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Sun, 28th May 2017

Anirudh Sethi Report

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Archives of “european union” Tag

European Indices end mostly lower on the day

Closes are well off the lows though.   For the week a mixed result.

For the day, most of the European indices were lower. However, they are a good way off the  lows.
  • German DAX fell by -0.2%. The low reached one point 12,529.51. The high extended to 12,611.49.  The index closed at 12602.18.
  • France’s CAC index  fell by -0.1%. Its low reached 5282.42. The high 5336.76. The index closed at 5331.58.
  • Spain’s Ibex fell by -0.1%. The low reached 10,801.60 while the high extended to 10,918.80. The index closed at 10,887.40.
  • Italy’s FTSE MIB fell by -0.38%. The low reached 21,001.29 while the high extended to 21,245.73.  The index closed at 21,200.78
  • UK FTSE bucked the trend with a gain of +0.5%. The low reached 7514.39, while the high extended to 7554.21. The index closed at 7547.63
For the week:
  • German DAX fell by -0.29%
  • France CAC rose by 0.23%
  • Spain IBEX rose by 0.48%
  • Italy FTSE MIB fell by -1.66%
  • UK FTSE rose by 1.03%

Nasdaq’s “Big 5” Stocks Near $3 Trillion Market Cap

Since President Trump was elected – much to the heart-crushing chagrin of the billionaire class in Silicon Valley and its epic funding of Hillary – the big 5 stocks of the Nasdaq (Alphabet, Amazon, Apple, Facebook, and Microsoft) have gained a stunning $675 billion in market cap.

This pushes them near $3 trillion and well over 10% of the entire US equity market…

For context, Bloomberg notes that is more than the total value of stocks in any single equity market worldwide except the five largest: the U.S., China, Japan, Hong Kong and the U.K.

Macron, Le Pen: What to Expect From French Presidential Election

A woman walks near election campaign posters for French centrist presidential candidate Emmanuel Macron, left, and far-right candidate Marine Le Pen, in Saint Jean Pied de Port, southwestern France, Friday May 5, 2017

Marine Le Pen has repeatedly underscored her desire to mend fences with Russia so that Europe has a peaceful future ahead. She lashed out at the Western sanctions against Russia as “stupid” and recognizes Crimea as part of the Russian Federation.

She believes that France should maintain equally good relations with both the US and Russia, that it has no reasons for waging a cold war with Moscow and needs closer diplomatic, trade and strategic relations with Russia, which she calls “a great country.”

Emmanuel Macron also wants to rebuild relations with Russia and engage into intense and frank dialogue, even though Paris’ vision does not totally correspond with that of Moscow.

Unions and alliances

France’s possible exit from the European Union was the centerpiece of Le Pen’s agenda ahead of the first round vote in April. She has since softened her anti-EU rhetoric a bit and now says she wants to supplant the EU with a “European alliance of free and sovereign states.”

Marine Le Pen said her first order of business on setting foot in the Elysee Palace will be to propose negotiations to radically overhaul what she described as “a totalitarian union,” and announce referendums on EU membership and on withdrawing from the European Union.

European stocks end the mixed. Gains for the week.

French election gains for the week

The European stocks are ending the day mixed.
  • Euro Stoxx 600 is ending down -0.1%
  • France’s Cac is ending up +0.12%
  • Spain’s Ibex is up 0.5%
  • UK FTSE is down -0.29%
  • Germans Dax is down -0.05%
  • Italy’s FTSE MIB is up 0.06%
For the week gains from the French election held
  • France ends up 4.11%
  • Spain ends up 3.47%
  • UK ends up 1.26%
  • Germany ends up 3.23%
  • Italy ends up 4.39%.
For the month:
  • France ended up 2.83%
  • Spain ends up 2.42%
  • UK ends down -1.62%
  • Germany ends up 1.02%
  • Italy ends up 0.57%

French election results soothe investor fears

Investors breathed a sigh of relief following the first-place showing of centrist and pro-European Union candidate Emmanuel Macron in the first round of France’s presidential elections Sunday, sending the Euro to a five-month high relative to the dollar. Populist Marine Le Pen ranked second in the voting.

Why it matters: The results make it more likely that Macron will be France’s next president, keeping France in the EU. That should have a positive impact on both French stocks and the U.S. economy.

 Paris rising: High Frequency Economics’ Carl Weinberg predicts that French stocks will rally in trading Monday, and that interest rates on French government debt will fall. France isn’t out of the woods, however. Weinberg writes that Macron will have a tough time corralling a divided Parliament to implement pro-growth reforms.

Domestic affairs: A Blackrock Investment Institute note to clients calls Macron a “business friendly” candidate that will not get in the way of Europe’s improving economy. The U.S. economy has seen the benefits of faster growth in Europe—political stability across the Atlantic is good for business here.

Caveat: David Zahn of Franklin Templeton Investments warns that “it’s not a done deal yet,” and that the push and pull of a high profile election will cause “markets to remain volatile in the run-up to the final round of voting on May 7 and potentially even beyond.”

Fitch Downgrades Italy To BBB From BBB+

Having largely disappeared from the market’s scope for the past 6 months, ever since Europe “bent” its rule allowing the bailout of Monte Paschi and several smaller banks despite Italy having the greatest amount of disclosed NPLs of any European nation, moments ago Fitch decided to drag Italy right back in the spotlight when it downgraded Italy to BBB from BBB+, citing “Italy’s persistent track record of fiscal slippage, back-loading of consolidation, weak economic growth, and resulting failure to bring down the very high level of general government debt has left it more exposed to potential adverse shocks. This is compounded by an increase in political risk, and ongoing weakness in the banking sector which has required planned public intervention in three banks since December.

And some more:

 Italy has missed successive targets for general government debt/GDP, which increased by 0.5pp in 2016 to 132.6%. This is 11.2% of GDP higher than the target in the Stability Programme of 2013, the year Fitch downgraded Italy’s Long-Term IDRs to ‘BBB+’, and compares with the current ‘BBB’ range median of 41.5% of GDP. Fitch forecasts general government debt to peak at 132.7% of GDP in 2017, falling only gradually to 129.3% in 2020 in our debt sensitivity projections.

 Fitch’s rating Outlook for the Italian banking sector is Negative, primarily reflecting the challenge of reducing the high level of un-provisioned non-performing loans (NPLs), alongside weak profitability and capital generation. The rate of new NPLs edged down to 2.3% in 4Q16, and there is some greater impetus for disposals and write-downs, which has slightly reduced total NPLs. However, sofferenze, the worst category of loans, increased to EUR203 billion in February, from EUR199 billion in October. Total NPLs amount to close to 17.5% of loans and 20% of GDP, and just over half are provided against.

 In our view, political risks have increased since Fitch’s previous rating review. Current polls point to a further hollowing out of support for more centrist parties and to a fragmented political landscape that could result in minority government. Risks of weak or unstable government have increased, as has the possibility of populist and eurosceptic parties influencing policy. Greater populism may dampen political appetite for reform, increase the pressure for fiscal loosening, and weigh on investor sentiment.

With France – and much of Europe – already on edge due to populist tensions, is Italian sovereign – and bank – risk about to make a grand reapparance? For the answer, check in when Europe opens on Monday.

Meanwhile, Italian CDS trades at 190bps, wider than Russia, Croatia and almost as wide as South Africa.

Le Pen to Hold Referendum on French EU Exit in First Half of 2018 if Elected

Image result for Le PenThe first round of the French presidential elections is scheduled for this Sunday, while the run-off is set for May 7.

“Marine Le Pen said that she wanted an exit of the European Union organized with our European partners and that this departure would be sanctioned by a referendum. [Which will be held] undoubtedly in the first half of 2018,” David Rachline said.

According to Le Pen’s campaign manager, she also wants to “drastically change economic policy, while putting an end to increasing financialization and globalization of the economy.”

“We were warned of a catastrophe with the Brexit vote, the facts, however, disagree with those merchants of fear who in reality do not want us to touch this system, which grants them numerous advantages!” Rachline pointed out.

The United Kingdom’s decision to leave the European Union and the victory of Donald Trump in the US presidential election in 2016 were seen as big victories for the anti-establishment and anti-globalist movement. Le Pen’s approach seems in sync with the growing anti-globalism trend.

Europe Starts Freezing Britain Out Of EU Contracts

Diplomatic relations between the UK and EU are fast approaching zero degrees Kelvin.

One day after Theresa May not only cemented, but allowed herself Brexit negotiating breathing room with her stunning, yet cunning decision to announce snap elections which would only boost the leverage of her party, Brussles has retaliated and as the FT reports, Brussels is starting to “systematically shut out British groups from multibillion-euro contracts” while urging companies to migrate to one of the 27 remaining EU members.

The Brussels note suggests that tensions between the UK and EU mey deteriorate to the point where even Bremainers may turn on Brussels:

 In an internal memo seen by the Financial Times, top European Commission officials have told staff to avoid “unnecessary additional complications” with Britain before 2019, highlighting an administrative chill that is biting even before Britain leaves the bloc.

 It explicitly calls on EU staff to begin encouraging the UK-based private sector to prepare for the “legal repercussions” of Brexit and consider the need “to have an office in the EU” to maintain their operating permits. Agencies are also told to prepare to “disconnect” the UK from sensitive databases, potentially on the day of Brexit.

Japan – Trade balance for March: Y 614.7bn (expected Y 608.0bn)

Here’s the Trade balance for March, from the Ministry of Finance
Y 614.7bn
  • expected Y 608.0bn, prior was Y 813.5bn
Trade balance (adjusted): Y 172.2bn
  • expected Y172.0 bn, prior was Y 680.3bn
Exports for March y/y:  12.0% big BEAT
  • expected 6.2%, prior was 11.3%
  • fastest rise in exports since January of 2015
  • exports to US +3.5% y/y
  • to China +16.4% y/y
  • to Asia +16.3% y/y
  • to EU +1.4% y/y
Imports for March y/y:  15.8% and another big BEAT
  • expected 10.2%, prior was 1.2%
The improvement in Japanese exports continued in March.

How Marine Le Pen is facing wipe out in French election after COMPUTER BLUNDER

Le Pen

Despite leading in the polls for Round One, The Express reports that a monumental computer blunder could cost Marine Le Pen the French general election as 500,000 citizens living outside of France have the chance to vote twice.

The election has become extremely close with just 4.5 percentage points separating Macron, Fillon, Mélenchon, and Le Pen…

Which is why this shocking error in election procedures could be the swing to crush Le Pen’s hopes. As The Express reports, half a million people received duplicate polling cards in the post, which would allow them to cast two votes at the first round of the election, held on April 23.

French authorities confirmed they would not be investigating the potential electoral fraud until AFTER the election, when retrospective prosecution may take place.

We are sure this is a simple ‘accident’, but coincidentally (for the establishment), this could crush Ms Le Pen’s dreams of surging to power, as most French nationals living outside of their country are not right wing – demonstrated by the fact many feel they depend on the European Union (EU) to guarantee their stay in foreign countries. Far left candidate Jean-Luc Melenchon, who has surged in the polls recently and threatens to break into the leadership race against Ms Le Pen and Mr Macron, could also benefit from this catastrophic error.