Thu, 22nd June 2017

Anirudh Sethi Report


Archives of “luxembourg” 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.

What we learned from Draghi and the ECB

Lower inflation, higher growth and a bunch of caveats

The market was expecting a shift from the ECB but it was much more subtle than hoped.

Here’s a recap on the GDP and HICP numbers:


  • 2017 +1.9% vs +1.8% prior
  • 2018 +1.8% vs +1.7% prior
  • 2019 +1.7% vs +1.6% prior

The prior forecasts were made in March


  • 2017 1.5% vs +1.7% prior
  • 2018 1.3% vs +1.6% prior
  • 2019 1.6% vs 1.7% prior

Draghi tried to brush aside those forecasts by emphasizing that the tail risks had dissipated and that the ECB was more confident in the inflation that’s forecast.

To some extent the market bought his thinking and that helped the euro from the session low of 1.1195 up to 1.1220.

The takeaway is that it will be a very slow process to a hawkish stance. With inflation at 1.6% in 2019, there’s no impetus to hike at all. In addition, Draghi touched on the changes in the world that are keeping wages low. Things like globalization, automation, de-unionization and changes in regulation that are keeping wages down throughout the developed world.

At the same time, I don’t think the euro trade is a trade on rate differentials. It’s about value. The euro is depressed and eurozone assets are depressed.

Finally, we saw yet-another dip on the back of the press conference and yet again there were aggressive buyers. I’m convinced that everyone is trying to get long euros on a dip and they’re hitting increasingly shallow dips because the big retracement to 1.10 isn’t coming.

As US retreats, EU and China seek climate leadership at summit

China and the European Union will seek on Friday to save a global pact against climate change from which U.S. President Donald Trump said he will withdraw.

As China emerges as Europe’s unlikely global partner on areas from free trade to security, Premier Li Keqiang will meet top EU officials at a summit in Brussels that will also address North Korea’s missile tests and global steel overcapacity.

 Speaking in Berlin, Li underlined strong support for the 2015 Paris climate change accord from China, which overtook the United States as the world’s biggest emitter of greenhouse gases in 2007.

“China will stand by its responsibilities on climate change,” he told reporters after meeting German Chancellor Angela Merkel and before flying on to Brussels.

In a statement backed by all 28 EU states, the European Union and China will commit to full implementation of the Paris Climate Agreement, EU and Chinese officials said.

The joint statement, the first between the China and the EU, commits to cutting back on fossil fuels, developing more green technology and helping raise $100 billion a year by 2020 to help poorer countries cut their emissions.

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.

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”

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”.

French-German debt spread widest since 2013

FRENCH256The couture fashions shown in Paris over the last week have not made French debt any more attractive.

The premium investors demand to own two-year French debt over similarly maturing German bonds climbed to its highest level since the 2013 Taper Tantrum on Monday, as the country’s election looms.

The difference between yields on two-year French and German sovereign bonds climbed to 25 basis points on Monday, up from 18.5 bps on Friday and a low of less than 1 bp touched after the US election last November. Yields on the French note climbed 5 bps on Monday, compared to a 2 bp drop in German ones.

Davos 2017: UK will lead world in free trade after Brexit, says May

UK prime minister Theresa May has said Britain will seek to lead the world in free trade after the Brexit vote as she sought to reassure the global economic elite her government would remain a force for liberalisation and globalisation after the EU referendum.

Addressing the annual World Economic Forum in Davos this morning, Ms May said Britain would “step up to a new leadership role as the strongest, most forceful advocate for free markets and free trade anywhere in the world” as it seeks to strike new trade agreements after the referendum.

Despite seeking to align herself with the Davos crowd, the prime minister also used her speech to rail against a “cult of individualism”, quoting conservative British philosopher Edmund Burke in favouring a pace of change that would still “conserve”, in remarks delivered to a subdued main congress hall.

She added the Brexit vote was a decision to “restore our parliamentary democracy and national self-determination. A vote to take control and make decisions for ourselves”.

European Indices Closed in Red

German Dax Down -0.41%, France’s CAC -0.4%

The European major stock indices are ending the day lower.
  • German Dax, -0.41%, Low 10441.81. High 10566.65. Close 10544.44
  • France’s CAC. -0.40%, low for 390.04. High 4437.82. Close 4424.25
  • Euro Stoxx. -0.39%. Low 2974.73. High 3008.44. Close 2998.50
  • Spain’s Ibex.  -0.50%. Low 8573.70. High 8660.90. Close 8616.40
In the EU debt market, the 10 year yields are trading marginally lower
  • Germany -0.83%, -1 basis point
  • France 0.161%, -1 basis point
  • Italy 1.12%, -2 basis points
  • Portugal 3.033%, -1 basis point
  • Spain 0.936%, -1 basis point
  • Greece 8.038%, unchanged

Joseph E. Stiglitz — From Brexit to the Future

Digesting the full implications of the United Kingdom’s “Brexit” referendum will take Britain, Europe, and the world a long time. The most profound consequences will, of course, depend on the European Union’s response to the UK’s withdrawal. Most people initially assumed that the EU would not “cut off its nose to spite its face”: after all, an amicable divorce seems to be in everyone’s interest. But the divorce – as many do – could become messy.

The benefits of trade and economic integration between the UK and EU are mutual, and if the EU took seriously its belief that closer economic integration is better, its leaders would seek to ensure the closest ties possible under the circumstances. But Jean-Claude Juncker, the architect of Luxembourg’s massive corporate tax avoidance schemes and now President of the European Commission, is taking a hard line: “Out means out,” he says. 

That knee-jerk reaction is perhaps understandable, given that Juncker may be remembered as the person who presided over the EU’s initial stage of dissolution. He argues that, to deter other countries from leaving, the EU must be uncompromising, offering the UK little more than what it is guaranteed under World Trade Organization agreements.