Thursday 26th November 2015
NEWS TICKER, November 24th 2015: New research from the Consilium Strategic Land Fund suggests 19% of estate agents and property developers expect it to become ‘much easier’ to obtain planning permission to build residential homes over the next three years. 56% think it will become ‘slightly easier’ and only 6% believe it will become harder to obtain. Given the UK needs to build around 250,000 new homes a year to meet growing demand, 21% of those interviewed think the level of government incentives to encourage residential property building will increase dramatically over the next 10 years, and a further 70% think they will increase ‘slightly’. Given this, 82% of estate agents and property developers expect the number of homes built in 2020 will be higher than in 2014. When looking at the South East, which is the main focus of the Fund, the corresponding figure is 79% - On the basis of a final compliance notice from the institutions, the Eurogroup Working Group (EWG) agreed late on Friday that the Greek authorities have now completed the first set of milestones and the financial sector measures that are essential for a successful recapitalisation process. The agreement paves the way for the formal approval by the ESM Board of Directors today for disbursing the €2bn sub-tranche linked to the first set of milestones. It also makes subsequent case-by-case decisions by the ESM Board of Directors on the transfer to the HFSF of the funds needed for the recapitalisation of the Greek banking sector out of the €10bn earmarked for this purpose - The performance of the UK credit card asset-backed securities (ABS) market remained positive during the three months ended August 2015, according to the latest indices published by Moody's. Total delinquencies decreased slightly to 1.54% of the outstanding balance in August 2015 from 1.64% in May 2015 and 1.82% in August 2014. The charge-off rate also decreased to 2.65% in August 2015 from 2.83% in May 2015 and 2.79% a year earlier. The payment rate decreased to 17.47% in August 2015 from 18.56% in May 2015 and 21.72% in August 2014 - ETF Securities Group has listed 18 new 3x short and leveraged commodity ETPs and six new 5x short and leveraged currency ETPs on the LSE today. 2015 has seen increased volatility across currencies and commodities and investors globally have demonstrated an increased interest in short and leveraged ETPs, with ETF Securities own platform experiencing US$135mn of inflows year to date. ETF Securities was the first provider to list European currency ETPs in 2010 and is now the first provider to list 5x short and leveraged currency ETPs on the London Stock Exchange having already launched 3x short and leveraged commodity and 5x short and leveraged currency products in Italy and Germany earlier this year. “We are listing these new short and leveraged products on the London Stock Exchange in response to a strong demand from investors. We have seen tremendous growth in our short and leveraged platform across Europe over the last few years.” says Townsend Lansing, executive director – head of short / leveraged & fx platforms, ETF Securities (UK) Limited. “2015 has been a year of heightened currency volatility. We believe the additional leverage will first and foremost allow investors to use the currency products to hedge currency risk as well provide additional opportunities to trade on a short term basis with a competitive total cost of ownership.” - GoldenSourcea provider of Enterprise Data Management (EDM) and Master Data Management (MDM) solutions for the securities and investment management industry, says that Cattolica Assicurazioni has selected its Market Data Solution to efficiently deliver robust pricing and accelerate reporting capabilities for Solvency II. GoldenSource will provide Cattolica with a complete solution for constructing and disseminating fully audited data sets which validates and cleanses multiple sources, ensuring accuracy and timeliness in product control and reporting. After a rigorous evaluation process, GoldenSource was selected due to the completeness of the solution, ease of use and its rapid implementation capabilities - Yes Bank, one of several of India’s private banks, recently signed an agreement with the London Stock Exchange (LSE) regarding the listing of green bonds and equity instruments to raise funds for clean energy infrastructure. The bank has announced plans to list green bonds on LSE worth $500m by December 2016. Yes Bank issued the country’s first green bond in February this year in which it raised $150m. A second green bond issue, floated in partnership with the International Finance Corporation (IFC), raised almost $50m. The Indian Import-Export Bank also raised $500m through the first dollar-denominated green bonds issued in India, and is also expected to issue more bonds raising up to $1.5bn over the next two to five years – Was last week a turning point? The US Fed has given its clearest sign yet that it might raise rates in December, as it notes that inflation looks to be reappearing. However, with global growth continuing to slow, a rate rise is not without risks. After a torrid start to fall, Australian shares closed at their highest level in about a month as a brightening economic outlook buoyed consumer stocks and countered pressure from falling commodity prices. The S&P/ASX 200 rose 20.3 points, or 0.4%. Elsewhere, it a mixed, but not altogether a depressing picture. The Shanghai Composite Index closed down 0.6%, amid expectations that a four-month moratorium on public listings could lift soon, triggering investors to sell current holdings. Hong Kong's Hang Seng Index fell 0.4%. South Korea's Kospi rose 0.7%. Markets in Japan were closed for a holiday. The Straits Times Index (STI) ended 14.42 points or 0.49% lower to 2903.49, taking the year-to-date performance to -13.72%. The top active stocks today were DBS, which declined 0.71%, NOL, which gained4.46%, SingTel, which declined1.03%, OCBC Bank, which declined1.23% and UOB, with a 1.25% fall. The FTSE ST Mid Cap Index declined 0.13%, while the FTSE ST Small Cap Index declined 0.45%. Expectations of higher rates strengthened the dollar against most currencies in trading today with the euro falling to a seven-month low at $1.0599, no surprise when you couple the promise of a US rate rise with the ECB holding out for more easing. ECB President Mario Draghi said Friday that the bank stands ready to deploy its full range of stimulus measures to fight low inflation. A stronger dollar also pressured several commodities, which are priced in the currency. Earlier Monday, three-month aluminum prices on the London Metal Exchange fell to their lowest level since May 2009, to $1,438 a metric ton. The price later edged up to $1,441.50. Brent crude oil, the global benchmark, was down 1.8% at $43.84 a barrel. Prices of West Texas Intermediate fell 3.1% to $40.62 a barrel, after falling below $40 a barrel last week. Gold prices fell 0.5% at $1,070.60 a troy ounce - The European Council says it has extended the mandate of the European Union Special Representative (EUSR) for the South Caucasus and the crisis in Georgia until 28 February 2017. Herbert Salber was appointed in July last year. EUSRs promote the EU's policies and interests in troubled regions and countries and play an active role in efforts to consolidate peace, stability and the rule of law. The first EUSRs were appointed in 1996. Currently, nine EUSRs support the work the High Representative of the Union for Foreign Affairs and Security Policy, Federica Mogherini - Taiwan's Ministry of Economic Affairs (MOEA) approved 3,118 foreign direct investment projects (except from China) with a total value of $3.689bn in January-October 2015, respectively increasing 6.34% and decreasing 6.77% on year, according to MOEA statistics released on November 20th. In the same period, MOEA approved 378 outward direct investment projects (except in China) proposed by Taiwan-based companies or individuals with a total value of $9.4bn, respectively dropping 5.74% and growing 40.42% on year. Also in January-October, MOEA approved 135 investment projects proposed by China-based enterprises with a total value of $134.27m. On the other hand, there were 276 approved projects of direct investment in China proposed by Taiwan-based companies or individuals with a total amount of $8.723bn, slipping 17.61% and rising 11.43% respectively on year. Taiwan's Ministry of Economic Affairs (MOEA) approved 3,118 foreign direct investment projects (except from China) with a total value of $3.689bn in January-October 2015, respectively increasing 6.34% and decreasing 6.77% on year.

Latest Video


The European Review

By Patrick Artus, chief economist at Natixis

Why the ECB will need to purchase bonds again

Friday, 27 July 2012 Written by 
Why the ECB will need to purchase bonds again Even if the European Central Bank (ECB) does not particularly like the idea, it will soon have to return to buying government bonds from several eurozone countries. The reasoning behind this prediction lies in a chain of events already taking place.

Even if the European Central Bank (ECB) does not particularly like the idea, it will soon have to return to buying government bonds from several eurozone countries. The reasoning behind this prediction lies in a chain of events already taking place.

Earlier this year the ECB froze its securities market programme (SMP), which, since its inception in 2010, has bought over €210bn worth of sovereign bonds. The responsibility of buying sovereign bonds from various eurozone countries, it said, would now shift to the European Financial Stability Fund (EFSF) and European Stability Mechanism (ESM).

Despite the high level of interest rates in Spain and Italy, the ECB has not resumed its purchases of government bonds, and shows no enthusiasm for doing so. As mentioned, its official stance is that government bond purchases should be carried out by the EFSF/ESM.

However, many analysts (us included) believe the EFSF/ESM will not be able to react sufficiently – mainly due to its size but also the fact it lacks access to monetary creation, which the lender of last resort for governments must have.

To see the chain of events taking place, we only need look at the economic position of Spain, Italy, France and Portugal – which are all deteriorating. This reinforces the risk that investors will refuse to finance these countries, which will push interest rates to the point where there is a threat of default.

In these countries (obviously to different extents):

  • the private sector continues to deleverage;
  • the fiscal policy is and will be restrictive;
  • there is a decline in real wages since labour's bargaining power is weakening;
  • household demand is deteriorating, which leads to companies reducing their investment rate;
  • sluggish activity is leading to job losses and preventing these countries from improving their public finances; and
  • despite the decline in domestic demand in Italy, Spain and Portugal, there remains a substantial external deficit; in France, on the other hand, domestic demand has not started to fall yet, but the external deficit is rising.

The improvement in competitiveness due to the fall in wages (in Spain, Italy and Portugal, but not yet in France) is unable to improve foreign trade, either because the industrial sector is too small as a proportion of the whole economy (Spain, Portugal, France), or because this improvement is insufficient (Italy).

So there is clearly a downward spiralling risk. The crisis spreads from one country to the next via foreign trade and, since the external deficits are only partially being reduced, the crisis may be exacerbated by the rise in interest rates.

Therefore, we can see a continuous weakening of the economy. If the countries’ economic situation deteriorates, it will be increasingly difficult to finance their debts. Investors will be concerned about the countries’ situation and their solvency – in fiscal and external terms. Interest rates will rise further, and this means that countries and governments will be threatened with default.

Realistically, if this occurs the ECB will have to intervene because the officially planned solution (bond purchases by the EFSF/ESM) will not be sufficient. Given the size of the countries’ debts, the need to buy bonds will exceed the capacity of a bond issuer such as the EFSF/ESM – especially in the event of a bond market crisis affecting several eurozone countries.

Given that the lender of last resort for governments must have access to monetary creation, the only institution capable of buying bonds at the volumes required will be the ECB.

We believe that at the end of this process the ECB will have to intervene via massive government bond purchases (similar to the action taken by Bank of England). This is legal, provided that it relates to purchases in the secondary market, irrespective of some countries’ reservations.

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.


Related News

Related Articles

Related Blogs

Related Videos

Current Issue