Friday 27th February 2015
NEWS TICKER, FEBRUARY 26TH 2015: The CME Group says that the volume in the Mexican peso interest rate clearing in the opening weeks of 2015 has outstripped the volume recorded in the whole of 2014. January was a particularly good month, with record volume m with $50bn cleared (MXN760bn), and $163bn cleared since launch. Meanwhile open Interest has grown to over $139.5bn (MXN2trn) – doubling since the start of the year - Italy’s payment systems specialist SIA reports operating margin up 22.5% at €81.9m and revenues up 7% at €336.9m over the 2014 financial year. The firm says it has proposed an ordinary dividend of €0.21 per share, with a total value of €35.68m. The firm reports a substantive 146% growth in the number of payment transactions processed through 2014 (touching 12bn over the year, with 9.2bn of those related to credit transfers (up 316%) and 3bn via cards (up 9%). The firm also reports a 5% increase in trading and post-trading operations, with service levels of 100%. The firm notes the success of its “Jiffy” service launch in the year, the new “Person to Person” (P2P) payments service, an App permitting money transfer in real time by Smartphone to a user’s contacts, associating the IBAN code of the account with the phone number included - The Straits Times Index (STI) ended -14.65 points lower or -0.43% to 3426.18, taking the year-to-date performance to +1.81%. The FTSE ST Mid Cap Index declined -0.31% while the FTSE ST Small Cap Index declined -0.29%. The top active stocks were SingTel (-0.47%), DBS (-0.66%), Global Logistic (+1.17%), UOB (-0.26%) and OCBC Bank (-0.38%). The outperforming sectors today were represented by the FTSE ST Consumer Goods Index (+0.77%). The two biggest stocks of the FTSE ST Consumer Goods Index are Wilmar International (+1.85%) and Thai Beverage (+0.71%). The underperforming sector was the FTSE ST Basic Materials Index, which declined -1.28% with Midas Holdings’s share price declining 3.08% and Geo Energy Resources’s share price unchanged. The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (-0.12%), STI ETF (-0.87%), SPDR Gold Shares (+0.50%). The three most active Real Estate Investment Trusts (REITs) by value were CapitaMall Trust (unchanged), Ascendas REIT (-1.59%), Suntec REIT (-0.51%). The most active index warrants by value today were HSI25000MBeCW150330 (+5.50%), HSI25000MBeCW150429 (+7.38%), HSI24400MBePW150330 (-10.11%). The most active stock warrants by value today were OCBC Bk MBeCW150803 (-5.74%), SGX MB eCW150803 (-1.16%), DBS MB eCW150915 (-5.33%) -World Bank today called for more transparency in India's power subsidy regime and suggested re-identification of the target population to improve the balance-sheets of losses-stricken distribution companies. The global development finance body says the sector should be allowed to operate in a commercially viable manner by ensuring that those firms that are not eligible for subsidy pay for what they consume - The country witnessed a decline of 12 per cent in solar power generation at a total 883 MW last year, according to energy consulting firm Mercom Capital Group. Total solar energy installations in 2013 stood at 1,004 MW, it said. However, its 2015 forecast remained unchanged at an approximately 1,800 MW with some upside - BNP Paribas Securities Services has appointed Andrea Cattaneo as head of Brazil. "We have expanded our custody offering in Brazil and across Latin America in recent years with great success," says Alvaro Camuñas, head of Spain and Latin America at BNP Paribas SS - A new draft text on an EU system for the use of Passenger Name Record (PNR) data, tabled by lead MEP Timothy Kirkhope (ECR, UK), was discussed in the civil liberties committee on Thursday morning. An evaluation of the necessity and proportionality of the proposal in the face of current security threats, its scope (list of offences covered), retention periods, the inclusion or exclusion of intra-EU flights, the connection with the on-going data protection reform, as well as the consequences of the EU Court of Justice judgement annulling the 2006 data retention directive, were among the issues discussed by MEPs. The 2011 Commission proposal would require more systematic collection, use and retention of PNR data on passengers taking “international” flights (those entering the EU from, or leaving it for, a third country), and would therefore have an impact on the rights to privacy and data protection.

Blog

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

Related News

Related Articles

Related Blogs

Current IssueSpecial Report

Tweets by @DataLend

DataLend is a global securities finance market data provider covering 42,000+ unique securities globally with a total on-loan value of more than $1.8 trillion.

What do our tweets mean? See: http://bit.ly/18YlGjP