Thursday 2nd July 2015
NEWS TICKER: WEDNESDAY, JULY 1st 2015: at €149.3bn in June (June 2014: €93.7bn). Some €140.1bn is attributable to Xetra (June 2014: €86.2bn). The average daily turnover on Xetra stood at €6.4 billion in June (June 2014: €4.1 bn).A turnover of €4.1bn was attributable to Börse Frankfurt (June 2014: €3.9bn) - Equity trading volumes on the Vienna Stock Exchange amounted to €30.60bn from January to June 2015. This corresponds to an increase of 24 % versus the same period last year. Following particularly lively turnover in March, trading activity has remained strong in subsequent months. The average monthly turnover in the first half-year was around €5.1bn, 28% higher than in the previous year (2014: €3.98bn). Rising prices were not the only factor driving up trading volumes - the number of exchange trades was also up this year from 38.8% (exchange trades executed: HY1 2014: 2.85m; HY1 2015: 3.96m). Austrian companies have raised a volume of €195m in fresh capital through capital increases in the first half of 2015 - Markit (Nasdaq: MRKT), the financial information services provider, says it has completed its acquisition of Information Mosaic, a software provider for corporate actions and post trade securities processing. The Information Mosaic business is being integrated into Markit’s Solutions division and will be led by Paul Taylor, managing director, reporting to Michele Trogni, managing director and cohead of Solutions - Gerry Rice, director of communications at the International Monetary Fund (IMF), made the following statement today regarding Greece’s financial obligations to the IMF due today: “I confirm that the SDR 1.2 billion repayment (about EUR 1.5bn) due by Greece to the IMF today has not been received. We have informed our Executive Board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared. I can also confirm that the IMF received a request today from the Greek authorities for an extension of Greece’s repayment obligation that fell due today, which will go to the IMF’s Executive Board in due course.” - Morningstar has downgraded the Neptune European Opportunities fund to a Morningstar Analyst Rating™ of Bronze. The fund previously held a Silver rating. The fund remains a solid choice as an unconstrained European equity offering, boasting a talented and longstanding manager in Rob Burnett. However, the risk-return profile of the fund has deteriorated over recent years as the manager has made a number of ill-timed shifts in the portfolio which have resulted in significant performance variability and heavily weighed on the fund’s three- and five-year risk-adjusted returns. Whilst Morningstar continues to think very well of Burnett and expects investors to benefit from his moves to limit short-term trading and make better use of the risk management tools at his disposal, Morningstar believes a Bronze rating provides a better reflection of the fund’s relative merits – The shares of Cassiopea were traded for the first time under the Main Standard of SIX Swiss Exchange, opening at CHF35.00. This corresponds to a total market capitalisation of around CHF350m - Further to its public offer of up to 1,000,000 Certificates to be issued by Deutsche Bank AG under its X-markets programme, the bank has issued 45,000 securities at a price of U$100 per certificate today. Application has been made for the Securities to be admitted to listing on the official list of the Luxembourg Stock Exchange and to trading on the Euro-MTF market of the Luxembourg Stock Exchange - The Straits Times Index (STI) ended 13.81 points or 0.42% higher to 3331.14, taking the year-to-date performance to -1.01%. The top active stocks today were Singtel, which gained 1.19%, SGX, which gained 4.47%, DBS, which declined 0.92%, OCBC Bank, which declined 0.10% and Global Logistic, with a 1.19% advance. The FTSE ST Mid Cap Index gained 0.09%, while the FTSE ST Small Cap Index rose 0.14%. The outperforming sectors today were represented by the FTSE ST Real Estate Holding and Development Index, which rose 1.35%. The two biggest stocks of the Index - Hongkong Land Holdings and Global Logistic Properties – ended 2.32% higher and 1.19% lower respectively. The underperforming sector was the FTSE ST Technology Index, which slipped 1.63%. Silverlake Axis shares declined 3.57% and STATS ChipPAC gained 0.97%.

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The European Review

By Patrick Artus, chief economist at Natixis

France’s industrial crisis: predictable and set to last

Friday, 03 August 2012 Written by 
France’s industrial crisis: predictable and set to last France’s industrial sector is in the midst of a steadily worsening crisis. There has been a decline in production, employment and productive investment, the external deficit remains significant, and export market shares are declining rapidly. We would argue that this situation was foreseeable, particularly if we add up issues with supply, domestic and external demand, and the impact of the eurozone crisis. Unfortunately, not a lot can be done about the weakness of demand, and the remedies to the supply problem are difficult to implement rapidly. http://www.ftseglobalmarkets.com/

France’s industrial sector is in the midst of a steadily worsening crisis. There has been a decline in production, employment and productive investment, the external deficit remains significant, and export market shares are declining rapidly.

We would argue that this situation was foreseeable, particularly if we add up issues with supply, domestic and external demand, and the impact of the eurozone crisis. Unfortunately, not a lot can be done about the weakness of demand, and the remedies to the supply problem are difficult to implement rapidly.

Let’s go through these issues, their causes and their implications.

Cause no. 1: The supply problem



Supply conditions for goods and services continue to deteriorate in France. The low profitability of companies discourages investment hence the production capacity of French industry is on the decline.

Since 2001, French industry sales prices have been falling relative to unit wage costs. Such falls reflect the excessive level of unit wage costs compared to the sophistication of industrial production in France. The downmarket nature of French industrial production prevents an increase in its selling prices, because of the high level of the price elasticity of demand for industrial products made in France: 0.9 versus 0.3 in Germany.

However, the rise in the unit wage cost – relative to selling prices – does not come as a result of the trend in productivity, but what has been happening to wages. This is because the level of costs is pushed up by the level of employers’ welfare contributions.

The subsequent fall in French industry’s profitability is substantial, reducing its capacity to invest and create jobs. This leads to the off-shoring of production capacity to countries where industrial profitability is higher, thereby weakening industry financially and threatening it with a serious crisis in the event of a recession and falling demand.

Cause no. 2: The demand problem

Between 2011 and 2012, French industry suffered from the weakness of both domestic and external demand. This resulted in a lower capacity utilisation rate than normal, which makes the problem of low profitability even more detrimental. And the decline in demand may deteriorate further if there is a fall in real wage incomes and government expenditure.

Cause no. 3: The euro-zone crisis

The eurozone crisis has two negative effects on French industry:

  1. it weakens demand and therefore imports in the eurozone countries that usually would have been France’s customers. This is significant because the eurozone accounts for 46% of French exports – the United Kingdom, which is also mired in a recession, accounts for 6%;
  2. it reduces domestic demand and capacity utilisation rates in Spain and Portugal and persuades industrial companies in these countries to turn to exports. As wage costs are lower in these countries, there is an increase in the competition that has a direct impact on French industry. France’s export market share tends to decline, whereas those of PortugalSpain and Ireland have recovered.

Remedies are very difficult to implement

Of the three issues mentioned, weakness of demand and the effects of the eurozone crisis cannot be controlled, particularly in a situation where there is private-sector deleveraging and a reduction in fiscal deficits. The question for French industry is therefore which remedies can be implemented on the supply side? We have put together the following list of possible measures:

 

  • an improvement in the sophistication of industrial production and in the differentiation of products, which will require innovation, investments, and marketing;
  • increased geographical diversification in companies' sales to increase the weight of emerging countries, which is currently quite low in France;
  • a major reform of the financing of social welfare in France to reduce the weight of welfare contributions paid by companies;
  • a fall in the hourly labour cost, either through a fall in the per capita wage, or through an increase in the number of hours worked (which is obviously a source of conflict).

 

However, these measures are all very difficult to implement rapidly.

It is also important to understand the major fragility of companies that are not very profitable (i.e. they have a shortfall in supply) when they are faced with a significant and lasting decline in demand.

Unfortunately, it looks as though this French industry crisis is not going to go away any time soon.

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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