Thu, 22nd June 2017

Anirudh Sethi Report


Archives of “germany” Tag

Greece reaches deal with creditors to unlock bailout

Greece and its international creditors have reached a deal on the next stages of Athens’ €86bn bailout, removing the risk that it could default on over €7bn in debt repayments that fall due next month.

The deal ends months of uncertainty that have weighed on Greece’s recovery and spooked investors. But while shoring up the country’s immediate economic future, the agreement punts politically difficult discussions on debt relief into 2018.

People briefed on the talks said that the agreement would allow Athens to swiftly receive its next tranche of bailout aid, estimated at around €8.5bn euros.

Euclid Tsakalotos, Greece’s finance minister, told the FT that the deal was a “big step forward” compared with previous plans put forward by Athens’ international creditors.

Emerging Markets: An Update

  • The Indonesian cabinet is discussing revisions to the 2017 state budget.
  • The Thai central bank plans to reform some FX rules.
  • South African President Zuma survived the no confidence vote within his own ANC.
  • Brazil’s central bank signaled a slower pace of easing ahead after it cut 100 bp again.
  • Moody’s cut the outlook on Brazil’s Ba2 rating from stable to negative.

In the EM equity space as measured by MSCI, Egypt (+4.7%), Hong Kong (+2.2%), and Hungary (+1.9%) have outperformed this week, while Russia (-3.2%), South Africa (-3.2%), and Brazil (-2.5%) have underperformed.  To put this in better context, MSCI EM fell -0.3% this week while MSCI DM rose 0.9%.

In the EM local currency bond space, Argentina (10-year yield -43 bp), Turkey (-25 bp), and South Africa (-14 bp) have outperformed this week, while Indonesia (10-year yield +2 bp), Romania (+2 bp), and the Philippines (+1 bp) have underperformed.  To put this in better context, the 10-year UST yield fell 8 bp to 2.16%.

In the EM FX space, TRY (+1.8% vs. USD), ILS (+0.9% vs. USD), and CNH (+0.7% vs. USD) have outperformed this week, while MXN (-0.3% vs. USD), MYR (-0.3% vs. USD), and RUB (-0.2% vs. USD) have underperformed.

The Indonesian cabinet is discussing revisions to the 2017 state budget.  President Jokowi reportedly asked government departments to review their spending plans.  Finance Minister Indrawati said revenues from higher oil prices will be eroded by a decline in tax revenue of about IDR15 trln ($1.1 bln).  Indrawati added that “We estimate about IDR16 trln can be saved from goods expenditure.”

The Thai central bank plans to reform some FX rules.  Details will be provided Monday at an official briefing.  There is speculation that the changes will involve regulations on fund inflows/outflows that are designed to prevent excessive currency gains.  Note USD/THB is making new cycle lows, whilst foreign investment inflows remain very strong.

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%

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.

Both ECB And BOJ Are Just Months Away From Running Out Of Bonds To Buy

With the Fed contemplating whether to hike again next month and start “normalizing ” its balance sheet before the end of 2017, the two other major central banks are facing far bigger problems.

* * *

Two months after the BOJ quietly started tapering its QE program, when it also hinted it may purchase 18% less bonds than planned…

… Governor Haruhiko Kuroda admitted last week that the Bank of Japan’s bond holdings are currently growing at an annualized pace of only ¥60 trillion ($527 billion), 25% below the bottom-end of its policy range, and confirming that without making any formal announcement, the BOJ has quietly followed the ECB in aggressively tapering its bond buying program.

Merkel victory in German state election

Plenty of politics in the early part of the forex week

French election, of course,
  • French election results, official counts coming now 
  • Macron wins French election – EUR higher (early price indications)
  • French election results – Le Pen concedes defeat
And, in Germany –
An election in the German state of Schleswig-Holstein:
  • Chancellor Merkel’s conservative party won, her  Christian Democrats on 33-odd % of the vote (initial result)
  • The Social Democrats had been in power, but only won 26.5%
Polls had been predicting a much tighter result, so an outperformance by Merkel’s party here
And, while your here, rates update:

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.

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.”

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.

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.