29 November 2018 FT — Articles to Read

29 November 2018


Question: What percentage of Americans carry credit card debt from one month to the next?


Powell sparks rally as investors detect signs of slowing rate rises – Pg. 1

–          The Federal Reserve chair declared US interest rates were closing in on “neutral” levels, triggering a stock market rally as investors interpreted the comments as a sign the central bank was preparing to slow down its rate-rising programme

–          Rates are hovering “just below” estimates of neutral – the level that neither causes growth to accelerate nor slow down – ….in a possible sign that policymakers may decide they do not need to lift them much further

–          The S&P 500 was up 1.6% in afternoon trading, jumping a full percentage point after Mr Powell’s speech

–          The Dow Jones extended its gains to trade 1.9% higher and the Nasdaq Composite was up 1.9%


Fed flags risks of UK no-deal and Italian debt – Pg. 3

–          The Federal Reserve has flagged a hard Brexit and Italian sovereign debt sell-off as near-term risks to the US financial system in a stability assessment

–          A no-deal Brexit or an intensification of euro area sovereign debt concerns could trigger market volatility and a “sharp pullback” by investors from riskier assets similar to that seen after the 2016 Brexit vote,…

–          The report also highlighted the risk of an escalation of trade tension or geopolitical uncertainty that could erode risk appetite and trigger a “particularly large” drop in asset prices

–          Overall vulnerability in household credit were “moderate”, with debt levels contained relative to incomes.  Business sector debt was at a “historically high” level relative to GDP, it found, and there were signs of deteriorating rate credit standards

–          Leveraged loans have seen by far the quickest expansion among credit classes examined, recording average annual growth of 15% between 1997 and the second quarter of 2018

–          Risky business debt, which includes high-yield bonds and leveraged loans, rose 5% in the year ending in the third quarter of 2018 and stands at over $2tn

–          The Fed flagged up elevated asset prices relative to their historical ranges across markets including high-yield corporate bonds, equities, commercial real estate and farmland.  Big banks were strongly capitalized and leverage among broker-dealers was far lower than before the crash


US fear gauge higher than European peer in sign of post crisis shake up – Pg. 19

–          Europe’s volatility index is trading well below its more famous US counterpart, reversing their usual relationship and highlighting how the post-crisis market dynamics have been upended this year

–          But the US stock market has experienced several flashes of turbulence this year, overturning the Vix-Vstoxx relationship and underscoring why many analysts and investors say markets have undergone a “regime change” in 2018

–          So far this year, the average “spread” between the two volatility indices has been close to zero.  And it has been negative since the end of the summer.  In other words, European volatility has been muted relative to US turbulence

–          Volatility indices such as Vix capture the level of stock market turbulence implied by options prices and for the most part simply reflect the actual, “realized” volatility of the equity indices that underpin them


Answer: nearly 40.00% (according to MSN: Money)