Why Lebanon's Time-Zone Troubles Are No Laughing Matter

Summary:

Foreign allies and investors will fail to see the funny side to this latest misstep.

Sunday's news that Lebanon's residents woke up in two different time zones led to jokes about "Muslim time" and "Christian time" but it also exemplified some of the problems facing the state.

The government announced that the usual start of Daylight-Saving Time would be delayed until April 21. Although no reason was given for the announcement, a leaked video of senior officials discussing the move published by a Lebanese media outlet suggested that postponing the time change until the end of Ramadan would allow Muslims to break their fast an hour earlier.

Thankfully, the move was reversed yesterday but the fact that such an important announcement was made with no independent oversight points to the ad hoc nature of decision making in Lebanon and the weakness of its institutions. Justice Minister Henri Khoury's condemnation of the decision laid bare this internal turmoil.

In a country with as diverse a population as Lebanon's, this near-unilateral decision quickly led to disarray as some communities, ministries, schools and religious institutions refused to comply, instead putting their watches and schedules forward one hour as usual. That the decision was made despite concerns about its possible effect on essential infrastructure such as flight times is worrying.

The result was that work meetings, medical appointments and transport schedules were to run on two separate times. Meanwhile, Lebanon's mobile networks were telling customers to change their phone's clock back manually if they wanted to abide by Lebanese government time.

The postponement of the time change could have led to sectarian tensions rising, with the government appearing to try and curry favour with some of the country's biggest religious communities but exasperating many other citizens in the process.

It is not unknown for countries to make unilateral decisions to change their time standards. Turkey, for example, stopped turning its clocks back in 2016. But the situation that unfolded over the weekend in Lebanon is the first in which residents living in a single time zone were to operate on two different times. One satirical graphic trending online depicted the country partitioned into more than a dozen time zones, depending on which community had a majority in that area.

However, the fact that such confusion over something so important took place in a country going through one of the worst economic crises in modern history is no laughing matter. One Twitter post shared on Sunday showed two Lebanese women talking about the daylight-saving move, saying: "What does it matter what time you eat if you can't afford to eat?"

Lebanon's multiple time zones would have matched the myriad currency exchange rates that its people have to try and navigate every day.

Sadly, every such misstep in Lebanon – no matter how quickly they are rectified – risks generating more passivity from potential donors, whose funding and input will be necessary to try to salvage the economy. Many would-be allies among the international community are watching carefully to see signs of political and institutional reform in Lebanon before committing to help. Being unable to tell the time will hardly reassure them.

Source: The National News

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Cohen

The Federal Deposit Insurance Corp (FDIC) and its flagship deposit insurance fund have been active since the Great Depression to provide an orderly resolution for failed banks and to reimburse certain customer accounts.

The FDIC said on Monday it would backstop a deal for regional lender First Citizens BancShares to acquire failed Silicon Valley Bank, triggering an estimated $20 billion hit to a the deposit insurance fund.

Here's what you need to know about the fund and how it works:

What is the deposit insurance fund?

The FDIC's deposit insurance fund helps to fulfill the agency's guarantee of bank deposits up to $250,000. In the event an insured bank fails, the FDIC uses the deposit insurance fund to pay back customers who maintained accounts under the limit.

In the case of Silicon Valley Bank and Signature Bank - which also failed shortly after the collapse of the former - the U.S. government determined that a "systemic risk exception" applied and reimbursed all customers-- including those whose deposits exceeded the $250,000 limit-- in an attempt to prevent further contagion to the banking system.

Throughout the FDIC's history, the insured deposit amount has been raised multiple times, most recently in the wake of the 2008 financial crisis when lawmakers passed legislation raising the cap from $100,000 to $250,000.

How is it funded?

The deposit insurance fund is funded through fees the FDIC charges insured banks, as well as the interest the FDIC earns on its investment of those funds in U.S. government obligations, like Treasury bills.

The fee a bank pays to the FDIC on a quarterly basis varies depending on a bank's liabilities and its risk profile. As of the end of last year, the deposit insurance fund balance stood at $128.2 billion.

In October, the FDIC finalized a rule to increase initial base deposit insurance assessment rate schedules by 2% starting in June.

The FDIC by law is required to resolve failed banks using the least costly option to minimize losses to its deposit insurance fund.

What happens when there are losses to the fund?

In the cases of Silicon Valley Bank and Signature Bank, any losses to the deposit insurance fund will be covered through a "special assessment" fee on banks, according to the FDIC.

The FDIC said on Sunday that it estimates the failure of Silicon Valley Bank will cost the deposit insurance fund $20 billion, but that the exact cost will be determined at a later date.

What is loss sharing?

The FDIC has the option to enter into a loss-sharing agreement with a firm that purchases a failed bank's assets. Under such an agreement, the FDIC absorbs a portion of the loss on a certain pool of assets, effectively sharing the loss along with the purchaser of a failed bank. The agency occasionally uses this tool to facilitate the sale of a failed bank by helping the acquirer avoid heavier losses.

The FDIC and First Citizens entered into a loss-sharing agreement on the commercial loans First Citizens purchased from Silicon Valley Bank.

If First Citizens makes any recoveries on those commercial loans, the FDIC will receive a portion of those recoveries.

What else will the FDIC get out of the first citizens deal?

In its announcement on Sunday that First Citizens would purchase Silicon Valley Bank's deposits and loans, the FDIC announced that as part of the deal, it would be receiving equity appreciation rights in First Citizens worth up to $500 million.

Beyond that, the FDIC will receive 3.5% annual interest on a 5-year $35 billion note that First Citizens issued to the FDIC as financing to buy the assets from the FDIC.

Source: Reuters

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Owen Li

Markets seem caught between the devil and the deep blue sea.

Easing concerns about bank stability this week have merely re-introduced interest rate risk, reining in any suggestion of a runaway relief rally as the first quarter closes on Friday.

While nerves persist over March bank failures and contagion fears, central banks are still faced with punchy growth and inflation and will likely switch attention back to cooling that down once they're assured banks can take the strain.

While a possible credit crunch from the whole disturbance may do that job for them, the overall impact on new lending and confidence is as yet unclear.

The extent to which depositors and the public at large have been spooked by the episode may be at least partly revealed by March U.S. consumer confidence numbers out later on Tuesday.

But interest rate markets are already correcting as signs of stability in the banking arena emerge.

The chance of another Federal Reserve rate hike in this cycle has moved back to 50% - up from just 30% early on Monday - and two-year Treasury yields regained a foothold back above 4%. Stress-related dollar demand ebbed somewhat.

The mood shift followed Monday's news that regional lender First Citizens BancShares had scooped up the assets of failed peer Silicon Valley Bank - sending First Citizens' stock price up more than 50% and lifting U.S. regional bank stocks at large as regulators backstopped the deal.

U.S. Treasury undersecretary for domestic finance, Nellie Liang, is due to tell Congress later on Tuesday the government will continue to prevent contagion in the banking sector as warranted and ensure Americans' deposits are safe.

Fed Vice Chair for Supervision Michael Barr said the banking system is "strong and resilient" but the Fed was reviewing its actions leading up to the collapse of SVB and how to tighten rules on banks going forward.

Stocks were have been buoyed by developments but gains remain tentative and Wall St futures were in the balance ahead of Tuesday's open.

European banks also rose 1%, adding to Monday's 1.4% gain. Swiss bank UBS climbed 1.5% after CEO Ralph Hamers said the bank sees its government-orchestrated takeover of Credit Suisse as a growth opportunity, in an internal memo seen by Reuters.

The European Central Bank's top supervisor Andrea Enria said on Tuesday he was concerned by a sudden unexplained selloff in Deutsche Bank shares late last week, which showed investors were on edge and could be spooked by moves in the relative small and illiquid market for credit default swaps.

Enria called for CDS to be centrally cleared.

But in illustration of the conundrum facing central banks over whether to focus on inflation or banking stress, Bank of England Governor Andrew Bailey signalled on Monday that rate-setters would not be swayed unduly from the inflation fight.

"With the Financial Policy Committee on the case of securing financial stability, the Monetary Policy Committee can focus on its own important job of returning inflation to target," said Bailey, who added in testimony to the British parliament on Tuesday that there was no obvious stress in the UK system.

Elsewhere, crypto shares were hit on Monday after the Commodity Futures Trading Commission said crypto exchange Binance and its CEO and founder Changpeng Zhao have been sued by the CFTC for operating an "illegal" exchange and a "sham" compliance program. Bitcoin slipped back below $27,000 on Tuesday.

Shares of BP added 1.9% after the British oil firm and Abu Dhabi National Oil made an offer to jointly acquire 50% of Israeli offshore natural gas producer NewMed Energy for around $4 billion.

And China spent $240 billion bailing out 22 developing countries between 2008 and 2021, with the amount soaring in recent years as more have struggled to repay loans spent building "Belt and Road" infrastructure, a study published on Tuesday showed.

Key developments that may provide direction to U.S. markets later on Tuesday:

* U.S. March consumer confidence, Richmond Fed Feb business survey, Dallas Fed service sector survey, Fed wholesale and retail inventories, Feb trade balance, US Jan house price index

* U.S. Federal Reserve Vice Chair for Supervision Michael Barr speaks; Bank of England governor Andrew Bailey and other BoE policymakers testify to parliament on banking turbulence; European Central Bank chief Christine Lagarde speaks

* U.S. Treasury auctions 5-year notes

* U.S. corporate earnings: Micron Technology, McCormick, Walgreens Boots Alliance Swinging Between Bank Fears and Rate Risks _1

Swinging Between Bank Fears and Rate Risks _2

Swinging Between Bank Fears and Rate Risks _3

Source: Reuters

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Thomas

Political

Piles of rubbish on street corners and burning bins casting a smoky pall over city vistas have become the visual symbols of resistance to French President Emmanuel Macron's pension reforms.

Mr. Macron is said by aides to be braced for the turbulence that is buffeting his presidency to continue and intensify. Already he has been denied the pomp and splendour surrounding King Charles III on a first foreign visit at Versailles.

This is a crisis that Mr. Macron entered with his eyes open for the trouble it would cause his government and, perhaps, to his efforts to create a legacy.

There were already painful protests against the measure, which raises by two years to 64 the retirement age for the French. While the bump up in the qualifying age is modest, Mr. Macron has cast this change as an important structural reform for the French economy.

Without taking this step, the cost to the public of paying out pensions is set to top 15 per cent of GDP. The pinch point has already come, as there are now 17 million French pensioners – up by 4 million on the figure in 2004.

Events over the weekend put France on a knife-edge. There are often politically damaging demonstrations against new policies in the country. Any presidency faces the risk of permanent damage if it gives into the calls for abandonment or if does not.

There are good reasons why the French system places a particular burden on the government finances. Unlike other comparable countries, Paris has not pursued automatic private enrolment for employees to provide for their own pensions. Even corporate schemes are tied to the state system in a way that would be unimaginable for most countries.

So a shake-up is essential. A note by Allianz Research at the start of the year said Mr. Macron's reforms would not go far enough. Pointing to demographic trends, it said there would be 60 people aged over 64 for every 100 people who were of working age (between 23 and 63) by 2050. To stand still, the French would have to raise the retirement age to 67 by 2050.

What's on the table would add 1.6 million people into the workforce. This development could overcome the problems with ageism currently seen in France. There is 6 per cent unemployment in the 55-64 age bracket among French workers, but the rate is only 3 per cent in Germany.

Defending the reform is a red line for the president, who has also offered talks with the unions and demonstrators on workplace issues.

More than 1 million on the streets of 20 cities is hard to write off as a spasm. The likelihood is that it will be the last big domestic overhaul of a presidency that still has four years left to run. Circumstances have changed since Mr. Macron won re-election last year. The loss of the governing party's majority in the National Assembly robs him of a platform to promote his agenda.

The president was forced to use Article 49, paragraph 3 of the constitution to ram his pension proposal through last week. It is a democratic instrument that provides for a vote of no confidence in the government as a proxy for ratification. The 49.3 article has been used a hundred times since it came into being in the 1950s. Charles de Gaulle used it to press ahead with developing the nuclear deterrent.

Mr. Macron won the no-confidence vote, but the manner in which the provision was used has escalated the clash with the streets. This has made him vulnerable as his poll ratings have slipped below 30 per cent. Aides are worried about the unforeseeable twists when pressure builds on an administration.

Ten years ago, a "Leonarda" moment defined the presidency of Francois Hollande, when his government was keen to show toughness against migrants and people without papers. Officials tracked down a young Roma girl called Leonarda Dibrani, then 15, on school trip, snatched her and deported the pupil with the rest of her family to Kosovo. The anti-Roma campaign had gone too far for public opinion, and Mr. Hollande's government crumbled in the backlash. His decision to allow Leonarda to return to the French school to complete her education, but not with her family, satisfied nobody. A weak presidency faced a baked-in loss of power after one term.

As a result of its revolutionary history, there is an idea in France that demonstrations can be a means of changing the direction of the government. When public opinion backs protests, it can become accepted that 49.3 was invoked to a decision against the will of the people. This is the danger Mr. Macron must somehow avert in the days ahead.

When he first came to power, Mr. Macron observed that he would like to be a "Jupiterian" president. Like the Roman god, he would display his will by throwing down thunderbolts that would cajole the system.

During the pensions debate, opposition legislators twisted that Roman reference to hold up posters of the corrupt and wasteful emperor Caligula. The French newspaper Le Monde, with a hint of despair, said the deeper lesson of the crisis was an absence of leadership to look up to across the country. "An isolated president, a weakened prime minister, an overheated National Assembly, streets in turmoil," an editorial listing its woes said.

Roiling or escalating violence will surely drain support for the protests, however, and Mr. Macron must ensure the state maintains its authority. By doing so steadily and with an open hand to his opponents, the French leader can still defend his very necessary reforms.

Source: The National News

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Alex

The most extraordinary outcome of the March banking shock would be if the problem dissipated quickly.

Many people hope the crisis of confidence infecting global banking this month can be repelled almost as quickly as it appeared. After all, regulators and policymakers are faster and more comprehensive in their response since the Lehman Brothers bust 15 years ago.

The steps taken by U.S. and Swiss authorities to shut off contagion have put out the flames of the current crisis. If the economic impact can be limited too, this time might be different.

But that may simply be wishful thinking, certainly if history is anything to go by. Bank crises tend not to be resolved in weeks or months - they smolder for years.

As banking is built on confidence, a sudden loss of trust can take a long time to rekindle - no matter how swift and bold authorities' fire-fighting measures are.

And lack of confidence - from customers, investors or counter-parties - can be fatal to a bank if its capital cannot absorb losses or it cannot cover deposit outflow. A run on one can destabilize many others.

Don't Hold Your Breath - Banking Crises Last Years_1

It can take years for bad loans to be wound down and impaired assets to be disposed of, and as we are seeing now some 15 years after the Great Financial Crisis, central banks' emergency measures can stay in place for a very long time.

As an International Monetary Fund paper in 2020 stated baldly: "Financial distress typically lasts several years and is associated with large economic contractions and high fiscal costs."

S&L Debacle

The easy comparison for any banking or market turmoil is the GFC of 2007-08. But crises don't have to be equal to or worse than the world's most calamitous financial disaster in a century to be extremely damaging.

Others down the decades share common traits - rising interest rates, lax lending standards, poor oversight, or deregulation - and are just as instructive of how long investors can expect the current problems to rumble on.

The U.S. 'Savings and Loans' (S&L) crisis of the 1980s and 1990s is a case in point.

As the Paul Volcker Fed jacked up interest rates to quell the inflation that had emerged in the 1970s, short-term funding costs for many U.S. 'thrift' lenders exceeded the interest they were receiving on their fixed-rate loans like mortgages.

Coupled with deregulation and lax lending standards, the crisis reached boiling point in the mid-1980s and around a third of the country's S&L firms - over 1,000 in total - would go bust.

The crisis radically redrew the U.S. financial sector, ended up costing the U.S. taxpayer around $160 billion and, according to some analysts, contributed to the 1990 recession. Most striking was duration of the problems - they stretched from the early 1980s right through the mid-1990s.

"Not having a clue"

In a G30 paper 'Lessons Learned from Previous Banking Crises: Sweden, Japan, Spain, and Mexico' published in 2009, the policymaking authors noted that four factors are common to all financial crises - inherent weaknesses in the financial system; some event highlights these weaknesses explicitly; contagion spreads; resolution measures are applied.

Contagion loomed large over Sweden's 1990-94 crisis as much as any - six of the country's largest seven banks, with a combined market share of around 85%, were affected, as well as other financial institutions.

Interest rates in Sweden were raised to combat high inflation, which led to slower economic growth, falling asset prices, and an increasingly challenging environment for banks and other lenders. Sound familiar?

Another familiar echo is banks being unaware just how deep and far their risk-taking extends. As former Riksbank governor Stefan Ingves wrote caustically in the G30 paper: "Many pundits are concerned that banks' behavior may be influenced by moral hazard, but 'not having a clue' seems to be as important in many cases."

Sweden's crisis 'only' lasted four years. By some measures, Japan has been in a banking and financial funk to varying degrees for the best part of 30 years following the housing and stock market busts of the early 1990s.

Don't Hold Your Breath - Banking Crises Last Years_3

Urban land prices in Japan only started rising in 2017 and are still 65% below their 1991 peak, and the benchmark Nikkei 225 stock market is still 30% below it 1989 peak.

Granted, Japan is an outlier due to its unique mix of deflation, demographics, and debt, meaning the country has effectively been in a liquidity trap for decades.

But other banking crises follow the same playbook, even if their outcomes are not as extreme.

"Liquidity can be provided easily by central banks but losses on assets can take a long time to recoup," notes Chris Iggo at AXA Investment Managers in London.

Source: Reuters

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Devin

Commodity

Trade estimates for U.S. corn and soybean plantings ahead of Friday's notoriously hard-to-predict acreage report may indicate stronger chances for the soy number to surprise versus the corn one.

However, the trade's recent track record with March corn acres suggests the possibility of a big miss on corn should stay on the table.

On average, analysts peg 2023 U.S. corn plantings at 90.88 million acres and soybeans at 88.24 million acres, up 2.6% and 0.9%, respectively, from last year.

Traders will be comparing these numbers with the ones published by the U.S. Department of Agriculture's statistics service on Friday, which will represent the first survey-based estimates of 2023 spring crop plantings in the United States.

The 2.3 million-acre range of estimates on soybean acres offers an immediate red flag as it is the narrowest ahead of the March planting report since at least 2007, increasing the odds for an unexpected number. The five-year average range is 4.5 million acres, including 6.2 million last year and 5.5 million in 2021.

Analysts have not given themselves room to the downside on soybeans. Of the 26 estimates collected by Reuters, only one predicted lower soybean acres than last year's 87.45 million, and that one estimate was only marginally lower.

March soybean acres have not landed outside the range of estimates since 2018. But USDA's March corn intentions have landed outside in six of the last seven years, skipping only 2018, which is why a corn surprise is still in play for Friday.

Fortunately, analysts have created a bigger buffer than normal with a corn estimate range of 4.4 million acres, the largest since 2009. That compares with an average of 3.05 million over the last seven years, including a high of 3.9 million in 2020.

It is important to note that the trade range statistics – highest for corn in 14 years and lowest for soybeans in more than 16 years – are true in both absolute and percentage terms.

Analysts are confident on the upside to corn plantings versus 2022, as just one of 26 analysts predicted lower corn acres than last year's 88.6 million, and that same analyst is the only sub-90 million guess.

If the trade misses corn and/or soybean acres on Friday, it is a toss-up as to which miss could be larger. On average over the last five years, analysts' March corn and soy acreages have each deviated by 2.2% from the end-of-March USDA figures. Analysts' Ideas for U.S. Soy Plantings Set Stage for Surprise_1

Analysts' Ideas for U.S. Soy Plantings Set Stage for Surprise_1

In Combo

When evaluating feasibility of the trade's U.S. acreage estimates, the assumed combination of corn and soy, the United States' two largest crops, must be considered.

The average corn and soy trade guesses combine to 179.1 million acres, up from 176.03 million last year, when excessive springtime moisture in the northwestern Corn Belt prevented farmers from planting full intentions.

That would be the third-largest corn-plus-soy area on record after 2017 and 2021, when combined acres each surpassed 180 million. Analysts have overestimated corn-plus-soy acres in recent Marches, but 179.1 million is their smallest in four years.

USDA's Outlook Forum last month tentatively pegged 2023 U.S. corn and soy acres at 91 million and 87.5 million, respectively, combining for 178.5 million. Analysts' recent estimates have allocated fewer acres to wheat in 2023 at 48.85 million versus USDA at 49.5 million, allowing more room for corn-plus-soy.

USDA's wheat area would be a seven-year high and up more than 8% from last year, the biggest year-on-year rise in wheat plantings since 1996. Seventeen of 24 estimates collected by Reuters call for wheat acres below 49.5 million, and all reflect a rise versus last year.

Nine of 23 analysts predict spring wheat plantings below last year's 10.84 million acres, and eight of 23 see lighter durum acres this year versus last.

Source: Market Screener

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Samantha Luan

Bond

2Y Treasuries stuck around 4% until data catches up to the economic gloom

Sanity seems to prevail, at least so far this week, with no new contagion fears weighing on sentiment. Realised volatility in rates remains elevated, with double-digit moves in basis point terms on the 2Y-10Y segment of main developed market curves on Monday. This is also reflected in still high implied swaption volatility, celebrating lower banking worries but dreading a return of inflation angst. Our base case is indeed for further improvement in sentiment as no new news hits the system, and as contagion fears ebbs. This is not to say we're expecting a return to the pre-Silicon Valley Bank (SVB) state of play, however.

This is clearest in the US where the negative impact on credit, a good chunk of which is provided by regional banks, is increasingly certain. Commercial real estate has emerged as a key area of concern as it accounts for a disproportionate amount of lending in this sector. All this is to say that our already cautious outlook on the US economy has been reinforced by recent events. We're looking for one last hike in this cycle, and expect the Fed will be in a position to cut rates by year-end.

In this light, the drop in US market rates makes sense. Even after yesterday's sell-off, 2Y Treasury yields ($42bn of which will be auctioned today) hover around 4%. This level has proved a magnet since the breakout of the SVB crisis and a decisive break below would require the curve to price more than the three 25bp cuts we're forecasting for this year, and which the curve is currently pricing. This is far from impossible, but this would require data to catch up to the economic gloom in markets, or further bank contagion. The path of least resistance seems to be higher yields for now, but setting up for a more meaningful drop when rate cuts come into view.

Tightening is making its way through the eurozone economy

Even if we're right in expecting a gradual improvement in sentiment, it is likely euro rates will also continue dancing to the tune of banking news. The tone of ECB communication has remained hawkish in the face of stubbornly high core inflation (and also expected to accelerate in Friday's March report) and resilient sentiment indicators. For instance, Isabel Schnabel and Luis De Guindos both highlighted the importance of underlying price pressure over the weekend. There are signs that the tightening already announced is making its way through the financial system, however.

Contagion fears from the US appear contained so far but, even prior to the SVB failure, February data showed bank lending to households and firms dampened by monetary tightening. This has failed to show up in inflation data so far, and European wage dynamics may yet take some time to reflect this. This means the scope of cyclical re-steepening, led by the 2s5s segment, and resulting in a cheapening of the 2s5s10s butterfly, is more limited for European yield curves, at least for now, and compared to their US peer. The 10Y Bund appears unable to drop below the 2% line, and indeed, we feel more comfortable with 2.5% as a level for this year. This is the equivalent of above 3% for 10Y swap rates.

Today's events and market view

Bond supply today takes the form of the Netherlands auctioning 30Y debt, Italy selling 2Y nominal and 10Y inflation-linked debt, and Germany selling 3Y bonds. The European Union has mandated banks for a syndicated tap of its 2048 green bond. The US Treasury will conclude with a 5Y T-note auction.

French and Italian confidence/sentiment indicators are the main economic releases in the morning, followed in the afternoon by US trade, house prices, consumer confidence, and Richmond and Dallas Fed indices.

Bank of England governor Andrew Bailey is due to testify on the Silicon Valley Bank failure.