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Daily Agenda: The Impact of PBOC Liquidity Measures

Prologis, supported by Norway’s sovereign wealth fund, announces major acquisition; U.K. housing prices reach record high.

Over the weekend the People’s Bank of China lowered bank reserve ratios by 1 percent to drive greater private-sector credit liquidity. Despite the announcement, equities retreated sharply in trading in Shanghai after the China Securities Regulatory Commission announced a crackdown on aggressive margin lending and the expansion of short-selling capabilities. For equity investors, the bigger question now is whether the don’t-fight-the-Fed mentality that has driven U.S. stocks higher in recent years will be echoed in developing markets. For currency traders, the path appears more clear. Economists and strategists at primary global investment banks, one of the biggest themes, year-to-date has been lower growth projections for emerging markets. The implication is clear for the U.S. dollar: No matter how gentle the slope of Federal Reserve tightening, global currency reserves are likely to continue to shrink, driving the dollar higher in the process.

Greek deadline looms. The April 24 deadline targeted by Athens for a resolution to Greece’s liquidity crises is this end of this workweek and so far, there has been no indication that a deal with creditors can be reached. Currently, the Eurogroup meeting of finance ministers on Friday is the next scheduled time for official negotiations to resume. Remaining cash reserves may be sufficient only to cover social commitments through the end of the month, according to reports. Last month, Greece drew short-term liquidity from the Hellenic Financial Stability Fund, the Greek bank deposit insurance vehicle, to meet obligations. Greece is scheduled to make combined debt repayments to the International Monetary Fund and European Central Bank of upwards of €8 billion ($8.59 billion) by mid-July.

Major real estate merger announced. In one of the largest mergers announced by a U.S. real estate firm this year, San Francisco–headquartered global real estate investment trust Prologis has agreed to buy New York and Philadelphia–based REIT KTR Capital Partners for $5.9 billion. KTR is being acquired in a transaction supported by a Prologis entity minority owned by Norwegian sovereign wealth fund Norges Bank Investment Management.

U.K. housing prices reach all-time high. A combination of recovering economic growth, an improving labor situation and historically low interest rates has driven the average home value in the U.K. to a fresh high, according to data released today by online real estate portal Rightmove. According to Rightmove’s analysis, the average national single-family home value exceeds $425,000 with the cost in the Greater London region near $600,000. While continuing to support accommodative policy measures, Bank of England governor Mark Carney has discussed inflated real estate valuation as a possible cause for concern in recent months.

China to lend billions to Venezuela. Venezuelan President Nicolas Maduro on Sunday announced a new $5 billion credit facility with China. No details were provided by Maduro, whose government has been under pressure as Venezuela’s economy faces a crisis driven by declining oil prices. Analysts anticipate that this new deal with Beijing will take the form of an advance on future oil exports.

Carlyle shuts down liquid alternative mutual funds. Filings with the Securities Exchange Commission last week revealed that private-equity giant Carlyle Group is planning to shut down the pair of public mutual funds that it launched last year. While the firm’s attempt to directly enter the liquid alternatives market has been met with limited interest by investors, the acquisition of Diversified Global Asset Management in 2014 provides Carlyle with ongoing exposure in the segment.

Morgan Stanley announces earnings, nearing settlement. Morgan Stanley joined rivals Goldman Sachs Group and J.P. Morgan Chase in reporting strong first-quarter earnings. In a release issued today, the bank announced a 60-percent increase in quarterly profits, driven largely by revenues from the financial institution’s equity and fixed-income trading units. Separately, media reports surfaced today indicating that the firm is near a $500 million settlement with the office of the Attorney General in New York State over the sale of mortgage-backed securities during the lead-up to the credit crisis.

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