Daily Agenda: Macro Uncertainties Weigh on Investors’ Minds

Pound sterling experiences flash crash; Merrill moves to retirement fees; Schwab joins ETF cost-cutting; protectionism hot topic at IMF.


Andrew Harrer

As the final quarter of 2016 gets underway, investors face a number of major uncertainties: the outcome of a hotly contested and often-bizarre U.S. presidential election, the impact of the U.K.’s pending departure from the European Union and an upcoming meeting of the Organization of Petroleum Exporting Countries that may or may not result in meaningful oil-production caps. From a long-term perspective, global debt levels, particularly in emerging markets, continue to weigh on the minds of allocators as they consider the impact of sluggish growth and rising U.S. policy rates on debtors in years to come. In coming weeks and months, these types of macroeconomic and geopolitical risk factors will be central to the decisions made by investment managers as they struggle to set their allocations.

Matthew spurs evacuation from Florida. Hurricane Matthew made landfall in the U.S. early on Friday, battering the Atlantic coast of Florida after being downgraded to a Category 3 storm by the National Weather Service. As millions evacuated portions of three states, the NWS warned that some areas may remain uninhabitable for weeks. Separately, the Haitian government said the death toll from the hurricane there was more than 280.

Pound sterling experiences flash crash. In early trading today, the pound sterling declined sharply, falling more than 6 percent versus the dollar to a low of $1.18, in a sudden move that some traders attributed to human error exacerbated by computer-generated orders. The pound quickly snapped back, recovering much of its drop. In recent years, some market structure analysts have suggested that volatility in currency markets may increase due to reduced liquidity after regulation forced banks to pull back from trading. Such a dramatic move in a primary currency pair underscores these concerns.

Total to sell chemical unit to Carlyle. French oil giant Total announced the sale today of its specialty chemical unit, Atotech, to funds managed by U.S. private equity firm Carlyle Group in a transaction valued at $3.2 billion, or roughly three times the firm’s revenues during the prior fiscal year. The deal is part of an effort by Total to sell noncore assets to shore up its balance sheet as oil prices remain depressed. Chinese state-controlled Sinochem Group withdrew from negotiations to acquire Atotech during the summer.

Merrill switches to fee-based retirement accounts. Merrill Lynch, the retail brokerage arm of Bank of America Corp., yesterday told its “thundering herd” of more than 14,000 financial advisors that the firm will no longer allow commissions to be charged within retirement accounts. Going forward, clients will be charged a fee calculated on assets in individual retirement accounts and other investment vehicles. This makes Merrill the largest firm so far to move to comply with new fiduciary guidelines established by the U.S. Department of Labor. Both Edward Jones and LPL Financial have already moved away from commission products in retirement savings vehicles.

More fee compression for ETF managers. Charles Schwab Investment Management, the fund-management arm of brokerage Charles Schwab, yesterday announced a fee reduction for five exchange-traded funds, including its international equity and aggregate bond offerings. The move comes just days after a similar announcement by BlackRock, as major asset managers work to attract passive investors seeking low-cost allocation options.


IMF meetings commence. The conversation among IMF policymakers is likely to focus on the potential effect of increasing protectionism. In comments to the press, IMF Managing Director Christine Lagarde stated her concern that the effect of negative interest rates and low GDP growth among advanced economies has created fertile ground for populist political movements that could magnify current growth hurdles.