BARCLAYS | The final count of the votes confirmed a super – majority (two – thirds of the seats) in the National Assembly for the opposition . The result exceeded the market ’s expectations of a simple majority and, in our view, proves that it has been under estimating the probabilities of a political transition.
The Paris climate change summit (COP21) felt like the last opportunity to curb the threat of climate change and what was at stake, and remains so, is the world economy. But fixing the global target for maximum warming at 1.5C, when a minimum of 2C was seen as necessary, and an optimal scenario of 4C had been considered, does not appear to meet expectations. Particularly if the agreement does nothing to pave the the way to achieving this.
Analysts and markets alike are already discounting a 25 basis points rise in the Fed’s core rates this week. So investors’ reaction will depend largely on Janet Yellen’s message regarding future rate hikes. A vague gradualism no longer matches the kind of unequivocal commitment the markets are waiting for. Anything short of this could fuel general volatility and unrest.
The world, mostly Latin America governments lined up with social markets economies and the US, like Mexico, Peru, Colombia or Chile, have welcomed the victories of anti populist forces in Argentina and Venezuela. In a run-off election on November 22, voters in Argentina elected centrist Mauricio Macri to succeed peronist Cristina Fernandez de Kirchner, with 51.4% of the vote. In Venezuela, the opposition won a two-thirds majority of 112 seats in the 167-seat National Assembly, 67% of the seats, despite winning only 56% of the popular vote.
UBS | A – shares have seen choppy trading since November amid Fed rate hike expectations, expansion of European QE, inclusion of the Rmb into the SDR basket, easing of curbs on prop trading at brokers and resumption of IPOs.
In a few days the Fed will meet and, inevitably, will raise interest rates. It is inevitable because it would contradict its discourse if this doesn’t happen. In the short-term it is unlikely to present any problems, because the move is already discounted. But there is something worse: there is the risk that the Fed makes a mistake which it later has to rectify, as has happened in other countries. Sweden is the main example.
UBS | We have been saying that rising downward pressure in the economy and pain in the corporate sector will drive faster SOE restructuring and closin g of excess capacities. Today’s State Council meeting confirms our prediction. For the first time, the government has publically given a timetable and specific guidelines on cleaning up “zombie companies” and reducing losses at the SOE sector.
BARCLAYS | Argentina’s incoming finance minister, Alfonso Prat-Gay, has made some important statements about short-term economic policies. We think that his comments are steps in the right direction and indicate pragmatism, in that they seek a solution to economic problems while addressing restrictions imposed by social, political, and economic realities.
Does central banks’ “communication” matter? Some analysts believe it does. Therefore, Draghi may now have to work to repair his reputation as “Super Mario”.
UBS | With a rise in the Fed funds rate looking imminent, and given last week’s ECB QE extension, ascertaining how diverging interest rate policies could impact bank fundamentals will be key to helping investors identify winners and losers among global banks in 2016.