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Sat, 25th February 2017

Anirudh Sethi Report

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Archives of “Euro” Tag

European Indices Closed in RED

European stock market close 16 February 2017

If you can call a 0.16% gain “standing out” that is.

  • FTSE -0.4%
  • Cac -0.6%
  • Dax -0.4%
  • Ibex -0.4%
  • FTSE Mib +0.2% (I’ve done them a favour and rounded it up)

European bonds

  • Italy 2.14% -10bp
  • Spain 1.59% -9bp
  • Portugal 3.97% -12bp
  • Germany 0.350% -2bp
  • Greece 7.79% +3bp

France’s Le Pen says many countries are bound to leave the Euro zone

Marine Le Pen doesn’t like the euro (doesn’t like a lot of stuff)

  • Many countries bound to leave the euro zone
  • Makes no difference if debt repaid in euro or franc
Bloomberg with the headlines, not sure what context She was speaking in …
Ahh … here we go
  • interview on France2 TV (a 2 hour interview! Stamina – kudos for that)
  • “Italy, Spain, Greece” all “dying from the common currency built around the DMK”

Rs 6.78 lakh cr remonetised, Rs 9.1 lakh cr in circulation: Govt

In the ongoing process of remonetisation, banknotes worth Rs 6.78 lakh crore returned to the formal banking system between November 10 and January 13, taking the total currency in circulation to Rs 9.1 lakh crore, the government said on Tuesday.

“Remonetisation is taking place ceaselessly at a fast pace. Between November 10, 2016 and January 13, 2017, the notes in circulation have increased by Rs 6.78 lakh crore, thereby taking the total notes in circulation to Rs 9.1 lakh crore,” Minister of State for Finance Arjun Ram Meghwal said in a written reply in Rajya Sabha.

He was answering question on estimated time period for replacing old high denomination notes with new currency.

Supplies are even being effected by air with direct dispatches to some centres to cut down on delivery time, he added.

In a separate reply, when asked how much old Rs 500 and Rs 1,000 notes (SBNs) were deposited/exchanged upon being de-legalised, Meghwal said specified bank notes (SBNs) worth Rs 12.44 lakh crore were returned to currency chests of RBI by December 10, 2016.

Frexit would ‘impoverish’ France warns ECB’s Cœuré

Image result for frexitMarine Le Pen’s plans to take France out of the euro would consign the country to impoverishment, one of the European Central Bank’s most senior French officials has warned.

Benoît Cœuré, executive board member at the ECB, called the notion of a ‘Frexit’, a choice for “impoverishment” that would “threaten the jobs and savings of the French people”.

Ms Le Pen, leader of the far-right National Front, is vowing to hold a referendum to take France out of the eurozone and redenominate the country’s €2tn of outstanding debt into a new franc after 18 years of membership should she become the country’s new president in May.

Should a Frexit occur, “debts incurred by French businesses and households would increase”, warned Mr Cœuré.

“Inflation, which would no longer be restrained by the ECB, would eat into savings, the fixed incomes of households and small pensions”, he added.

Despite Ms Le Pen’s assurances of an “orderly” exit, the French central banker said “leaving the euro would mean taking risks which have unpredictable consequences”.

The prospect of surging popularity for Ms Le Pen and the apparent demise of one of her main rivals for the job, the right-wing Francois Fillon, has sent the country’s 10-year bond yields to an 18-month at the start of the week.

Investors have dumped French debt, demanding the highest premium in four years to hold its benchmark bonds over Germany’s, as the likes of S&P Global Ratings have warned a Frexit would result in a likely downgrade of France’s sovereign borrower status.

With less than three months since the start of the first round presidential vote, Mr Cœuré said he could “not contemplate” a French vote in favour of leaving the euro, with the latest polling showing around 68 per cent of French people still back membership of the single currency area.

Amid promises by Ms Le Pen to restore monetary sovereignty to France and reverse the forces of globalisation, Mr Cœuré defended the euro, arguing it had proven to have had “greater benefits for the disadvantaged and the vulnerable”.

ECB sees seeds of next crisis in Trump deregulation plan

The European Central Bank rejected U.S. accusations of currency manipulation on Monday and warned that deregulating the banking industry, now being openly discussed in Washington, could sow the seeds of the next financial crisis.

Arguing that lax regulation had been a key cause of the global financial crisis a decade ago, ECB President Mario Draghi said the idea of easing bank rules was not just worrying but potentially dangerous, threatening the relative stability that has supported the slow but steady recovery.

 Draghi’s words are among the strongest reactions yet from Europe since U.S. President Donald Trump ordered a review of banking rules with the implicit aim of loosening them. That raises the prospect of the United States pulling out of some international cooperation efforts.

“The last thing we need at this point in time is the relaxation of regulation,” Draghi told the European Parliament’s committee on economic affairs in Brussels. “The idea of repeating the conditions that were in place before the crisis is something that is very worrisome.”

The ECB supervises the euro zone’s biggest lenders.

“Big mistake”

Andreas Dombret, a member of the board of Germany’s powerful central bank, the Bundesbank, said that reversing or weakening regulations all at once would be a “big mistake”, because it would increase the chance of another financial crisis.

“That is why I see a possible lowering of regulatory requirements in the U.S., which is under discussion, critically,” said Dombret, who is also a member of the Basel committee drafting new global banking rules.

Emerging Markets: An Update

  • Press reports suggest that China’s central bank has ordered banks to limit new loans in Q1.
  • Fitch revised the outlook on Nigeria’s B+ rating from stable to negative.
  • Russia announced details of the FX purchase plan.
  • Brazil’s central bank confirmed it will simplify the reserve requirement system for banks.
  • S&P cut the outlook on Chile’s AA- rating from stable to negative.
  • Mexican announced another hike in fuel prices will take place on February 4.
  • Mexican President Pena Nieto canceled a planned meeting with President Trump as tensions flare

In the EM equity space as measured by MSCI, Mexico (+5.1%), Russia (+4.5%), and Poland (+4.0%) have outperformed this week, while UAE (-1.5%), Hungary (-0.1%), and South Africa (flat) have underperformed.  To put this in better context, MSCI EM rose 2.2% this week while MSCI DM rose 1.1%.

In the EM local currency bond space, Colombia (10-year yield -17 bp), the Philippines (-16 bp), and Peru (-10 bp) have outperformed this week, while Poland (10-year yield +18 bp), South Africa (+13 bp), and Korea (+7 bp) have underperformed.  To put this in better context, the 10-year UST yield rose 3 bp this week to 2.50%.

 
In the EM FX space, MXN (+2.7% vs. USD), CLP (+1.1% vs. USD), and ZAR (+0.9% vs. USD) have outperformed this week, while TRY (-2.7% vs. USD), HUF (-0.7% vs. EUR), and COP (-0.4% vs. USD) have underperformed.
 
Press reports suggest that China’s central bank has ordered banks to limit new loans in Q1.  The PBOC reportedly emphasized its concern about mortgage lending.  Reports also suggest that it may make some lenders pay more for deposit insurance.  If reports are true, then we would expect the economy to slow as we move through 2017.  For now, China is not one of the major market drivers but this news would clearly be negative for risk and EM.

Draghi refuses to comment on Trump EU claims; tells Germans to ‘be patient’

Mario Draghi has refused to respond to Donald Trump’s claims on the EU’s disintegration, saying he was unwilling to talk about the president-elect’s stance that keeping the federalist project together will be “harder” than imagined.

At his latest press conference in Frankfurt, Mr Draghi said he would only respond to “policies rather than just statements”, ahead of Mr Trump’s inauguration as president tomorrow.

The Italian was however more vocal on German criticism of the ECB’s record low interest rates, telling savers in Europe’s largest economy to “be patient” in the wait for higher interest rates.

“Real rates will go up” as the recovery regains momentum he said.

Mr Draghi’s broadly dovish tone on inflation has seen the euro weaken to its lowest in 10 days this afternoon. The ECB president said much of the recent spike in prices was down to higher energy prices with wage growth and other evidence of higher economic activity still low.

He also refused to make any comment on the looming bailout of one of Italy’s biggest banks and the implementation of new EU rules which will impose losses on junior bondholders.

Eurozone inflation confirmed at three-year high of 1.1%

On the up.

The eurozone’s annual inflation rate climbed above the 1 per cent mark for the first time since 2013 in December, underscoring the impact of climbing energy costs on consumer prices which have lagged at worryingly low levels for the last three years.

At 1.1 per cent, year-on-year inflation in December was confirmed in a second reading from Eurostat, which also showed an uptick in core inflation to 0.9 per cent.

Germany, Europe’s largest economy, recorded a more than three-year high of 1.7 per cent last month while Italy remained more sluggish at 0.5 per cent.

How to Become a Trillionaire and Other Thoughts

Grab one of these:

zimbabwe_jan7

Careful what you wish for central bankers and fiscal policy makers.  Though we don’t see signs of “rollover risk” in any of the G5 or G20, it’s all about confidence and you know what Joe said about confidence:

Confidence is a very fragile thing.  – Joe Montana

.The World Economic Forum reports this about Zimbabwe’s ghost of hyperinflation past,

Zimbabwe was once so gripped by hyperinflation that the central bank could no longer afford paper on which to print practically worthless trillion-dollar notes. 

The government reported in July 2008 that Zimbabwe was experiencing inflation of 231 million percent (231,000,000%). However, the Libertarian think tank, the Cato Institute, believes that the real inflation rate was 89.7 sextillion percent or 89,700,000,000,000,000,000,000%.

It is interesting to note that the country is now grappling with the opposite problem.

Like Britain, Japan, the US and other nations dealing with the consequences of weak demand and cheap oil, Zimbabwe is threatened more by the prospect of falling prices. But that doesn’t mean its people are ready to trust that hyperinflation won’t happen again.

Overnight US Market :Dow closed -43 points.

Stocks ended mixed Thursday as retailers dominated the news with Macy’s and Kohl’s both plunging following weak holiday-season reports that led the chains to cut their profit forecasts.

Still, the Nasdaq composite’s modest gain of 11 points, or 0.2%, was enough to notch a new all-time high. Settling at at 5487.94, it topped the old record by half a point.

The Dow Jones industrial average finished down 43 points, a 0.2% decline to 19,899.29. Losing 0.1% was the S&P 500, which settled at 2269 even.

nvestors were also focusing on upcoming U.S. jobs data following the publication of the minutes to the Federal Reserve’s last board meeting.

Private U.S. companies added 153,000 jobs in December, according to payroll processor ADP. That total was a bit lower than analysts expected and slightly slower than the pace of hiring for the rest of 2016. The government will issue its own hiring report on Friday.