Connect with us

Business

Fed Officials Back Slowing Pace of Rate Rises After Cool-off in Inflation Data

Taylor Johnston

Published

on

A number of Federal Reserve officials have thrown their support behind slowing the pace of future interest rate rises, as investors doubled down on bets on such a move following the release of slower-than-expected inflation data on Thursday.

Patrick Harker, president of the Philadelphia Fed, was the latest official to signal support for the US central bank breaking its months-long streak of supersized increases, joining his counterparts at the Boston, Chicago and Richmond branches.

Lorie Logan, president of the Dallas Fed, also on Thursday backed a shift down from 0.75 percentage point rises, which the Fed has implemented at every meeting since June, but emphasised the central bank’s commitment to stamping out inflation.

“While I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving, I also believe a slower pace should not be taken to represent easier policy,” she said at a Fed event.

According to CME Group, traders place the odds that the Fed will opt for a smaller move next month at 80 per cent, up from roughly 50 per cent on Wednesday.

The shift in expectations — which was accompanied by a sharp rally in the S&P 500 — was propelled by fresh evidence that inflationary pressures are beginning to level off in some sectors. October’s consumer price index showed prices rising by 0.4 per cent for the month, in line with September’s increase, which translates to the smallest annual rise since January.

“Core” inflation, which strips out volatile items such as food and energy, slowed even more substantially, rising just 0.3 per cent compared to the 0.6 per cent increase recorded in the previous period.

While economists cautioned against reading too much into a single inflation report, they acknowledged that the figures come as welcome news for the Fed, which has begun to build the case for slowing its rate rises.

“It’s definitely time to slow the pace of rate hikes,” said Alan Detmeister, an economist at UBS and a former Fed staffer. “If we see slowing inflation at this point, with those lags in monetary policy, you’re likely to see inflation slow down even more.”

At the Fed’s November policy meeting last week, chair Jay Powell signalled his support for smaller rate rises, which he said could come as early as December, given the time it takes for changes to monetary policy to have an effect on economic activity and how significantly rates have risen this year.

As a result, the end point of the ongoing tightening cycle would be higher than originally anticipated, Powell said, and the Fed would keep rates at a level that constrains the economy for longer.

Mary Daly, president of the San Francisco Fed, said the slowdown in consumer price growth was “good news” but “one month does not victory make”.

On Thursday, investors revised their expectations marginally lower for the so-called terminal rate, and now expect the federal funds rate to peak at 4.8 per cent, having previously predicted that it would surpass 5 per cent.

Yields on US government bonds also plummeted, with the policy-sensitive two-year note trading at 4.3 per cent, down from 4.6 per cent the previous day.

Aneta Markowska, chief financial economist at Jefferies, called the latest inflation data “the best piece of news in a while”. However, she doubled down on her belief that the benchmark policy rate would eventually reach 5.1 per cent, arguing that the Fed needs to see a “long string” of weaker monthly core readings “before they are comfortable pausing”.

One concern is that wage increases stemming from the very tight labour market may continue to push up consumer price growth in the services sector, suggesting price pressures will be difficult to fully eliminate.

“There’s still a significant chance that we may see some very strong inflation on the services side in the coming months,” said Detmeister at UBS.

Read More

Article: ft.com

Business

Blackstone’s BREIT Defence

Taylor Johnston

Published

on

By

Amid all the crypto excitement we missed an update from another one of the more legitimately interesting stories out there: The Blackstone Real Estate Income Trust has published its third-quarter results.

Last month we published a big post exploring BREIT’s rampant growth, its growing importance to Blackstone, the increasingly wild divergence between its performance (up ca. 9.3 per cent this year) and publicly listed real estate trusts (down about 28 per cent in 2022) and the outlook at a time of rising rates and weakening property markets. It’s a subject that is getting more and more attention.

Unsurprisingly, Blackstone thinks all this chatter is overdone, so in addition to the 10-Q it also released a Q&A with Nadeem Meghji, the company’s head of Americas real estate, which attempts to address all these issues. The tl;dr is that Blackstone is great, they love BREIT, and so should you.

BREIT has delivered extraordinary returns to investors since inception nearly 6 years ago. We could not be more proud of the portfolio we have built. Demonstrating our conviction in BREIT, Blackstone employees have over $1 billion of their own money invested in the company, including more than $300 million invested by senior executives over the last four months.

The Q&A is worth reading to see how Blackstone’s rationale for why it is doing so much better than publicly traded real estate, its explanation for outflows (driven mostly by wealthy people in Asia, it seems) and how values its real estate.

Their emphasis below:

BREIT updates its valuations monthly to reflect what’s happening in the private real estate market and has those values reviewed by an independent third party.

Higher interest rates have led to materially higher cap rates (lower valuation multiples) which have negatively impacted valuations. BREIT’s valuations reflect this change, and we have increased our assumed rental housing and industrial exit cap rates and discount rates by 14% and 6% YTD, respectively.

At the same time, BREIT’s strong cash flow growth, stable income and value increases from our interest rate hedges have more than offset the negative valuation impact from materially higher cap rates.

Our 5.4% assumed rental housing and industrial exit cap rate is 160bps above the 10Y treasury yield of 3.8%.

So far this year, BREIT has sold $2B of real estate at an average 8% premium to the carrying value that BREIT ascribed to these assets.

Our assumed rental housing and industrial exit cap rate today is higher than many non-traded REIT peers, who have not moved their valuation assumptions as meaningfully.

For completists, in an accompanying video you can also watch Blackstone president Jonathan Gray talk up the prospects of BREIT despite a “challenging time” for markets. It’s almost as if the vehicle has become essential to Blackstone’s financial results…

The third-quarter report and a monthly portfolio update indicates that not everyone is convinced though. After a ferocious stretch of growth since being established, BREIT’s net asset value dipped to $69.5bn at the end of October, from $70.4bn at the end of September. (Its total assets were valued at $144.9bn at the time).

Outflows — in the form of repurchases of investor shares — have slowed since the summer, but will continue to be “closely watched as the fund matures in the face of a less constructive backdrop,” as Jefferies analysts noted in a report this morning.

The question is still just how sticky money in BREIT will prove if the US real estate market does crack and Blackstone is forced into marking down the value of its holdings. That could made its performance suddenly look a lot less fabulous. We suspect some people at 345 Park Avenue are praying for a Fed pivot.

Read More

Original Post: ft.com

Continue Reading

Business

Blackstone Limits Withdrawals at $125bn Property Fund As Investors Rush to Exit

Taylor Johnston

Published

on

By

Blackstone has limited investor withdrawals at its $125bn real estate investment fund after a surge in redemption requests from investors pulling cash from private assets.

The private equity group met only 43 per cent of redemption requests from investors in the Blackstone Real Estate Income Trust fund in the month of November, according to a notice it sent to investors on Thursday.

Shares in Blackstone fell as much as 8 per cent.

The withdrawal limit underscores the risks high net worth investors have taken in putting money into Blackstone’s mammoth private real estate fund, which — after accounting for debt — owns $69bn in net assets, spanning logistics facilities, apartment buildings, casinos and medical office parks.

Investors can redeem up to 5 per cent of their holdings in any given quarter, at which point Blackstone can limit withdrawal requests to prevent a fire sale of its illiquid real estate holdings.

On Thursday, Blackstone announced the sale of its 49.9 per cent interest in the MGM Grand Las Vegas and Mandalay Bay Resort casinos in Las Vegas for a $1.27bn cash consideration. Including debt, the deal valued the properties at more than $5bn.

Cash from the sales, which were agreed at a premium to the carrying values of the properties, can help with liquidity for BREIT as it meets redemption requests or be reinvested in faster-growing property assets, according to a person familiar with the matter.

In October, BREIT received $1.8bn in redemption requests, or about 2.7 per cent of its net asset value, and has already received redemption requests in November and December exceeding the quarterly limit.

It allowed investors to withdraw $1.3bn in November, or just 43 per cent of the redemption requests it received. Blackstone would allow investors to redeem just 0.3 per cent of the fund’s net assets this month, it added in the notice.

About 70 per cent of redemption requests have come from Asia, according to people familiar with the matter, an outsized share considering non-US investors account for only about 20 per cent of BREIT’s total assets.

Private capital managers have increasingly turned to retail investors, arguing high net worth investors should have the same ability as pension and sovereign wealth funds to diversify away from public markets. Part of the pitch that money managers make is that, by giving up some liquidity rights, higher returns can be achieved without assuming greater risk.

The BREIT fund allows for 2 per cent of assets to be redeemed by clients per month with a maximum of 5 per cent allowed in a calendar quarter. The fund’s net asset value has been marked up by more than 9 per cent in the 12 months to the end of September, a dramatic divergence from public markets where real estate investment trusts have declined sharply in value. Vanguard’s publicly listed real estate index fund has declined more than 22 per cent this year.

In recent years, the fund has been one of the big sources of Blackstone’s growth in assets under management, alongside a private credit fund called BCRED. In recent quarters, rising redemption requests from both funds have worried analysts as a signal of stalling asset growth.

“Our business is built on performance, not fund flows, and performance is rock solid,” said Blackstone in a statement sent to the Financial Times that emphasised the fund’s concentration in rental housing and logistics in fast-growing areas of the US and its predominantly fixed rate liabilities.

Read More

Original Source: ft.com

Continue Reading

Business

Tracking Russia’s Invasion of Ukraine in Maps

Taylor Johnston

Published

on

By

Since the start of the Russian invasion on February 24, Ukraine has liberated a total of 74,443 sq km of territory from Russian forces, according to data from the Institute for the Study of War think-tank.

Ukrainian forces advanced into Kherson on Friday after Russia said its forces had completed their withdrawal from the southern city, sealing one of the biggest setbacks to president Vladimir Putin’s invasion.

Kyiv’s progress and Moscow’s chaotic retreat across the Dnipro river, conducted under Ukrainian artillery fire, means Russia has now surrendered the only provincial capital it had captured in the war, as well as ceding key strategic positions.

At the end of August, Ukraine launched its first big counter-attack since Russia’s full assault on the country began in February, even as Kyiv complained that its forces lacked sufficient heavy western weaponry to make a decisive strike.

The advance liberated 3,000 sq km of territory in just six days — Ukraine’s biggest victory since it pushed Russian troops back from the capital in March.

Ukraine’s forces have continued to push east, capturing the crucial transport hub of Lyman, near the north-eastern edge of the Donetsk province, which it wrestled from Russian control on October 1. The hard-fought victory came after nearly three weeks of battle and set the stage for a Ukrainian advance towards Svatove, a logistics centre for Russia after its troops lost the Kharkiv region in the lightning Ukrainian counter-offensive.

Other key maps and charts from the war

The shift in the conflict’s focus towards the Donbas region follows Russia’s failure to capture Kyiv during the first phase of the war. Before Ukraine’s rapid counter-offensive, marginal Russian gains in the east suggested the war was entering a period of stalemate.

The Russians were thwarted in Kyiv by a combination of factors, including geography, the attackers’ blundering and modern arms — as well as Ukraine’s ingenuity with smartphones and pieces of foam mat.

The number of Ukrainians fleeing the conflict makes it one of the largest refugee crises in modern history.

In mid-March, an attack on a Ukrainian military base, which had been used by US troops to train Ukrainian soldiers, added to Russia’s increasingly direct threats that Nato’s continued support of Ukraine risked making it an enemy combatant in the war. On March 24, Nato agreed to establish four new multinational battle groups in Bulgaria, Hungary, Romania and Slovakia to add to troops in Estonia, Latvia, Lithuania and Poland.

Sources: Institute for the Study of War, Rochan Consulting, FT research

Cartography and development by Steve Bernard, Chris Campbell, Caitlin Gilbert, Emma Lewis, Joanna S Kao, Sam Learner, Ændra Rininsland, Niko Kommenda, Alan Smith, Martin Stabe, Neggeen Sadid and Liz Faunce. Based on reporting by Roman Olearchyk and John Reed in Kyiv, Guy Chazan in Lviv, Henry Foy in Brussels and Neggeen Sadid in London.

Read More

Original Article: ft.com

Continue Reading

Trending

BaypointNews.com