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India's envoy to Canada, who is being expelled over what Ottawa says are links to the murder of a Sikh leader, insisted in an interview he was innocent and said Prime Minister Justin Trudeau had wrecked bilateral political ties, but trade may remain unscathed.

Both countries on Monday ordered out six diplomats in tit-for-tat moves over Ottawa's allegations that New Delhi was targeting Indian dissidents on Canadian soil.

Trudeau specifically tied the six to the murder of Sikh separatist Hardeep Singh Nijjar last year in British Columbia. Sanjay Kumar Verma, India's envoy to Canada, told CTV that Trudeau had been relying on intelligence rather than evidence.

"On the basis of intelligence, if you want to destroy a relationship, be my guest. And that's what he did," Verma said in an interview broadcast on Sunday.

Asked whether he had had anything to with Nijjar's murder, Verma said: "Nothing at all. No evidence was presented. (This is) politically motivated."

Canada is home to the highest population of Sikhs outside their home state of Punjab and demonstrations in favor of a separate homeland carved out of India have irked New Delhi.

However, Verma said the episode had nothing to do with trade and cultural relations with Canada, which had two-way trade of US$8.4 billion (RM36.1 billion) with India at the end of last fiscal year. Indians have also made up Canada's largest group of international students in recent years.

"There will be emotions on both sides... which may impact a few of those deals, but the larger picture is that I don't see much impact on non-political bilateral relations," Verma said.

Source: Theedgemarkets

Europe's biggest banks are healthier than at any point since the 2008-09 financial crisis, but investors want reassurance that they can trust their longer term earnings power as interest rates fall.

Bank share prices have broadly delivered a double-digit rise this year, driven by stock buyback programmes made possible by years of capital accumulation, restructuring, cost cuts and supportive central bank policy, which boosted their profits.

Deutsche Bank, Lloyds and Barclays will kick off third-quarter earnings reporting this week, while UBS and HSBC will be among those reporting next week.

The numbers are expected to show continued profitability, with robust investment banking activity offsetting squeezes on margins and weak demand for loans among consumers and businesses.

But investors want more. Besides looking for evidence of asset quality resilience, they are seeking sharper strategy, lower costs and the potential to outperform in a low growth global economy.

Deal-making has captured the imagination of bank boards in the last three months. BNP Paribas bought AXA Investment Managers and UniCredit raised its stake in Germany's Commerzbank stirring chatter on cross-border consolidation.

"Estimates suggest that up to 600 billion euros ($652 billion) in net interest income could be at risk in the first half of 2025 if the European Central Bank cuts rates as expected," Filippo Maria Alloatti, Head of Financials for Credit at Federated Hermes, told Reuters.

"Management teams are proactively taking measures ... exploring bolt-on acquisitions in asset management, wealth management and even niche fintech opportunities," he said.

Britain's NatWest swooped on Metro Bank's residential mortgage book while media reports suggest HSBC's new CEO Georges Elhedery may make a much bigger mark on the lender's structure than previously thought.

Sales by governments of their crisis-era stakes in banks remove one hurdle to deal-making, credit rating firm Scope Ratings believes, although others remain.

"ESCAPE VELOCITY"

Analysts at McKinsey said executives needed to attain "escape velocity" to distinguish themselves from peers and increase appeal to investors.

To maintain the current return on tangible equity margins, banks will need to cut costs 2.5 times as fast as revenues decline, McKinsey said in its Global Banking Annual Review 2024.

Just 14% of global banks have a price-to-book ratio above 1 and a price-to-earnings ratio of more than 13 - more than four times lower than companies in all other industries, McKinsey said.

Philippe Bodereau, head of credit research at PIMCO, said Europe's banks were separating into two camps; those with potential to mirror U.S. peers with consistent, double-digit returns on equity, and those stuck at depressed single-digit levels.

"I think those institutions should be doing a fair bit of strategic soul searching," he said.

INVESTMENT BANKING BOOST

UBS and Barclays are expected to report a third quarter bounce in investment banking revenues, particularly in equities and advisory fees, where U.S. rivals JP Morgan, Morgan Stanley and Goldman Sachs outshone expectations.

Like U.S. peers, European banks are not expected to show a marked deterioration in asset quality, and fears have waned that commercial real estate (CRE) could dent capital, ratings agency Moody's said.

A stress test of the 21 European lenders with the highest CRE exposure relative to Common Equity Tier 1 (CET1) capital showed all would remain above minimum CET1 capital thresholds, even under a scenario of severe loan quality shock.

Analysts at HSBC remain on guard for negative surprises in net interest income, a measure of profitability that reflects the difference between what a bank earns on loans and how much it pays depositors.

HSBC prefers asset gathering stocks like Credit Agricole and KBC over BNP Paribas and ING , where net interest income (NII) momentum was seen weakest.

UK domestic lenders Lloyds and NatWest should report continued third quarter growth in NII, Barclays analysts said, boosted by an improving outlook for loan growth, particularly mortgages.

Concerns about a possible rise in bank taxation in the UK Budget on Oct. 30 is weighing on sentiment.

But shares in domestically-focused lenders could bounce by more than 5% if the government opts to leave current arrangements intact, UBS said.

Source: The edge markets

Image courtesy of City Index.

Source: Poundsterlinglive

Price action in some of the world’s most risk-sensitive assets is signalling concern that the Federal Reserve’s decision to begin lowering interest rates may have been premature — or unsustainable.

Since the Fed kicked off its long-anticipated loosening cycle on Sept 18 with a cut of 50 basis points, double the median forecast, emerging-market assets have traded as if borrowing costs in the world’s largest economy will remain high. That’s left developing world assets in limbo and headed for another span of underperformance.

In little over a month, the Fed rate cut has been eclipsed by fresh risks that are keeping global investors shy on the asset class, overshadowing the gains that Fed easing cycles might usually be expected to bring. While the threats have taken different forms — higher treasury yields, a stronger dollar, greater volatility in currency options — the underlying themes have been just two: the potential return of Donald Trump as US president and China’s inadequate stimulus measures.

That means that once again, traders in emerging markets are positioning defensively for an inflationary US economy and a deflationary Chinese one.

“We remain in a world with two potentially existential threats to EM – China weakness and Trump,” said Paul McNamara, investment director at Gam UK Ltd in London. “A strong US economy without inflation is good for EM, but persistent inflation will not only postpone further cuts, but weigh on all risk assets into the medium term.”

Though there was an initial boost to emerging markets from the Fed move, it was first interrupted by strong US data that revived fears of resurgent inflation, and later comments by presidential candidate Trump that exacerbated them. The Republican nominee has put tariffs and protectionism at the center of his agenda. If implemented, that’s likely to raise consumer prices in the US and undermine demand for exports from the developing world, according to many economists.

“We’re just weeks away from a US election that might lead to a Trump economic assault on the biggest EM out there, China,” said Charlie Robertson, head of macro strategy at FIM Partners. “It’s close to a coin flip as to who wins the US election, and equally makes it hard to choose a local markets trade to like.”

Disappointed again

EM stocks, which briefly rebounded from a record low relative to US equities after the Fed decision, are heading back to that dubious honour. Local currencies and local-currency bonds are on course for their worst month since February 2023. Segments of the dollar-bond market, like long-duration and investment-grade, also continue to trail.

Bond investors have seen their returns stagnate in the month since the Fed decision. Their expectations for the developing world to follow the Fed are now being upended by central-bank caution, as policymakers from Indonesia to Hungary and Turkey decide to pause interest-rate cuts.

“Eventually EM local-currency bonds should benefit from global easing,” said Anders Faergemann, a senior portfolio manager at Pinebridge Investments. “However, from a total return perspective, the relief rally in the US dollar and domestic delays to monetary-policy easing may have triggered some profit-taking.”

The average yield on EM sovereign dollar bonds has edged higher by nine basis points since Sept 18, while the rate on local-currency bonds has also risen nine basis points, according to data compiled by Bloomberg. Between the two groups, the latter is underperforming in dollar returns, with currency declines acting as an additional drag.

“Rising geopolitical tensions, uncertainty over China’s efforts to rescue domestic consumption, and event risk leading up to the US presidential election will also spark increased demands for a higher risk premium into year end,” Faergemann said.

Yield curves

Strong US economic data have not only disrupted Fed monetary-policy bets but are also reshaping emerging-market yield curves. Within the dollar-bond market, investors are favoring short-duration bonds to long-duration bonds — an unlikely preference in an environment where falling rates are a consensus expectation. Bonds with a duration of more than 10 years have handed investors a loss of 3.6% since the Fed cut, while those of less than three years have given marginal gains.

As of Friday, swap traders were penciling in further reductions to their bets on Fed cuts in the remaining two meetings of the year. Citigroup Inc’s Akshay Singal, global head of short-term interest-rate trading, told Bloomberg TV that the Fed is likely to cut rates by just 25 basis points, or even stay put, over the next few meetings. He said he doubted the Fed would have opted for a 50-basis-point cut in September if it had seen the strong jobs data before the meeting.

“The combination of US Treasury yields above 4% and a pickup in economic activity in the US have called into question the idea of the beginning of a Fed cutting cycle,” said Martin Bercetche, a hedge-fund manager at UK-based Frontier Road Ltd. “We might have had a false start last month.”

Source: The edge markets