Thursday 30th October 2014
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THURSDAY TICKER: OCTOBER 30TH 2014: - In ConvergEx’s survey of financial market professional, released today, uust 17% of respondents say they approve of the job Barack Obama is doing as president, while 73% said they disapprove. (This compares with a 41% approval/54% disapproval rating for the President in the RealClearPolitics average, 10/8-10/23/2014) Half (50%) of those surveyed give the President a “D” or “F” grade on handling issues of concern to the financial services industry. Opinions of Congress are even lower, with just 8% approving of the job being done by Congress and 81% disapproving. (This compares with a 13% approval/79% disapproval rating for Congress in the RealClearPolitics average, 10/3-10/20/2014. Almost half (46%) give Congress a “D” or “F” grade on handling issues of concern to the financial services industry. 69% of respondents say they would like Republicans to be in control of the Senate following the elections, a figure above even the 65% who say they plan to vote Republican in their own House districts. By 61% to 14%, Republicans are trusted over Democrats on issues impacting the financial services industry. For 8 of 9 market sectors, a higher percentage of respondents said equities would respond positively to a GOP win than to a Democratic win. Only for the Heath Care sector do more investors expect a positive outcome in response to Democrats holding the Senate - The Commercial Bank of Qatar (CBQ) posted a net profit (before deducting minority interest) of QAR503m in 3Q2014, flat QoQ, but 79% higher than a particularly weak 3Q2013. CBQ’s operating income in 3Q2014 increased 16% YoY but dropped 10% QoQ, driven by lower-than-expected results at subsidiary ABank. ABank’s operating income tumbled around 23% QoQ as non-interest income plummeted. For CBQ excluding ABank, operating income stood at around QR 764 million in 3Q2014, up 12% YoY, down 6% QoQ - Moody's has today assigned a provisional (P)B1 corporate family rating (CFR) to Kompania Weglowa SA, the parent company of the group. This provisional rating is subject to the successful completion of the issuance of new notes as currently contemplated by management. Concurrently, Moody's has assigned a provisional (P)B1 rating with a loss-given default (LGD) assessment of 3 (46%) to the senior unsecured notes to be issued by Kompania Weglowa Finance AB (publ), a financing vehicle owned by the company. The outlook on all ratings is stable - ING Group will release its 3Q 2014 results on Wednesday November 5th around 7:00 am CET - AIMCo, Allianz Capital Partners, EDF Invest andHastings have closed its buy of Porterbrook, a UK-based rolling stock leasing company. orterbrook is one of three main rolling stock companies (ROSCOs) in the UK that owns and leases a fleet of passenger and freight rolling stock to Train Operating Companies and Freight Operating Companies under long term contracts. It owns 32 per cent of total passenger rolling stock in the UK. No financial terms were disclosed - Fixed-income markets remain volatile: Europe is challenged, Brazil might struggle, and China is dealing with a potential property bubble. Opportunities nonetheless remain rife for savvy investors, particularly in the high-yield markets. Western Asset believes high-yield should be a key component of any successfully diversified bond portfolio. "We are pretty bullish on credit in general, and high-yield in particular," says Michael Buchanan, head of Global Credit at Western Asset. "Credit is less about the overall economic environment and more about strong corporate fundamentals. Corporations can do well in a mediocre economy, and that seems to be what's happening. Three factors are important right now: the overall economic environment is supportive; strong active management allows us to identify the right opportunities; and valuations are as compelling as they have been in months. This is a good time to take a fresh look at high-yield." Western Asset also believes high-yield products will offer price appreciation as spreads should tighten. On the global economic environment, Mr. Buchanan echoed Western Asset views that interest rates are poised to rise – albeit slowly, and via a process that will be carefully measured. Rates will not be meaningfully higher in the near future, or at least the moves will be gradual – According to Moody’s while the US government's current fiscal position remains relatively healthy, mandatory social spending will begin weakening the current fiscal profile of the US government at the end of the decade. For the next few years, barring another shock like the global financial crisis, the US budget deficit is expected to remain well within historical norms with Federal government debt ratios stable. However, the fiscal implications of the US government's healthcare-related programs likely will put pressure on its credit profile before the end of the decade, absent unexpected and sustained growth in revenue due to higher than expected GDP growth, additional tax increases, or reductions in planned expenditures, says Moody’s.

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The European Review

By Patrick Artus, chief economist at Natixis

The likelihood of another global recession

Monday, 20 August 2012 Written by 
The likelihood of another global recession There is real concern over the present state of the global economy, due to a slowdown in global trade and dwindling production prospects. Indeed, it is not out of the question that another global recession is looming. Economic crises can be found in both the eurozone and the United Kingdom, there is also a marked slowdown in the US economy and continuing stagnation in Japan. There is a justified fear that the crises could spread to open economies via global trade. And although emerging countries could implement expansionary fiscal and monetary policies to allay concerns about their growth models, these policies might not benefit the global economy because of the structural nature of the countries’ problems. The question remains, does the world have the economic policy weapons to combat a new global recession? http://www.ftseglobalmarkets.com/

There is real concern over the present state of the global economy, due to a slowdown in global trade and dwindling production prospects. Indeed, it is not out of the question that another global recession is looming. Economic crises can be found in both the eurozone and the United Kingdom, there is also a marked slowdown in the US economy and continuing stagnation in Japan.

There is a justified fear that the crises could spread to open economies via global trade. And although emerging countries could implement expansionary fiscal and monetary policies to allay concerns about their growth models, these policies might not benefit the global economy because of the structural nature of the countries’ problems. The question remains, does the world have the economic policy weapons to combat a new global recession?

The slowdown in emerging countries’ growth

We would argue that another global recession is a possibility, because – as previously mentioned – the global economy is being hit simultaneously by a number of events.



Since early 2010, in particular, there has been a marked slowdown of growth in large emerging countries, mainly due to these countries’ problematic growth models. For instance: 

  • There has been a loss of competitiveness and profitability in China, due to sharp wage increases since 2010;
  • India has seen a stagnation in its industrial production capacity, partly due to hiring difficulties but also issues to do with its education and labour mobility;
  • Brazil’s exchange rate still has a lasting overvaluation despite the recent depreciation, which has not gone far enough;
  • And there is also the dominating concern that any of the crises could spread to open economies (such as Singapore, Taiwan, South Korea, Sweden and Central European countries) via global trade.

All things considered, the fact that practically all regions are affected means there is a serious threat for global growth.

Fundamentally, we believe the problems are down to:

  • OECD countries continuing to deleverage in public and private sectors;
  • China halting a growth model that was driven by low-end production, exports and migration;
  • the delayed growth in Brazil’s and India’s industry.

Faced with this risk of recession, does the world have the capacity to react with its economic policies?

In OECD countries, there is no longer any room for manoeuvre in monetary policies. This is because interest rates are already very low, and liquidity is already extremely abundant. These countries cannot necessarily implement further fiscal policies because of very high fiscal deficits and public debts. Of course, other options are conceivable, such as quantitative easing in the United States, further VLTROs or asset purchase policies in the eurozone, another extension to the Gilt purchase programme in the United Kingdom, and the creation of liquidity in Japan. But there is a possibility these expansionary monetary policies would have very little effect on the economy.

In emerging countries, interest rates can be lowered. And as the debt ratio is much lower than in OECD countries, in addition to lower fiscal deficits and public debts, monetary policy ought to be more efficient.

The issue is therefore not whether emerging countries are able to conduct more expansionary economic policies, but whether these policies could restore global growth:

(a) If emerging countries have structural economic problems, counter-cyclical policies will not resolve them. Boosting credit and investment in construction by state-owned companies in China would improve neither the sophistication of the product range nor cost-competitiveness. Running fiscal deficits or lowering interest rates in India would not resolve their issues in the education sector. Likewise in Brazil, it would not be able to fix its overvaluation, nor the fall in investment and employment in its industry.

(b) If additional expansionary monetary policies in emerging countries lead to a depreciation of their currencies – which we can see happening now – the situation would improve in emerging countries but deteriorate in OECD countries. Viewed as a whole, there would be no improvement in the situation of the global economy. It is striking to see that even the Chinese RMB has depreciated against the dollar; the Brazilian real and the Indian rupee have depreciated sharply since 2011.

Global growth in 2012-2013 should cause more concern

Current forecasts continue to point to a recovery in global growth between 2012 and 2013 and then in 2014. But we believe there is cause to be more concerned. The reasons for such an outlook lie in the slowdown in growth that affects all regions and has structural causes. Also, OECD countries no longer have the room for manoeuvre to conduct counter-cyclical economic policies. And although emerging countries still have the room to manoeuvre and conduct such policies, the fact remains they could still prove ineffective, regardless.

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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