The (bonds) Hunger Games
MADRID | The Corner | In the next few days demand for Spanish bonds is expected to grow, since Spanish debt auctions will be held and European CPI data showing that prices remain very low will be released.
Markets
M&A market reaches 2008 levels
MADRID | The Corner | In one of the best symptoms of economic recovery, companies are leaving risk aversion behind and buying others to grow. In the first six months of the year, M&A operations reached $1.75 trillion worldwide, 75% more than during the same period of 2013. The pharma sector is in pole position, with multiples reaching 21.3x PE globally vs. 16.1x in 2013, and 4 of the 10 largest operations announced for 2014. According to JP Morgan, if we annualize 1S volume, operations could total $3.642 trillions by the end of the year.
EU banks reach debt holdings all-time high
MADRID | The Corner | European banks have increased their holdings of govies in June by +0.1% m/m (+1.4% y/y), with one somewhat higher increase in the periphery (+ 0.6% m/m and – 1.2% y/y), mostly of a +8.6% in Ireland and +1.8% of Portugal. According to the ECB, EU lenders have reached a new all-time high of 1.8trn debt holdings, while peripheral banks are approaching 2013 numbers (€830bn vs €840bn in June 2013).
70% of Stoxx600 firms see profit hikes
MADRID | The Corner | Reporting season in Europe is beginning. Over half the Stoxx600 companies that already showed results surpassed expectations. Profits grew for 70% of this businesses and the average rise was of 9%. European markets’ upward trend being less mature than American’s may point at a EuroStoxx higher appreciation potential. It gains importance as performance results keep looking up and prices context allows EZ companies to rise EBITDA margin from current 15.2% to prior years levels (above 16%).
RMB as reserve: Rebalancing the global financial system
By Peter Wong via Caixin | It is unlikely that the RMB or yuan, China’s “people’s currency,” will replace the dollar outright as the world’s only investment and reserve currency any time in the foreseeable future. But there is every indication that the dollar will have to make room for a second global reserve currency within the next 15 years. A revolution allowing investors to diversify risk – and creating a system with more choice and better ability to resist shocks – should be welcomed.
Special: Truths and myths of the Spanish banking sector’s restructuring
MADRID | By Francisco López | The sale of Catalunya Banc to BBVA practically closed the restructuring of the Spanish banking system, which was launched in 2009 at the height of the crisis, and that has reduced to less than a third the number of players in the sector.
EM: High yields offer some shelter
LONDON | By Koon Chow at Barclays | A pertinent question asked by some investors is whether EM markets have become complacent again and whether new exogenous shocks may catch investors at a vulnerable point just as they are settling down to ‘summer’ carry trades. We see this risk in some markets but it is far from a universal theme in our view. In EM local markets – FX and bonds – we see Turkey as probably the most vulnerable to exogenous risk aversion. At the other end of the spectrum are Brazil, Central Europe, and Colombia, which do not appear vulnerable in part because of the high local real yield levels.
Russia: the real effects of sanctions
MADRID | The Corner | The EU is considering harder sanctions on Russia after the downing of a Malaysian airliner in Ukraine. What are the effects of the current and potential further sanctions on the Russian economy and, in general, on Emerging Markets (EM) sovereign external debt? Co-CIO Deutsche Asset & Wealth Management’s Asoka Wöhrmann weighs in. (Illustration: Iain Green at The Scotsman)
European banks: How concerned should they be of Russia-Ukraine conflict?
MADRID | The Corner | The escalation of the crisis in Ukraine has led to sharp asset prices and currency volatility with capital outflows from the region, particularly from Russia and of course Ukraine itself. UBS points out that the European banks within their coverage present “a meaningful exposure: the loans in Russia and Ukraine amount to over €60bn before taking into considerations any investment banking activity.”
Is QE good for emerging markets?
MADRID | The Corner | The idea that quantitative easing has been helping equities of the EM has been widely discussed: many believe the liquidity generated by QE is used to play the “carry”, and that’s why the end of QE and the rates rises may lead to the withdrawal of those positions. But that’s not so clear.