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Sat, 27th May 2017

Anirudh Sethi Report

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Archives of “eurozone” Tag

No Greece deal at Eurogroup, issue to be reviewed in June

Eurozone finance ministers, the International Monetary Fund and the Greek government failed to agree at talks on Monday on a release of further bailout funds for Athens and reached no deal on further offers of debt relief for Greece, EU officials said.

According reports, the issue will be discussed again next month.

Eurogroup President Jeroen Dijsselbloem said at the conclusion of a meeting of the single currency bloc’s 19 finance ministers that Greece has made “huge progress” on implementing the policy package required of it in return for the money it needs to avoid going bankrupt. He said Monday that Greece still has a few actions to undertake while the institutions overseeing the country’s bailout still have to make some checks.

He also said an agreement on Greek debt relief measures was not possible and that further discussions will need to take place before the next meeting of the so-called eurogroup in three weeks, by which time he hopes that the International Monetary Fund will get on board with Greece’s bailout program.

Sources earlier said that an initial meeting, involving all eurozone finance ministers, yielded a mostly positive assessment of Greece’s adoption of a series of prior actions.

Subsequent talks, aimed at reaching a comprehensive agreement that also tackles Greece’s debt, were trickier.

A Problem Emerges: Central Banks Injected A Record $1 Trillion In 2017… It’s Not Enough

Two weeks ago Bank of America caused a stir when it calculated that central banks (mostly the ECB & BoJ) have bought $1 trillion of financial assets just in the first four months of 2017, which amounts to $3.6 trillion annualized, “the largest CB buying on record.” 

 

Draghi says risks of deflation have largely disappeared

Draghi statement to IMFC

  • Growth in the Eurozone is firming and broadening
  • There are sign of a somewhat brighter global recovery and increasing global trade
  • Cannot yet have confidence that a sustained rise in inflation will materialize in a sustainable manner
  • Underlying inflation has not shown a convincing upward trend

You could say he’s cautiously optimistic.

Earlier in the year, the market read the optimism as a sign of potential action to tighten but officials have fought back against that idea, and that’s what helped to cap the euro at 1.09.

“As underlying inflation remains subdued and the path of inflation crucially dependent on the prevailing very favourable financing conditions, we cannot yet have sufficient confidence that a sustained adjustment in inflation will materialize in a durable manner,” he wrote.

It’s a similar line to what he said after the March 9 ECB meeting. The next ECB meeting is April 27.

Greece : Prospects for deal in bailout talks get more distant

After yet another round of inconclusive bailout talks in Athens, Prime Minister Alexis Tsipras said he believed a comprehensive deal with creditors could be reached by April while taking a dig at the International Monetary Fund over its tough stance on labor rights.

In comments to reporters at the end of a summit of European Union leaders in Brussels, Tsipras said he believed a technical-level agreement could still be reached in time for a March 20 Eurogroup, with a broader accord, including the specification of medium-term debt relief measures, coming in April.

Tsipras indicated, however, that tough talks on collective wage bargaining would be harder to conclude. “That issue can’t be solved at the technical level. There’s a disagreement,” he said, adding that the IMF must understand that Greece is a European country and that non-European labor models cannot be imposed on it.

In a related development, IMF chief Christine Lagarde said Tsipras asked the Fund “to stand by Greece” in its third bailout program.

“To commit to Greece, as the Greek prime minister has requested, in addition to reforms, the debt should be sustainable,” Lagarde told French newspaper Le Parisien in an interview.

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.

Draghi’s inflationary headache: analysts react to eurozone’s 2% inflation

A novel dilemma for the European Central Bank to contend with: above target inflation.

Prices in the single currency area have climbed by 2 per cent on the year for the first time in over four years, posing a fresh headache for the ECB’s dovish policymakers who will mark their two-year quantitative easing anniversary next week.

At the ECB’s latest meeting next Thursday, president Mario Draghi will face the task of convincing his more hawkish colleagues that the current leap in annual prices – from 1.8 per cent in January – is unlikely to be sustained having been driven by volatile energy costs. The central bank, which has been battling with more than three years of low prices, targets inflation of just under 2 per cent.

Despite the recent upsurge in inflation driven by higher oil prices Pete Vanden Houte at ING thinks inflation will begin to stabilise over the coming months. If anything, he says the ECB will opt to let inflation run above target to compensate for years of weak prices:

There is little doubt that the ECB will continue to be criticized for its loose monetary policy, especially in the core countries. But the bank will no doubt recall that the inflation target has to be reached over the medium term and for the whole of the Eurozone. If anything the ECB is more likely to err on the side of inflation, to compensate for the fact that consumer price increases have significantly undershot the ECB’s target for now 4 years in a row.

We therefore don’t see any change in monetary policy this year. However, in the third quarter, the ECB might announce its exit strategy, which in our view will probably entail a new extension of the QE program until mid-2018, but with some tapering included.

Former IMF Chief Sent To Jail As Spain Prosecutes 65 Elite Bankers In Enormous Corruption Scandal

In many other countries, excluding the United States, corrupt bankers are often brought to task by their respective governments. The most recent example of a corrupt banker being held accountable comes out of Spain, in which the former head of the International Monetary Fund (IMF), Rodrigo Rato was sentenced to four years and six months behind bars.

According to the AFP, Spain’s National Court, which deals with corruption and financial crime cases, said he had been found guilty of embezzlement when he headed up Caja Madrid and Bankia, at a time when both groups were having difficulties.

Rato, who is tied to a slew of other allegations was convicted and sentenced for misusing €12m between 2003 and 2012 — sometimes splashing out at the height of Spain’s economic crisis, according to the AFP.

Le Pen poll lead pushes Franco-German yield gap to new four-year high

Here we go again.

The premium investors are demanding to hold French over German 10-year debt has hit a fresh post-eurozone crisis high today – exceeding 0.81 percentage points for the first time since August 2012.

The yield gap has swollen to its highest in over four years this month, reflecting investor jitters about France’s upcoming and unpredictable presidential elections in three months’ time.

Ms Le Pen, who has promised to hold a referendum on France’s eurozone membership, is polling at 27 per cent in the first round vote, with her two main rivals, Francois Fillon and Emmanuel Macron tied at 20 per cent, according to latest collated polls from Opinionlab.

The prospect of a Le Pen presidency has spooked French bond investors with markets warily eyeing the apparent demise of her biggest rival, the right-wing Mr Fillon.