Tuesday 3rd March 2015
NEWS TICKER, MARCH 2ND 2015: Turnover at Deutsche Börse’s cash markets at €125.5bn euros last month. Order book turnover on Xetra, Börse Frankfurt and Tradegate Exchange across all asset classes stood at €125.5bn in February (February 2014: €102.6bn). Of that, €113.4bn was attributable to Xetra (February 2014: €93.4 billion). The average daily turnover on Xetra stood at €5.7bn last month (February 2014: €4.7bn). Meantime, Börse Frankfurt reported turnover of €4.9bn was (February 2014: €4.7bn). Order book turnover on Tradegate Exchange touched approximately €7.2bn in February (February 2014: €4.6bn). Broken down by asset classes, turnover in equities reached about €107.1bn. Turnover in ETFs/ETCs/ETNs amounted to €15.9bn. Turnover in bonds was €0.7bn, and in structured products €1.5bn. Viewed by transactions, a total of 18.0m trades were executed on Xetra in February (February 2014: 16.7m). - Moody's has released a special edition of its compendium of Asian oil and gas research, following the collapse of crude oil prices in recent months. The compendium, covering both corporates and sovereigns in the region. "The steep drop in crude oil prices since mid-2014 will materially reduce the earnings and cash flows of Asian oil & gas companies and weaken their credit metrics in 2015," says Vikas Halan, a Moody's vice president and senior credit officer. "At the same time the low prices will benefit most Asia Pacific sovereigns, given the region's status as a net oil importer," adds Halan. Crude prices more than halved between June 2014 and January 2015, reflecting higher-than-expected oil production in the US and lower demand in emerging markets. At the same time, with the slowing growth in worldwide demand, oil markets will likely remain oversupplied in the next two years. The demand-supply imbalance may be exacerbated if China's economic growth slows sharply or if significant lifting of economic sanctions on Iran further increases oil volumes. Moody's has lowered its price assumptions for Brent crude to $55/barrel through 2015 and $65/barrel in 2016. - Businesses are increasingly collecting and using data from, and about, consumers. This includes the identity of their customers, what they consume, where they live and work and other demographic information. It also includes information on who they connect with, their interests and attitudes. The UK Competition and Markets Authority is calling for information in a fact-finding exercise to help understand fully how businesses collect and use this data for commercial purposes and the implications for firms and consumers. Response forms can be found on the authority’s website - According to local press reports, Malaysia-based healthcare group Qualitas Healthcare Corporation Ltd, will decide this week either to list on Bursa Malaysia or put itself up for sale. The estimated value for the firm is reportedly around MYR1.2bn and press reports say it is in active negotiations with at least three potential buyers – International law firm Ropes & Gray has advised Crescent Capital Partners Management Pty Limited (Crescent) on the successful establishment of the over-subscribed Crescent Capital Partners V (Crescent V). An AUD675m fund, Crescent V will seek to invest in middle market businesses primarily in Australia and New Zealand with a focus on companies worth between AUD50m and AUD300m - MEPs will this week focus on the €315bn investment plan to boost growth in Europe, discussing with experts its three pillars: an investment fund, an advisory hub and a project pipeline. On Monday afternoon the economic affairs and budget committees hold a hearing with experts to discuss the €315bn investment plan for Europe as proposed by the European Commission - permanent tsb (PTSB), the Irish retail bank, will be using SAS solutions to deliver quicker and more efficient credit-decisioning, says the bank. Analysing this data in real-time will enable the bank to make quicker decisions that reflect each customer’s circumstances - The Straits Times Index (STI) ended +1.03 points higher or +0.03% to 3403.89, taking the year-to-date performance to +1.15%. The FTSE ST Mid Cap Index declined -0.39% while the FTSE ST Small Cap Index declined -1.14%. The top active stocks were SingTel (+0.47%), DBS (-1.48%), OCBC Bank (-0.86%), Noble (-3.08%) and UOB (-0.04%). The outperforming sectors today were represented by the FTSE ST Consumer Goods Index (+0.68%). The two biggest stocks of the FTSE ST Consumer Goods Index are Wilmar International (+0.31%) and Thai Beverage (+2.14%). The underperforming sector was the FTSE ST Basic Materials Index, which declined -3.44% with Midas Holdings’ share price gaining +1.61% and Geo Energy Resources’ share price declining -1.57%. The three most active Exchange Traded Funds (ETFs) by value today were the STI ETF (-0.29%), IS MSCI India (+0.37%), SPDR Gold Shares (+1.10%).

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The European Review

By Patrick Artus, chief economist at Natixis

Target 2 accounts: The equivalent of currency interventions, and a very good indicator of the risk that the euro may break up

Wednesday, 20 June 2012 Written by 
Target 2 accounts: The equivalent of currency interventions, and a very good indicator of the risk that the euro may break up When the Bundesbank’s (Germany's) Target 2 account (which is positive) increases while another euro-zone country’s Target 2 account becomes more negative, this is equivalent to a German currency intervention aimed at stabilising the exchange rate between Germany and this other country, and therefore at preventing a break-up of the euro. In a completely similar manner, when China accumulates foreign exchange reserves in dollars to prevent an appreciation of the RMB, the People's Bank of China accumulates an asset and the United States a liability, and there is monetary creation (in RMB). So the size of the Target 2 accounts of the national central banks in the euro zone corresponds to the size of the foreign exchange reserves that the euro-zone countries with a strong currency have to accumulate to prevent a break-up of the euro; it is therefore a very good indicator of the risk of a break-up. http://www.ftseglobalmarkets.com/

When the Bundesbank’s (Germany's) Target 2 account (which is positive) increases while another euro-zone country’s Target 2 account becomes more negative, this is equivalent to a German currency intervention aimed at stabilising the exchange rate between Germany and this other country, and therefore at preventing a break-up of the euro. In a completely similar manner, when China accumulates foreign exchange reserves in dollars to prevent an appreciation of the RMB, the People's Bank of China accumulates an asset and the United States a liability, and there is monetary creation (in RMB). So the size of the Target 2 accounts of the national central banks in the euro zone corresponds to the size of the foreign exchange reserves that the euro-zone countries with a "strong currency" have to accumulate to prevent a break-up of the euro; it is therefore a very good indicator of the risk of a break-up.

The size of the Target 2 accounts held by national central banks in the euro zone

Germany and the Netherlands hold substantial Target 2 assets (respectively EUR 650bn and EUR 140bn), while Greece, Spain, Italy and Ireland have substantial Target 2 debts (respectively EUR 98bn, EUR 285bn, EUR 280bn and EUR 117bn).



Fundamentally, these are currency interventions

Let us take, for example, the Germany/Spain pair. If the Bundesbank lends to the Bank of Spain, there is an increase in Germany's positive Target 2 account and in Spain’s negative Target 2 account. This corresponds to a loan from Germany to Spain, or to a purchase of Spanish assets by the German central bank.

If this purchase had not taken place, Spain would be unable to finance its external deficit, and would be forced to pull out of the euro and let its currency depreciate to the point where capital inflows covered its external borrowing requirement.

Therefore, this is the exact equivalent of a currency intervention aimed at ensuring the stability of the exchange rate between Germany and Spain: the country with a "strong currency" buys assets of the country with a "weak currency" to stabilise the exchange rate.

Similarity with the China/United States pair

When China accumulates foreign exchange reserves in dollars to prevent an excessive appreciation of the RMB against the dollar, the People's Bank of China holds US assets and the United States, conversely, has a debt to China.

This operation increases the size of the balance sheet of the People's Bank of China, and therefore leads to monetary creation.

Likewise, when the Bundesbank lends to central banks in the Southern euro-zone countries, and these central banks subsequently lend these funds to the banks in their own countries, there is a creation of monetary base in euros.

Target 2 accounts measure the risk of a break-up of the euro

The size (positive or negative according to the country) of the Target 2 accounts held by the central banks in the euro zone therefore represents the size of the foreign exchange reserves that the euro zone countries with a "strong currency" have to accumulate to ensure the euro’s sustainability ("exchange-rate stability" between euro zone countries). The more the size of these accounts increases, the higher the risk that the euro may break-up.

Positive Target 2 accounts surged from the summer of 2011, and this went hand in hand with a period of pressure on the interest rates on peripheral government bonds and on risk premia on banks.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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