Oct 22, 2019

Axios Markets

By Dion Rabouin
Dion Rabouin

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Situational awareness:

  • Canadian Prime Minister Justin Trudeau won re-election but will have a minority government that will require the support of a smaller left-leaning party. (Reuters)
  • SoftBank will pay former WeWork CEO Adam Neumann around $200 million to leave the board of directors, give up his voting shares and support SoftBank's takeover. (Axios)
  • UBS reported a 16% year-over-year profit decline in the third quarter but added $15.7 billion in its wealth management unit, sending the stock higher. (Bloomberg)
1 big thing: New climate consensus is moving forward without the U.S.

Photo Illustration: Sarah Grillo/Axios. Photos: Win McNamee, Alex Wong, Horacio Villalobos/Corbis-Corbis, Oliver Douliery/AFP, and Simon Dawson/WPA Pool

The world's top economic institutions are going deeper in the fight against climate change, and central banks are re-evaluating policies and pushing new principles to integrate climate-related risks into financial supervision, leaving the U.S. behind.

On one side: The impacts of climate change are "everywhere," European Central Bank chief economist Philip Lane said during the IMF's fall meetings last week.

  • "Every sector will be affected … it’s absolutely core to central banking."
  • "To deliver our core mandate we absolutely have to be involved," Lane added.

That sentiment has been backed strongly by ECB chief Mario Draghi as well as Bank of England president Mark Carney, who's organized a coalition of 46 central banks and regulators called the Network for Greening the Financial System (NGFS) that last week published a technical guide to help its members weave sustainability into portfolio management.

On the other side: President Trump yanked the U.S. out of the Paris climate agreement and his administration announced "climate change will not be on the agenda" at the June G7 meeting in Florida.

  • Fed chair Jay Powell called climate change "an absolute first-order issue" in a speech earlier this month, but said it was not clear to him if it's "a first order of business for central banks."
  • The Fed and Bank of Brazil are the only major central banks not taking part in NGFS.

The big picture: While the IMF and World Bank have for years examined climate and pushed for carbon pricing, the institutions are getting more active — substantively and symbolically.

  • A senior IMF official tells Reuters that the fund is looking at how much climate-related risks are priced into market valuations.
  • "We are going to look at stock markets country by country, then by sector,” said Tobias Adrian, who heads IMF's monetary and capital markets department.
  • And as the Financial Times notes, new IMF managing director Kristalina Georgieva announced that the organization “is gearing up very rapidly to integrate climate risks into our surveillance work."
  • "For the IMF, we always look at risks, and [climate change] is now a category of risk that absolutely has to be front and center in our work," she said.
2. BAML: Investors have no fear of a no-deal Brexit
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Data: Investing.com; Chart: Axios Visuals

As the Brexit saga has twisted and turned this year, traders look to have taken their bets on how it will unfold to a new forum: the Euro/British pound currency pair.

The latest: Britain's Parliament appears to be at another impasse in its attempted divorce from the EU after House of Commons Speaker John Bercow ruled Monday the government could not force another vote on the previous Brexit deal.

  • As Prime Minister Boris Johnson has been foiled in his stated attempts to take the U.K. out of the eurozone by any means necessary, traders have pushed the pound to its strongest level in five months against the euro.

Why it matters: Both the pound and euro would be weaker if Britain left the EU with no deal, but the pound would be expected to see more selling, which helped drag the currency to its weakest since 1985 against the dollar last month.

  • The consistent buying of the pound and selling of the euro — a nearly 10% move in the pair — as uncertainty has grown about whether Johnson's plan will succeed indicates "investors have priced-out no-deal Brexit," strategists at Bank of America Merrill Lynch wrote in a recent note to clients.
3. Teva's stock shines after agreeing to opioid settlements
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Data: Investing.com; Chart: Axios Visuals

Three of the four defendants agreeing to pay $260 million to settle opioid litigation with two Ohio counties have seen their stock prices plummet, as the settlement leaves 2,700 more local governments still suing over the distributors' roles in the addiction crisis.

Why it matters: The deal could serve as a template that would put the companies on the hook for $47 billion in damages to all 2,700 counties serving as plaintiffs in the lawsuits, depending on what happens in individual representative "bellwether trials" that will shape negotiations.

Yes, but: While the stock prices of Cardinal Health, McKesson and AmerisourceBergen expectedly fell by around 3% on Monday, Teva's stock jumped, rising as much as 18% during the day and ending 8.7% higher.

What's happening: Teva announced it had agreed to a separate settlement to resolve complaints against the company from a group of attorneys general from states around the country for its role in helping to fuel the opioid crisis.

  • Under the deal, Teva would donate $23 billion in opioid addiction treatment drugs and pay $250 million over 10 years.
  • Neither settlement includes an admission of liability from Teva.
4. Fisher faces a multibillion-dollar reckoning

Billionaire investor Ken Fisher could see even more investors and more money flee his asset management business as he and the firm continue to face a reckoning for the inappropriate remarks he made at a private investor conference earlier this month.

What's happening: Nearly $2 billion has been pulled from Fisher Investments in less than two weeks by the state of Michigan and retirement systems from Philadelphia, Boston and Iowa as well as Fidelity.

  • Major institutional managers including Goldman Sachs and pension funds from Florida and Los Angeles say they are reviewing their relationship with Fisher.

Background: Fisher has presented himself as a brilliant money manager and had been a frequent guest on financial news programs, dispensing advice about stock picks. His firm has grown thanks to a barrage of direct mail, seminars, videos, ads and the tagline for his firm: “We do better, when you do better.”

The big picture: But behind closed doors, Fisher was often unprofessional and the company provided a hostile work environment, according to accounts published Monday by Bloomberg.

  • "At a staff meeting in 2008, for example, as financial markets were reeling, a woman asked Fisher if he’d considered shifting into defensive holdings."
  • "'Why would I want half a d---?' Fisher replied, according to two people who attended the meeting."
  • "Fear is ever-present, some former employees said. They said they were held to vague targets and that it was easy to get in trouble for questioning the firm’s methods or objectives."
  • "Salespeople must ... make hundreds of calls a day, sifting through names of mostly unqualified or uninterested prospects. Many hires are recruited directly from college and are gone in a year or two."
  • “'I thought Fisher was my dream job,’ said Nick Morrison, who joined the firm in nearby Vancouver in 2011, when he was fresh out of the University of Idaho. He left the following year. 'From the very first day, it was just a nightmare.'"
Dion Rabouin