in the offing. This deal may just get pushed to the back burner before coming back to the fore. Several years ago, ADM launched a proposal at Graincorp. Months later there had been no apparent communication and the shares drifted off and then, all of a sudden, there was an agreed deal.
Or perhaps this opens up Crown to other suitors.
4. Watch Out for Dovish Noises from the Fed and RBA
We see scope for dovish noises from the FOMC minutes and Fed speakers. The Fed appears to be in the process of shifting towards adopting an average inflation target, which should make them more sanguine if inflation rises above the 2% target and more responsive to signs that economic growth may be slowing. We expect no substantive changes in policy guidance from the ECB this week. The RBA has opportunities in a speech and the financial stability review this week, and its minutes next week to flesh out what appears to have been a shift to an easing bias earlier this month.
5. China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success
China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities. This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.
This second part of the series explains how China chose commodity semiconductors (DRAM and NAND flash memory chips) as the best technology to pursue.
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