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Sun, 30th April 2017

Anirudh Sethi Report

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Archives of “euro banknotes” Tag

Euro climbs to 3-week high against dollar on rate speculation

The euro climbed to its strongest level against the dollar since mid-February as the markets reassessed the odds of a December rate rise by the European Central Bank.

A day after mildly hawkish comments from European Central Bank president Mario Draghi helped send the single currency higher, the euro tacked on another 0.9 per cent to hit a three week high of $1.0673 following a report that the ECB had discussed whether rates could rise before it ends its bond buying programme.

However, two people familiar with the discussions denied there had been any meaningful debate over the issue. One person said some members are keen for the council to consider raising the deposit rate, now at minus 0.4 per cent, before it ends its quantitative easing programme.

Against the pound, the euro was up 1 per cent at €1.1393 – a level last seen in mid-January. The currency also firmed more than 1 per cent against the Japanese yen at 122.83.

Quick-take ECB previews from 6 banks

The European Central Bank meet Thursday, some really quick preview action from a few banks

Announcement due 1245GMT, along with President Draghi’s press conference
  • Main financing rate currently at 0%, expected to be left unchanged
  • Marginal lending facility rate currently at 0.25%, expected unchanged
  • Deposit facility rate currently at -0.4% and expected 9go on, have a guess) to be left unchanged
 
Bank of America / Merrill Lynch:
  • The truce between hawks & doves will be reflected in a dovish Draghi
  • Draghi will use extended QE as intended
Barclays
  • Expect that policy likely to be unchanged
  • Watching for any sign forward guidance on rates could be dampened
Citi
  • Despite likely much higher 2017 HICP they see no change to rates, nor to the size of QE, nor to forward guidance
  • Perhaps the balance of risks changes to neutral
Commerzbank
  • European Central Bank is in a holding mode, assessing incoming data
  • Will be no change to policy or statement
  • September will bring tapering announcement

Emerging Markets :An Update

  • A Korean special prosecutor indicted Samsung chief Jay Y. Lee on bribery charges.
  • Korean press is reporting that China has told its travel agents to halt sales of holiday packages to South Korea.
  • Bulgaria’s interim government said it may apply to join the eurozone within a month.
  • South Africa’s main labor union Cosatu accepted a government-proposed minimum wage.
  • New Commerce Secretary Ross appears to be taking a less confrontational stance with regards to Nafta.
  • Press reports suggest Mexico may request a swap line from the Fed.
  • Peru’s central bank cut reserve requirements again.
In the EM equity space as measured by MSCI, Turkey (+1.5%), Czech Republic (+1.4%), and Mexico (+1.2%) have outperformed this week, while Colombia (-3.4%), Brazil (-2.1%), and UAE (-2.1%) have underperformed.  To put this in better context, MSCI EM fell -1.4% this week while MSCI DM rose 0.3%.
 
In the EM local currency bond space, India (10-year yield -11 bp), Poland (-9 bp), and Indonesia (-3 bp) have outperformed this week, while Turkey (10-year yield +44 bp), Colombia (+18 bp), and Malaysia (+14 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 18bp to 2.50%.
 
In the EM FX space, MXN (+1.6% vs. USD), PLN (+0.4% vs. EUR), and ARS (+0.2% vs. USD) have outperformed this week, while COP (-3.1% vs. USD), TRY (-3.0% vs. USD), and KRW (-2.2% vs. USD) have underperformed.
 
A Korean special prosecutor indicted Samsung chief Jay Y. Lee on bribery charges.  He is accused of exchanging bribes for government favors, which were uncovered during the investigation of President Park.  Lee allegedly directed tens of millions of dollars to a confidante of President Park in return for government support of a 2015 merger that benefited his interests.  These developments could fundamentally change the role of the chaebol in the Korean economy.
Korean press is reporting that China has told its travel agents to halt sales of holiday packages to South Korea.  If confirmed, the move would likely be in retaliation for Korea agreeing to deploy a US missile defense system.  Spokesman for China’s Foreign Ministry said he wasn’t aware of any such measures while an official at the Korea Tourism Organization (KTO) said China has issued the ban.  KTO estimates that nearly half of the foreign visitors to Korea last year were from China.

Cash No Longer King: Europe Accelerates Move To Begin Elimination Of Paper Money

In the shadow of Donald Trump’s spree of controversial actions, the European commission has quietly launched the next offensive in the war on cash. These unelected bureaucrats have boldly asserted their intention to crack down on paper transactions across the E.U. and solidify a trend that has been gaining momentum for years.

The financial uncertainty amplified by Brexit has incentivized governments throughout Europe to seize further control over their banking systems. France and Spain have already criminalized cash transactions above a certain limit, but now the commission has unilaterally established new regulations that will affect the entire union. The fear of physical money flowing out of the trade bloc has manifested a draconian response from the State.

The European Action Plan doesn’t mention a specific dollar amount for restrictions, but as expected, their reasoning for the move is to thwart money laundering and the financing of terrorism. Border checks between countries have already been bolstered to help implement these new standards on hard assets. Although these end goals are plausible, there are other clear motivations for governments to target paper money that aren’t as noble.

Eurozone unemployment rate drops to 9.6%

Unemployment in the euro area has dropped to its lowest level since May 2009, reaching 9.6 per cent in December from 10.5 per cent in the same month a year ago.

As usual, the Czech Republic and Germany were the EU’s star performers, Eurostat noted in its release, while Greece and Spain were still weighed down by painfully high jobless levels.

Youth unemployment also stands at a lofty 44.2 per cent in Greece and nearly 43 per cent in Spain.

ECB tells Monte dei Paschi it needs to raise 8.8 billion euros

A Christmas message from the European Central Bank to Monte dei Paschi

  • Needs to plug a capital shortfall of 8.8 billion euros
(Was previously 5 bn euro gap)
  • ECB said the lender was solvent
  • But the liquidity position had rapidly deteriorated between the end of November and December 21

The Angry German Press Reacts To Draghi’s QExtension

Back in March, when the ECB unexpectedly announced it would begin buying corporate bonds, while the German population was rather angry, its media was furious. The best example of the fury came from Germany’s Handelsblatt, which in an article titled “The dangerous game with the money of the German savers”, the authors provide a metaphorical rendering of what is happening in Europe as follows:

The publication also painted a caricature of the man behind Europe’s monetary policy:

 

Eurozone States Need to Hold Referendums on Rejecting Euro – Italian Lawmaker

Euro currencyItaly and other EU states need to hold referendums on giving up the eurozone common currency, Vice President of Italy’s Chamber of Deputies Luigi Di Maio said Tuesday.

“We should not be taking the decision instead of the citizens, we should give them an opportunity to make the decision on the issue [of rejecting euro] themselves. I hope that it will be possible for the other states of the Eurozone to hold the referendum on euro’s further fate, too,” Di Maio, one of the leaders of the Italy’s opposition Five Star Movement (M5S) party, told RIA Novosti in an interview. The lawmaker stressed that since joining the Eurozone, Italy lost some 25 percent of national wealth. Di Maio added that Germany is the only state, which benefits from the existence of euro, whilst other EU members pretend not to be damaged by the common currency.

Eurozone retail PMI’s fall in October but what happened in Sep?

A poor showing from retail PMI’s in October

The latest retail PMI’s from the Eurozone fell in October.

  • Eurozone 48.6 v s49.6 prior
  • Germany 51.0 vs 53.0
  • France 47.5 vs 49.1 prior
  • Italy 46.5 vs 45.0 prior

Italy was the only one that gained but is still in contraction.

Perhaps more importantly we need to look at the Sep numbers ahead of the main Eurozone retail sales report at the top of the hour.

They we’re much better either.

  • EZ 49.6 vs 51.0
  • Germany 53.0 vs 54.1
  • France 49.1 vs 53.0
  • Italy 45.0 vs 43.2 prior