Wednesday 26th November 2014
NEWS TICKER, WEDNESDAY NOVEMBER 26TH 2014: According to local press reports, the chief of the UAE stock market regulator wants more industrial companies to list their shares on exchanges dominated by property and investment firms. Abdulla Al Turifi, chief executive of the UAE Securities and Commodities Authority (SCA), says the regulator is reviewing applications for initial public offerings of up to four companies to list on the UAE bourses and another three applications for a new secondary market for companies that currently trade only OTC. The UAE is seeking to broaden its industrial base and reduce its reliance on hydrocarbons, but the country’s two main stock exchanges are dominated by property and financial listings. Recent IPOs have come from retail, a sector also previously unrepresented on the exchanges. In February this year, the SCA and the Ministry of Economy issued a law requiring private joint stock companies to list their shares on a second market, in the hope that it would encourage firms to eventually move onto the main board- Moody's has placed the B3 corporate family rating, B3-PD probability of default rating and B1 rating on the senior secured facilities of Reynolds Group Holdings Limited under review for downgrade. The review follows RGHL's announcement that it had entered into a definitive agreement to sell its SIG Combibloc business to Onex Corporation for up to €3.75bn. The transaction is expected to close in the first quarter of 2015, pending final regulatory approvals and the satisfaction of other customary closing conditions - Morocco’s House of Representatives yesterday approved a new law authorising the establishment of Islamic banks and private companies to issue Islamic bonds. Since the Islamist-led government took office in 2011, it has been attempting to develop Islamic finance in the country. The bill was passed unanimously - According to Iran’s Fars News Agency (FNA) Iran’s non-oil exports have grown by 28% since the end of March. Iran’s non-oil exports have surged by 28% since the Persian new year (March 21), Fars News Non-oil export revenues, minus gas condensates, were approximately $18bn this year. Roughly $5bn from the non-oil exports revenues were from tourism (up 32%), though the bulk comes from engineering, workforce and transit services. Some 93% of the country’s non-oil export revenue comes from Asian countries. Imports since the end of March have risen 32% to $21.695bn -IXICO the brain health company, today announces that the contracts for two separate clinical trials in Huntington’s disease with two pharmaceutical companies have been extended. As a consequence, IXICO anticipates the revenue from these two contracts to be significantly enhanced to a potential £2.5m over approximately three years – Any announcement around the sale of Japan Post Holding’s projected IPO now looks to be postponed until January, according to the company’s president Taizo Nishimuro, at a news conference earlier today. In October, the government selected Nomura Securities and ten other underwriters for the initial public offering. The IPO is the first leg of the government's plan to sell up to two-thirds of Japan Post's shares. The government is hoping to raise more than $20bn from the sale - The US Commodity Futures Trading Commission (CFTC) filed notice to revoke the registrations of Altamont Global Partners LLC (Altamont), a commodity pool operator of Longwood, Florida, and John G. Wilkins a principal, managing member and approximate one-third owner of Altamont. The notice alleges that Altamont and Wilkins are subject to statutory disqualification from CFTC registration based on an order for entry of default judgment and an amended Order of permanent injunction. The orders include findings that Altamont and Wilkins misappropriated commodity pool funds and issued false quarterly statements to pool participants. The notice alleges that Wilkins is subject to statutory disqualification from CFTC registration based on his conviction for conspiracy to commit mail fraud and wire fraud. A US District Court has sentenced Wilkins to 108 months in federal prison - The Straits Times Index (STI) ended +0.94 points higher or +0.03% to 3345.93, taking the year-to-date performance to +5.72%. The FTSE ST Mid Cap Index gained +0.08% while the FTSE ST Small Cap Index gained +0.08%. The top active stocks were SingTel (+0.26%), Global Logistic (+1.52%), DBS (-0.40%), OCBC Bank (+1.26%) and UOB (-0.42%).The outperforming sectors today were represented by the FTSE ST Consumer Services Index (+0.40%). The two biggest stocks of the FTSE ST Consumer Services Index are Jardine Cycle & Carriage (+0.29%) and Genting Singapore (+0.44%). The underperforming sector was the FTSE ST Utilities Index, which declined -0.97% with United Envirotech’s share price declining -0.61% and Hyflux’s share price gaining +1.09%. The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (+0.78%), SPDR Gold Shares (-0.22%), United SSE 50 China ETF (+2.33%). The three most active Real Estate Investment Trusts (REITs) by value were Suntec REIT (+0.26%), Ascendas REIT (+0.87%), CapitaMall Trust (+0.51%). The most active index warrants by value were HSI23800MBeCW141230 (+20.35%), HSI24400MBeCW141230 (+18.67%), HSI23600MBePW141230 (-20.00%) and the most active stock warrants by value today were OCBC Bk MBeCW150413 (+6.38%), KepCorp MBePW150330 (-5.88%), UOB MB eCW150415 (unchanged) - Sentiment in the Italian consumer sector has taken another step backwards according to the latest figures this month. The Italian Consumer Confidence indicator has now fallen for a seventh straight month to produce a November reading of just 100.8, from a peak above 106.0 this sentiment metric reached 101.3 last month, market expectations for today’s reading were for a slight rise to 101.6. The Organisation for Economic Co-operation and Development (OECD) yesterday published a less than optimistic report for the near term growth prospects of the Italian economy. The previous OECD report projected growth for Italy of 0.5% over the full 2014 year but this has now been revised downwards by almost a full point to forecast a 2014 contraction of -0.4%.

What kind of economy would the euro zone be without Germany?

Thursday, 28 June 2012 Written by 
What kind of economy would the euro zone be without Germany? There is increasing talk about establishing federalist mechanisms (eurobonds, eurobills) and pooling certain risks and investments between euro-zone countries (European bank guarantees, recapitalisation of banks by the EFSF-ESM, increased investments by the EIB, EFSF-ESM access to ECB funding, purchases of government bonds by the ECB). Germany's criticism of these proposals is that they ultimately place all the costs and all the risks on Germany, due to its economic, fiscal and financial situation and its credibility in financial markets. It is claimed that eventually all the bills will be sent to Germany, since the other euro area countries have no fiscal or financial leeway or any credibility to guarantee deposits and loans. We shall therefore examine the economy of the euro zone excluding Germany and ask the question: Is it in such a bad situation that federalism or the pooling of risks and investments between euro-zone countries would in fact amount to potentially placing the entire burden on Germany? We think that Germany’s fears are justified. http://www.ftseglobalmarkets.com/

There is increasing talk about establishing federalist mechanisms (eurobonds, eurobills) and pooling certain risks and investments between euro-zone countries (European bank guarantees, recapitalisation of banks by the EFSF-ESM, increased investments by the EIB, EFSF-ESM access to ECB funding, purchases of government bonds by the ECB). Germany's criticism of these proposals is that they ultimately place all the costs and all the risks on Germany, due to its economic, fiscal and financial situation and its credibility in financial markets. It is claimed that eventually all the bills will be sent to Germany, since the other euro area countries have no fiscal or financial leeway or any credibility to guarantee deposits and loans.

We shall therefore examine the economy of the euro zone excluding Germany and ask the question: Is it in such a bad situation that federalism or the pooling of risks and investments between euro-zone countries would in fact amount to potentially placing the entire burden on Germany?

We think that Germany’s fears are justified.

Federalism: pooling between euro-zone countries

The resolution of the euro-zone crisis will inevitably involve establishing certain forms of federalism (eurobonds, eurobills) and the pooling of certain investments and risks (a European bank guarantee system, the recapitalisation of the banks (e.g. Spanish banks) by the EFSF-ESM, an increase in structural funds or investments by the EIB, ESM access to ECB funding).



The pooling of risks between euro-zone countries already exists: the Target 2 accounts are a pooling of bank risks among euro-zone central banks, and purchases of government bonds by the ECB pool sovereign risk.

This trend to federalism and pooling is inevitable: in a monetary union without federalism, countries with external surpluses and countries with external deficits cannot coexist permanently due to the resulting accumulation of external debt.

A number of financing needs are too substantial to be borne by a single country, e.g. for Spain the need for recapitalisation of its banks. And a number of risks (e.g. the risk of a bank run) are also too great not to be pooled.

Is this move towards federalism and pooling a trap for Germany?

The view in Germany is clearly that this move towards federalism and pooling is a trap for Germany. It is claimed that Germany will have to cover most of the costs because it has public finances in good health, growth that is now stronger, higher living standards than the countries in distress, and excess savings.

Germany also has strong credibility in financial markets, as shown by its interest rate level, and it is the only country to be able to credibly insure risks and guarantee loans.

The Germans' concern is therefore understandable: if there is federalism and a pooling of investments and risks, will Germany "receive all the bills"?

To determine whether this is a real risk, let’s examine the situation of the euro zone without Germany: is it such a worrying region, will it have to be propped up permanently by Germany?

The economic and financial situation of the euro zone without Germany: Is it serious?

Without going into greater detail for each country, we shall examine:

·                   its competitiveness, the foreign trade situation; the weight of industry;

·                   its situation regarding its technological level, skills, productivity and investment; its potential growth;

·                   the situation of its businesses and households;

·                   its public finances.

1. Foreign trade, competitiveness, weight of industry

The euro zone without Germany has:

·                   a structural external deficit;

·                   a shortfall in competitiveness;

·                   a small industrial base;

·                   a large external debt.

2. Technological level, skills, investment, productivity and potential growth, capacity for job creation

The technological level of the euro zone without Germany is fairly low, as is the population's level of education; this zone invests little, has low productivity gains, and since 2008 it has destroyed jobs massively.

3. Situation of businesses and households

Corporate profitability in the euro zone excluding Germany is low, but private (corporate and household) debt is lower than in Germany; however, household solvency has deteriorated (in Germany, household defaults are low and stable; in France, Spain and Italy, they are high and rising).

4. Public finance situation

The public finances of the euro zone excluding Germany are in a very poor state compared with Germany. Indeed Germany’s debt to GDP ratio is expected to fall, while in the euro zone excluding Germany it should rise rapidly toward 100%; Germany has a 1% primary surplus, while the euro zone excluding Germany has a 2% primary deficit.

Conclusion: Are the German fears justified?

If the euro zone were to become a federal monetary union, with solidarity between countries and pooling of certain investments (recapitalisation of banks, for example) and risks, surely the rest of the euro zone excluding Germany could only be:

·                   benefiting from transfers from Germany;

·                   benefiting from Germany's credibility in the markets;

·                   benefiting from Germany's guarantee;

Or could it share this burden with Germany? We suspect that the burden on Germany would be very heavy.

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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