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NEWS TICKER, Tuesday July 28th: The Spanish Mercado Alternativo Bursátil (MAB) has admitted INCLAM to list on the market’s growth company segment. The company will trade from July 29th this year. Its trading code will be INC and trading will be through a price setting mechanism which will match buy and sell orders by means of two daily auction periods or “fixings”, at 12 hrs and at 16 hrs. Stratelis Advisors is acting as registered adviser and MG Valores SV as liquidity provider. - Moody's: Al Khalij Commercial Bank (al khaliji) Q.S.C.'s asset quality and capital strengths moderated by high reliance on market funding. Al Khalij Commercial Bank (al khaliji) Q.S.C. (AKB) benefits from a solid overall financial profile which is moderated by high reliance on market funding and concentration risks, says Moody's Investors Service in the report "Al Khalij Commercial Bank (al khaliji) Q.S.C: asset quality and capital strengths are moderated by high reliance on market funding" - While German SME’s continue to be plagued by recruiting problems, according to a new KfW survey fewer are bothered about filling employment vacancies than they were back in 2010. More women and older people in the working population, increasing labour mobility and the rise in skilled labour from other EU countries is helping filling the employment gap. Even so, the survey suggests that over the longer term, skilled labour shortages could be the order of the day – In a filing with the Luxembourg Stock Exchange Bank Nederlandse Gemeenten has given notice of amended final terms to the holders of TRY77.5m notes at 10.01% due June 17th 2025 (ISIN Code: XS1247665836 and Series no. 1214) issued under the bank’s €80bn debt issuance programme. The amendment includes provision that the issuer may settlement any payment due in respect of the notes in a currency other than that specified on the due date subject to pre-agreed conditions. Deutsche Bank London is the issuing and paying agent, while Deutsche Bank Luxembourg is listing agent, paying agent and transfer agent. The Shanghai Composite Index ended down 8.5% at 3725.56, its second-straight day of losses and worst daily percentage fall since February 27th, 2007. China's main index is up 6% from its recent low on July 8, but still off 28% from its high in June. The smaller Shenzhen Composite fell 7% to 2160.09 and the small-cap ChiNext Closed 7.4%. Lower at 2683.45. The drop comes as investors wonder how long the government’s buying of blue chip stocks can last. Clearly, the government can’t be seen to be pouring good money after bad to prop up what looks to be a failed strategy of propping up the market. Disappointing corporate earnings data across the globe has affected Asia’s main indices in today’s trading. The Hang Seng Index fell 2.7%. Australia's S&PASX 200 was down 0.2%, the Nikkei Stock Average fell 1% and South Korea's Kospi was off 0.4%. Turnover also remains depressed on Chinese exchanges, with around RMB1.2trn the average volume traded, compared to more than RMB2trn before this current downturn – In other news from the Asia Pacific, New Zealand’s Financial Markets Authority (FMA) has issued a Stop Order against Green Gardens Finance Trust Limited (GGFT) and warns the public to be wary of doing business or depositing money with this company. The Stop Order prohibits GGFT from offering, issuing, accepting applications for or advertising debt securities and/or accepting further contributions, investments or deposits for debt securities – Meantime, in Australia, the Federal Court has found that Astra Resources PLC (Astra Resources) and its subsidiary, Astra Consolidated Nominees Pty Ltd (Astra Nominees), breached the fundraising provisions of the Corporations Act, as part of civil proceedings brought by ASIC. In his judgment, Justice White upheld ASIC's claims that Astra Resources and Astra Nominees breached the Corporations Act by raising funds from investors without a prospectus or similar disclosure document, as required under the law.

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The European Review

By Patrick Artus, chief economist at Natixis

The adjustment in France has not even begun

Wednesday, 30 May 2012 Written by 
The adjustment in France has not even begun The French have the impression that their economy has worsened significantly and that austerity policies are weakening employment and living standards yet this inevitable adjustment is still to come Indeed, when examining the situation of public finances, competitiveness, foreign trade, the sophistication of products and businesses, it is clear that the process of adjustment and improvement has hardly begun in France, whereas it has progressed a lot on some criteria in Spain, Italy and Portugal, and of course long ago in Germany. http://www.ftseglobalmarkets.com/

The French have the impression that their economy has worsened significantly and that austerity policies are weakening employment and living standards yet this inevitable adjustment is still to come Indeed, when examining the situation of public finances, competitiveness, foreign trade, the sophistication of products and businesses, it is clear that the process of adjustment and improvement has hardly begun in France, whereas it has progressed a lot on some criteria in Spain, Italy and Portugal, and of course long ago in Germany.

The impression in France of a significant deterioration of the economy and living standards

The French are extremely pessimistic about the economy and living standards, as showed by a recent international optimism poll conducted by BVA – Gallup international. Yet, the French unemployment rate is lower than Spain and Portugal, and households' real income and spending are still increasing while they are falling in Spain, Italy and Portugal. The French fear a reduction in of social welfare, even though the welfare system has actually become more generous at a time when it has declined in Germany.



State of progress in France’s adjustment

In terms of the adjustment process, let us look at French public finances, competitiveness and foreign trade, and the financial position of French businesses and their product sophistication.

1. Public finances

In 2012, only Spain will still have a fiscal deficit higher than that of France. Meanwhile, the debt ratio will continue to increase in France at a time when it is falling in Germany and has stabilised in Italy.

2. Competitiveness, foreign trade

France and Italy have a higher unit wage cost than Germany, which explains the continuing losses of export market shares for these two countries; whereas Spanish and Portuguese exports, where producer costs are low, are now growing rapidly.

Indeed, France has a large trade balance deficit in manufactured goods yet Spain and Portugal now have an even trade balance. Meanwhile, Italy and Germany have trade balance surpluses. As long as international capital mobility remains low in the euro zone, due to the “renationalisation” of investors' portfolios caused by the crisis; countries will be subject to an external balance constraint. Indeed, France is the only country that has not yet reduced its current-account deficit.

An improvement in foreign trade can be achieved either through an improvement in cost-competitiveness, hence a fall in wage costs, or through a contraction of domestic demand, which reduces imports. At present, the unit wage cost is increasing faster in France than in Germany and all the other struggling euro-zone countries causing domestic demand to continue to increase instead of fall as in Spain, Italy and Portugal.

3. Financial position of businesses and product sophistication

In contrast to other euro-zone countries, the financial position of French businesses continues to deteriorate. It is clear that the deterioration of corporate profitability is due to the low level of product sophistication in French industrial output, which means that French businesses find it harder to pass on rises in production costs to consumers, contrary to what can be seen in Germany, Spain and even Portugal. This is extended by France’s slow productivity gains (efficiency in producing products), which are recovering in Spain and Portugal.

All in all, practically everything remains to be done in France:

France still needs to reduce its fiscal deficit, improve competitiveness/ foreign trade, and restore profitability (productivity) and product sophistication.

Meanwhile, these adjustments have been completed in Germany and are progressing well in the other euro-zone countries. Italy and Portugal now have small fiscal deficits; Spain and Portugal have seen improvement in cost-competitiveness; external deficits have been reduced in Italy, Spain and Portugal while both corporate profitability and productivity have also improved; and Spanish and Portuguese products have become more sophisticated as shown from their ability to pass on higher production costs to consumers.

This all points to a risk of more restrictive fiscal policies in France, a fall in wages, and efforts to restore productivity by businesses (as in Spain and Portugal), which will inevitably be costly in terms of employment.

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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