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US banks set aside billions as buffer against bad...

July 15, 2020: Three major US banks have set aside an additional $23 billion as a backstop against bad loans, highlighting the brittle state of the US economy due to the coronavirus pandemic, the companies said Tuesday.

                  Even amid gradual signs of a rebound as businesses reopen, the measures to contain COVID-19 have caused a devastating hit and millions of lost jobs in the world's largest economy.

                  That has raised fears companies will find it hard to pay their debts and households will not be able to pay their home mortgages, car loans and credit cards.

                  The three banks suffered a collective hit of $5 billion from bad loans in the latest quarter, and while executives said they hoped that would mark the deepest hit from credit issues, they acknowledged that the health of the loans depends on the evolution of COVID-19.

                  The virus cases and death toll have worsened in the US since the end of the quarter on June 30, leading officials in California, Texas and other states to revive restrictions after reopening their economies.

                  "The pandemic has a grip on the economy and it doesn't seem likely to loosen until vaccines are widely available," said Citigroup Chief Executive Michael Corbat.

                  Corbat said consumer spending in states with bad COVID-19 trends had declined somewhat in recent weeks, but not as much as in the "darkest days" earlier in the spring.

                  JPMorgan Chase beefed up its reserves with another $8.9 billion, more than the backstop in the first quarter, and now expects a more "protracted" economic recovery, Chief Financial Officer Jennifer Piepszak said.

                  JPMorgan Chief Executive Jamie Dimon said the bank was "prepared for all eventualities as our fortress balance sheet allows us to remain a port in the storm."

                  Meanwhile, Citigroup added $5.6 billion in reserves also due to "deterioration" of the outlook, as well as downgrades in loan quality due to the virus, the bank said in a statement.

                  And Wells Fargo put another $8.4 billion in reserves in the second quarter, pointing to the "unprecedented" nature of the pandemic.

                  The reserve increases led to steep drops in profits at JPMorgan and Citigroup, although the banks benefitted from improvements in some divisions, such as trading.

                  However, Wells Fargo reported a loss of $2.4 billion, compared with $6.2 billion in profits in the year-ago period. The bank, which unlike the others does not have major trading division, said it was cutting its dividend to 10 cents a share from 51 cents.

                  Wells Fargo Chief Executive Charlie Scharf said the bank is "extremely disappointed" in the decision, but "our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter."


                  - Trading is a bright spot -           


                  At JPMorgan, net income fell 51 percent to $4.7 billion, translating into earnings-per-share that topped analyst forecasts. Revenues jumped 15 percent to $33.8 billion, its highest ever for a quarter.

                  While the bank reported a loss in consumer and commercial banking, it garnered a big profit increase in its corporate and investment bank division, while trading revenues soared amid volatility in financial markets.

                  Conditions in May and June were eased by a flood of government funding, but while the bank expects more stimulus will be forthcoming, that is not certain, Piepszak said in a conference call with reporters. And the bank expects double-digit US unemployment to persist through the middle of 2021.

                  At Citigroup, net income fell 73 percent to $1.3 billion, while revenues rose five percent to $19.8 billion, boosted by higher revenues in its institutional clients' group that offset a decline in consumer banking.

                  Wells Fargo said its exposure included loans tied to problem industries such as oil and gas, real estate and entertainment recreation.

                  Shares of JPMorgan rose 0.36 percent to $98.21, while Citigroup fell 3.9 percent to $50.15 and Wells Fargo slumped 4.6 percent to $24.25.


Japan’s economy to shrink 4.7% in 2020/21: Central Bank

July 15, 2020: Japan's economy will contract 4.7 percent in the year to March 2021, the central bank said Wednesday, projecting a recovery the following year but warning deep uncertainty remains.

                  The fresh outlook, with policymakers giving a range of shrinkage from 5.7 to 4.5 percent, is a downgrade from an April projection of a 5.0-3.0 percent contraction.

                  The Bank of Japan stayed hopeful about a future recovery but said the outlook was shrouded by possible future waves of the virus, which made calculations difficult.

                  "Japan's economy is likely to improve gradually from the second half of this year with economic activity resuming, but the pace is expected to be only moderate while the impact of the novel coronavirus remains worldwide," the BoJ said in a statement.

                  The bank said it expected the global economy to steadily recover, projecting Japanese GDP would expand 3.3 percent in the year to March 2022, before logging 1.5-percent growth in the following fiscal year.

                  But it also stressed that "the outlook... is extremely unclear" with its assumptions involving "high uncertainties".

                  Officials also see Japan's core consumer prices falling 0.5 percent for the year to March, well below the government's target of stable 2.0 percent inflation to foster sustainable growth.

                  The central bank said it would maintain its massive monetary easing programme, leaving short-term rates at minus 0.1 percent while keeping long-term rates around zero percent.


Pakistan, Hungry ink pact to avoid double taxation, fiscal...

July 15, 2020: Pakistan and Hungary signed a ‘Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income’.

The protocol was signed by Hungarian Ambassador to Pakistan Istvan Szabo and Dr. Muhammad Ashfaq Ahmed, Member (Inland Revenue Operations)/Additional Secretary on behalf of their countries on Tuesday.

The organization for Economic Cooperation and Development (OECD) had approved changes in the Article on Exchange of Information in July 2012 to include provisions concerning cooperation between the tax administrations of the two contracting states.

The present article embodies the rules under which information may be exchanged to the widest possible extent to include taxes other than the income tax.

Radio Pakistan

Asian markets mostly up on vaccine, stimulus hopes

Jul 15, 2020: Fresh hopes for a virus vaccine and another round of US stimulus lifted Asian markets on Wednesday, though gains remained tethered by the reimposition of containment measures and China-US tensions.

Investors took their lead from Wall Street's pop higher, which came after US biotech firm Moderna said the final stage of human trials for a COVID-19 vaccine would start at the end of the month, after a report said its first stage tests had been a success.

The news follows an announcement from Pfizer and BioNTech that two of four candidates for treatment had received "Fast Track" designation from US officials.

Providing added support was optimism the US would add to its stimulus after reports said top Republicans were reconsidering their opposition to it, including on extending supplemental unemployment benefits.

The trillions of dollars pledged by the US and other governments and central banks around the world have been a key driver of the rally in stock markets from their March lows.

And analysts expect that cash will probably fuel further gains, with Stephen Innes at AxiCorp saying even weak corporate earnings would be unlikely to derail that.

"A market that has ignored virus resurgence concerns and US-China tensions... is suddenly supposed to start worrying about earnings. That never made a great deal of sense to me.

"Sure, there may well be some profit-taking due to the run the market has been on, but we then go back to the wall of money argument time and time again. Booking profits are all very well and good, but the way this market seems to be heading, it is not clear you will be able to repurchase those stocks so readily again."

- 'Needless layer of uncertainty' -

Tokyo went into the break 1.4 percent higher, while Sydney and Singapore also added more than one percent.

Hong Kong gained 0.6 percent while Seoul, Taipei, Jakarta and Wellington also rose.

But Shanghai and Manila fell.

Nervousness continues to permeate trading floors, however, as infections spike around the world, forcing countries that had been emerging from lockdowns to enforce new measures to contain the pandemic and jolting the economic recovery.

Officials in Hong Kong, which had gone weeks without a new infection, fear the city is about to be hit by a third wave, while Florida, which was one of the first states to lift restrictions, saw a new daily record of deaths Tuesday.

China-US relations -- already hit by a series of issues including trade and Huawei -- were strained further by Donald Trump's decision to remove Hong Kong's special trade status, and his signing into law of an act authorising sanctions on banks over China's clampdown in the city.

Beijing responded to the Hong Kong Autonomy Act by saying it would "make necessary responses to protect its legitimate interests, and impose sanctions on relevant US personnel and entities".

"In the longer term, this adds another needless layer of uncertainty to already frosty Sino-US relationships, especially with regards to trade," said Justin Tang, head of Asian research at United First Partners.

"Against the backdrop of COVID-19-related disruptions, an escalation of trade wars will plunge supply chains into further disarray."

- Key figures around 0250 GMT -

Tokyo - Nikkei 225: UP 1.4 percent at 22,912.24 (break)

Hong Kong - Hang Seng: UP 0.6 percent at 25,635.22

Shanghai - Composite: DOWN 0.4 percent at 3,400.92

West Texas Intermediate: UP 0.6 percent at $40.51 per barrel

Brent North Sea crude: UP 0.5 percent at $43.12 per barrel

Euro/dollar: UP at $1.1409 from $1.1392 at 2040 GMT

Dollar/yen: DOWN at 107.25 yen from 107.28 yen

Pound/dollar: UP at $1.2580 from $1.2551

Euro/pound: DOWN at 90.70 pence from 90.76 pence

New York - Dow: UP 2.1 percent at 26,642.59 (close)

London - FTSE 100: UP 0.1 percent at 6,179.75 (close)


Equities: The preferred asset class

July 14, 2020 (MLN): As the Covid-19 pandemic created mayhem which has suffered all asset class and the equities have not been spared. However, on domestic front, a consistent reduction in the daily incremental cases of COVID-19 as well as its infection rate have helped to fuel sentiments at the local bourse.

This, in addition to several other key triggers have now made equities as a preferred asset class, a report by Arif Habib Limited highlighted.

According to the report, the government’s incentives package for the construction industry is likely to bode well for cyclical sectors such as cement and steel.

Moreover, economic recovery from incentives will revive the manufacturing sector through vast reduction in import duties as government is eyeing GDP growth at 2.1% for FY21 as compared to -0.4% in FY20. Besides, continuation of the IMF Extended Funding Facility (EFF) alongside several incentives announced in the FY21 budget to support local production should help market sentiment, the report added.

Furthermore, lower inflationary outlook for FY21 at 7.5% as compared to FY20 inflation of 10.8% will support consumer spending and economic activity.

The report further declared that significant gap between equity earnings yield and yields on the 10-year PIB could soon trigger market sentiment and help towards a re-rating as the average difference between the two has historically been approximately 1% as compared to 6% currently.

Additionally, with the cumulative 625 bps interest rate cut since Mar’20, equities are once again in the spotlight as a preferred asset class among investors, the report highlighted.

Likewise, the restriction imposed by the government on institutional investors to participate in National Savings Scheme after July 1, 2020 to redirect them to other parts of the financial sector should also bode well. Expected flow of funds from fixed income to equities should help trigger market performance, the report said.

This indicates that asset Management Companies and Insurance companies will likely mobilize funds from Fixed Income to Equities to generate healthy returns for their investors.

Thus, the inflows from all these domestic institutions and HNWIs will likely drive the market going forward with equities becoming highly attractive as an asset class, the report concluded.

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