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Markets 30th June 2014

BIS warns over stimulus’ diminished effect over time; IMF asks for more

MADRID | The Corner | Swiss-based Bank for International Settlements (BIS) is concerned about a troubling disconnection between “markets’ buoyancy and underlying economic developments globally.” The international body representing central banks believes the risk of central banks normalizing monetary policy too late and too gradually shouldn’t be underestimated, pointing out that extremely accommodative monetary policy has a diminished effect over time. Meanwhile, the IMF has been asking to break the lethargy of the European economy with measures against low inflation for months with more stimulus.

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Markets 30th June 2014

Effects of the deflation on debt

MADRID | By Luis Arroyo | The Spanish National Statistical Institute has recently published May’s CPI. The chart shows the 0.1% annual variation with respect to May 2013. Such variations determine a curious outcome on the price level, as the second chart exhibits.

Wall Street

Markets 27th June 2014

Fed tapering: Doubts resurface again

MADRID | JP Marín Arrese | The revised growth figure for the US economy in Q1 comes as a nasty surprise. It has dampened market sentiment worldwide. Earlier assessments blaming bad weather the moderate setback no longer hold when faced with a downturn close to 3%. Even discarding a fallback into full-fledged recession, it undoubtedly points to a markedly weaker performance than expected. The Fed tapering strategy is confronted with a baffling dilemma.

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Markets 27th June 2014

Most EU banks expect medium-to-large consolidations within three years

MADRID | The Corner | Banks feel nervous about the upcoming ECB’s AQR and stress tests. Despite the recent waves of capital raises, lenders still don’t know about the amount of expected recapitalization needs, nor how their provisions against loan losses will do. According to a interesting piece by Bruegel (check their graphs), which comments on the recent E&Y European Banking Barometer, almost one in three of the 294 respondents still expecting to raise Loan Loss Provisions. And, as we wrote not long ago, only 8% of respondents anticipate raising additional capital following the exercise, there is an additional 19% of respondents who a capital raise “might” be necessary.

CurrenciesOK

Markets 26th June 2014

Why All Currencies Are National

By Jean Pisani-Ferry via Caixin | Actions by America’s Justice Department launching a probe against BNP Paribas are a reminder that the major international currency – the U.S. dollar – brings with it legal, judicial and political dimensions. 

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Markets 26th June 2014

Biggest EU banks show poorest Q1 results in 5 years

MADRID | The Corner | The first quarter of the year is usually the best for lenders, and yet major European entities are showing the weakest results since Q1 2009:  net profit fell once more (-9% yoy) to a pale EUR 12, according to a report by Deutsche Bank Research. Potentially high litigation costs and the upcoming ARQ and ECB’s stress tests make them eager to strengthen their capital buffers.

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Markets 25th June 2014

European stock markets, harmed by US sluggish GDP

MADRID | By Francisco López | The first world power is doing worse than expected. USA’s GDP decreased in 1Q by 2.9% year on year, nearly three times the 1% foreseen just a month ago and far from 1.8% that Wall Street expected. European stock markets, unlike the American, reacted immediately with heavy losses. Spanish Ibex 35 leaded the way losing 1.25 and finished below 11,000 points.

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Markets 25th June 2014

The illiquidity risk in corporate credit

MADRID | The Corner | We live in a virtuous circle of low growth rates leading to expansive economic policies and low volatilities that make investors increase risk in the pursuit of profitability -which causes inflation in the financial markets (and cash becomes here the “cursed asset”), sources at JP Morgan say.

central banks

Markets 25th June 2014

Mark Cartney moonwalks from rates hike

MADRID | The Corner | After being accused to send mixed signals to the markets (one British MP even compared him to an unreliable boyfriend), Bank of England’s governor Mark Carney backed off and played down the chances of raising interest rates. After all, Bundesbank’s Jens Weidmann may be right: cheap money can be as addictive as a drug. 

US recovery

Markets 21st June 2014

What the market is really telling about the US recovery

LONDON| By Stephane Deo and Ramin Nakisa at UBS | At the time of writing, the Treasury curve is telling the potential US GDP growth rate is very low – in the neighbourhood of 1%. The 30-year real yield is at 1.09% (but dipped below 1% recently), the 10-year real yield is at a frightening 0.36%, and the 5-year-in-5-year yield, a good proxy of where the market thinks long-term growth will settle, is at 1.05% (but also dipped below 1% recently).Taking those numbers at face value, we would have to conclude that the current recovery is doomed, and that growth will level off soon at a very disappointing level.