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Closing in on cuts.

Federal Reserve chair Jay Powell said: ‘We’re doing the best of anybody. We’ve got the strongest growth and the lowest inflation of the advanced economies’. Photo: Getty Images

The Fed and ECB are slowly edging toward cutting rates. The Federal Reserve is getting close to having the confidence it needs to start lowering interest rates, Chair Jerome Powell told lawmakers Wednesday as he appeared for a second day of testimony on Capitol Hill. His remarks gave a boost to market expectations that the first reduction might come within the next few months, dragging shorter-dated Treasury yields lower and boosting US stocks to new highs ahead of Friday’s closely watched report on American payrolls. Signs of potential easing across the Atlantic also helped support the moves in markets, with European Central Bank President Christine Lagarde indicating that officials in the euro area may be in a position to lower rates in June as fresh projections showed inflation hitting the 2% target in 2025.

Speculation in Japan | While the focus in Washington and Frankfurt is on the potential for central bank rate cuts, speculation is surging that officials in Tokyo are gearing up for their first hike since 2007. Bets on the March 18-19 Bank of Japan meeting are gaining traction as reports emerge that some officials favor an early move while some government officials also support a rate hike. Economists and investors are largely in agreement that the central bank will scrap the world’s last remaining negative rate either this month or in April. Bond yields rose Thursday in the wake of wage data and remarks from a BOJ board member, while the yen rallied 0.9% against the dollar, the biggest one-day gain since December.

Official scrutiny | Regulators in China are scrutinizing regional banks’ bond investments amid concern that they are speculating on the securities rather than lending to boost the economy. Policymakers this week requested information from rural lenders including their bond-trading activities over the past three years, their major counterparties, and the necessity of the investments, according to people familiar with the matter. Regulators are tightening oversight on bond investments after a heated rally sent longer-term sovereign yields to near a record low earlier this week. While lower yields allow the government to enjoy cheaper funding from the debt market, authorities may be worried that the frenzy will make lenders reluctant to allocate more funds to loans crucial for supporting the economy. A market reversal might also expose banks to capital-eroding losses.

Federal Reserve Chair Jerome Powell. Photo: Bloomberg

Wall Street gets big win as Powell floats scrapping capital plan

Wall Street banks are on the cusp of a sweeping regulatory victory after Federal Reserve Chair Jerome Powell signaled officials would scale back plans to make them hold more capital. The world’s most powerful central banker flatly told lawmakers Wednesday that the government’s plan was in for “broad and material changes,” and that a complete do-over was very possible. Powell’s comments appeared to catch even seasoned industry lobbyists off-guard and immediately threw into doubt a signature Biden-era regulatory effort. (Bloomberg Economics - Central Banks | Mar 6) see also Finance execs expect US to soften Basel capital increase (Reuters | Mar 6)

SEC scales back new pollution-disclosure rules for companies

The Securities and Exchange Commission watered down a key requirement after heavy lobbying from industry groups before voting yesterday. The regulator won’t force companies to quantify pollution from their supply chains or customers, and firms will face a higher bar when they need to reveal more direct carbon footprints in their regulatory filings. The SEC will force companies to disclose their greenhouse gas emissions for the first time but watered down a key requirement after heavy lobbying from industry groups. (Bloomberg Green | ESG & Investing | Mar 6)

The radical changes coming to the world's biggest bond market

The $26.5tn US Treasury market is the biggest and most liquid in the world and Treasury securities are held by investors and central banks across the globe. The market is the mechanism by which the Federal Reserve executes monetary policy and through which the US government borrows. Yields on Treasuries are the risk-free rate against which assets around the world are priced. However, growing problems could threaten the asset’s supremacy in the financial world. (Financial Times | Mar 4)

Asset managers are quietly purging their portfolios of tax risk

There’s a growing sense of unease among asset managers that companies with conspicuously small tax bills pose a financial liability too big to ignore. Federated Hermes Inc., Robeco Institutional Asset Management, Van Lanschot Kempen NV, and Natixis Investment Managers unit Mirova are among asset managers that have been singling out stocks based on their tax history, a process that in some cases has even led to firms being excluded from portfolios. (Bloomberg Markets | Mar 4)

Big tech-led rally is unlike past bubbles

The S&P 500’s advance to a record high — fueled by a small group of supercharged technology stocks — doesn’t resemble past bubbles, according to strategists at Goldman Sachs Group Inc. Stocks with an enterprise value-to-sales ratio of above 10 account for 24% of total US equity market capitalization, versus 28% during 2021 and 35% during the tech bubble, strategist David Kostin wrote in a note dated March 1. However, the breadth of “extreme valuations” is far more contained with the number of stocks trading at those multiples down sharply from the peak in 2021, he added. (Bloomberg Markets | Mar 4)

Denial-of-service attacks can be damaging for banks that need to be accessible all the time. Photo: Frank Franklin | Associated Press

Banks face ‘hacktivist’ cyberattacks

Politically motivated hackers are the main driver behind a surge in denial-of-service attacks against banks and other financial services firms worldwide. Plus, hackers are using new and more aggressive tactics to take down or slow access to companies’ websites and online services, according to new research from the Financial Services Information Sharing and Analysis Center and cyber company Akamai Technologies.

— The Wall Street Journal

Safeguards in OpenAI and Microsoft tools fall short, researchers say

Images created with the tools can be misleading and promote election disinformation, according to the nonprofit Center for Countering Digital Hate. The group was able to generate images of President Joe Biden in a hospital bed and other false photos related to the upcoming US election. OpenAI and Microsoft have said they are working to counter such disinformation.

— Reuters

CISA, NSA release cyber info sheets on cloud security

CISA and the National Security Agency on Thursday released five joint Cybersecurity Information Sheets (CSIs) to provide organizations with recommended best practices and/or mitigations to improve the security of their cloud environment(s).

• Use Secure Cloud identity and access management practices
• Use Secure Cloud key management practices
• Implement network segmentation and encryption in cloud environments
• Secure data in the cloud
• Mitigate risks from managed service providers in cloud environments

— CISA & NSA

Cocoa farmers in west Africa are struggling with soaring input costs, bad weather, and crop disease. Photo: Luc Gnago | Reuters

Why the cost of chocolate will keep rising

With Easter less than a month away, sweet-toothed consumers in Europe and North America are beginning to turn their thoughts towards chocolate. But prices this year are expected to be higher than ever — and it has very little to do with existing inflationary pressures in the market. Speculation, climate change, and under-investment are combining to push up the price of the confection

— Financial Times

Is your 401(k) destroying capitalism?

A respected Wall Street strategist was lambasted when he wrote in 2016 that index funds are "worse than Marxism." No, Lenin won’t be plundering your 401(k), but serious people are again pointing to what they say are the hazards of retirement funds on autopilot — for America’s savers and maybe even for markets themselves. The reason people such as hedge-fund manager David Einhorn are sounding the alarm isn’t just the relentless rise of the AI-inspired “Magnificent Seven,” now collectively more valuable than any foreign stock market, but the huge sums being plowed into stocks and bonds with regard only to price, not value.

— The Wall Street Journal

There’s a new financial crisis brewing in uninsurable US homes

A growing number of insurers are cutting their business in places most prone to wildfires and hurricanes, deterred by more intense and frequent natural disasters, plus state-imposed limits on how much they can charge. Homeowners in the most risky places are now more likely to be covered by state-created, “last resort” insurance programs that provide protection where the private market won’t.

— Bloomberg