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Markets 19th November 2014

Deflationary risk: Which countries are most likely to be impacted?

MADRID | The Corner | In a report by Atradius Credit Insurance, they say that the disinflationary trend is visible across the Eurozone, but not all countries are expected to face the same issues. Countries that have a large output gap and those that still have to implement the most reforms will face the highest disinflationary pressure. To create a list of the countries most likely to be impacted, we first select the Eurozone markets that have a budget deficit larger than 3.0%, as these are subject to the Excessive Deficit Procedure which forces them to implement fiscal and structural reform.

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Markets 18th November 2014

EU: Triple-Bs? Yes please!

By Suki Mann and Thibault Colle (UBS) | We effectively have four-weeks of business left in 2014 and the path is clear for corporate bond markets to record some more upside in performance. That isn’t as welcome as it might at first look. Because we do actually need something for next year. We’re already sitting on excellent returns for 2014 of 7.7% in IG and 5.6% in HY; and with that, record low yields in IG (1.42%) and spread levels not seen since before the crisis (iBoxx IG at B+101bp). Supply in HY is at a record level (€72bn YTD) and we now have the second best year for issuance ever in IG non-financials (€201.6bn) after Tuesday’s deals from BskyB and RCI are accounted for.

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Markets 17th November 2014

European corporates: More action, less reaction

LONDON | By Zoso Davies, Mike Kessler, Dominik Winniki (Barclays) | European corporates are becoming more acquisitive: European M&A is up 11% year-to-date by deal volume, despite a number of high profile proposals being rejected by boards or withdrawn. The pick-up in deal-making was driven by increasingly acquisitive behaviour: European issuers spent €779bn on deal-making through October (+48% y/y), of which three quarters was spent buying assets from other European companies. Inbound M&A has fallen, in part due to the stymieing of tax-inversion deals by US corporates.

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Markets 13th November 2014

Testing the rate-hike scenario

By Sreekala Kochugovindan, Anando Maitra (Barclays) | History highlights the importance of the business cycle in determining the effect of rising rates on asset returns, a topic we discussed in depth in Scenarios for a shifting bond landscape. We examined US data since 1925 and selected episodes where US Treasuries sold off by more than 5% in one year. The results were pretty mixed, with equity returns ranging between plus and minus 50% and providing no consistent pattern. 

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Markets 11th November 2014

Bond purchase: A signal of coming collapse

VIENNA | By Keith Weiner via Truman | I proposed seven drivers of financial implosion in my dissertation. My recent writing has focused on two of them. One is the falling rate of interest on the 10-year government bond. As interest falls, the burden of debt rises. Since the falling rate incentivized more and more people to borrow, the number of indebted people, businesses, corporations, and of course governments is large. When the rate gets to zero, the burden of debt becomes theoretically infinite.

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Markets 10th November 2014

It was the IMF’s fault!

SAO PAULO | By Marcus Nunes via Historinhas | It’s in the nature of the” widely held” IMF to have an upward bias in its forecasts, just as it is very hard for the CEO of a widely held group to go to the shareholders meeting to present dire forecasts.

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Markets 7th November 2014

The ECB wait-and-see stance

MADRID | By J.P. Marín Arrese | The ECB Board only reached, on paper, the decision to keep unchanged its official rates. Yet, the statement issued as an introduction to the press conference clearly outlined, for the first time, both its policy stance and firm commitment to act should the economy markedly deteriorate. Draghi refrained from providing his personal views on sensitive issues, such as the scope of quantitative easing, sticking to the literal content of the agreed statement. No doubt, his communication strategy had come under fierce criticism from other members of the Board, utterly upset by his flamboyant style and contradictory messages.

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Markets 6th November 2014

Risk of deflation increases after collapse in price of raw materials

MADRID | By Francisco López | The collapse in the price of raw materials in the last number of weeks is good news for consumers, but very bad news in macroeconomic terms because of the heightened risk of deflation in the eurozone. Oil continues to plummet and a barrel of Brent is now priced at $82, 30%, lower than its June level and is currently trading at a four year low.

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Markets 5th November 2014

Silent whispers: Do murmurings of disaffection within ECB point to mounting obstacles for Draghi?

MADRID | By Ana Fuentes | Was Mario Draghi reckless to announce an ECB balance sheet expansion target? According to Reuters, some of his colleagues at the central bank are particularly aggrieved about a perceived “ secretive management style and erratic communication” and they will apparently  “urge him to act more collegially”. Could this leak be the beginning of a larger problem for the ECB chief? The bank was unwilling to comment on Wednesday.