Sunday 18th February 2018
February 16th 2018: Mike van Dulken & Henry Croft at Accendo Markets, commented to clients this morning: “FTSE 100 Index called to open +30pts at 7265, maintaining a shallow uptrend towards 7300 since Monday, but in a bearish rising wedge that could yet see the uptrend scuppered. Bulls need a break above 7275 overnight highs to extend the uptrend; bears want to see a troubling of rising lows around 7245 to put the uptrend in jeopardy. Watch levels: Bullish 7275, Bearish 7245. Calls for gains at the open come after solid gains on Wall St and a largely positive session for Asian markets (ex-China and HK for Lunar New Year) as global volatility continues to ease, back below its long-term average of 20, and equities maintain their recovery course. Japanese stocks are higher despite a stronger Yen, after BoJ Governor Kuroda was nominated for a second term, while further USD weakness (meaning stronger GBP and EUR) helps commodities like Oil and Gold. However, Australia’s ASX is the odd one out, in the red with Miners and Financials under water, the former having a potential negative knock-on for the FTSE … Gold has broken above $1357 resistance as the US dollar extends its decline. The precious metal is trading a fresh 3-week high as the global reserve currency falls to a fresh 3-year low. Despite retreating from overnight highs of $1360, former resistance at $1357 is proving supportive. This afternoon, US Import Price Index will be the final US inflationary print that could influence USD … Crude Oil benchmarks have climbed higher overnight, bouncing from intersecting support yesterday afternoon, however remain hindered by January falling highs resistance. Global benchmark Brent touched $65 before retreating marginally from its highs, off yesterday’s $63.4 lows, while US crude has dipped from $61.8 from yesterday’s lows of $59.7 -- EFG Eurobank in Athens reports that the February 19th Eurogroup will discuss, among other things, the implementation of the remaining prior actions under Greece’s third programme review, which constitutes a precondition for the disbursement of the next loan sub-tranche of €5.7bn. The deadline for the submission of binding offers for the acquisition of 66% of the Hellenic Gas Transmission System Operator (DESFA) expires today. According to the Hellenic Statistical Authority (ELSTAT), inflation returned into negative territory in January this year after 13 months of expansion with the Consumer Price Index dropping by 0.2% on a year on year basis. Fitch is scheduled to release its updated review on the Greek sovereign today --- US Treasury yields retreated from yesterday’s fresh multi-year highs as investors are becoming cautious, indicating no rush to price in a steeper path of Fed rate tightening in the coming months, in spite of higher than expected US inflation data for January. With respect to global equity markets, risk appetite looks to continue to recover with the VIX volatility index moving below 20. In FX markets, the USD extended recent losses with the DXY index dropping to three-year lows earlier today weighed down by lingering US structural woes and the perceived erosion of its yield advantage - The European Parliament’s Economic and Monetary Affairs Committee will give its opinion next Wednesday on a proposal to create a single, clear and fair European corporate tax regime, dubbed the “Common Consolidated Corporate Tax Base” (CCCTB), which would also embrace digital firms. One major feature is to ensure that companies are taxed where their profits are generated, in a bid to crack down on profit shifting - Chris Iggo, CIO, fixed income, at AXA Investment Managers in a client note today says investors are moving money out of fixed income funds in response to higher yields and negative returns. “Now that volatility is rising; and yields have moved higher, there are outflows. It is not clear where the money is immediately going but the flows do suggest that, at least based on behavior, investors think things will get worse before they get better in bond-land. As I write, the 10-year benchmark US Treasury yield is closing in on 3%. This is the highest level since the beginning of 2014 and represents a 160 basis points (bps) increase in yields since the low reached in mid-2016. The pattern, if not the actual size of the move or the level of yield, has been the same in the German bund and UK gilt markets. It might be that investors are getting out of bonds a bit late,” he says. Iggo also notes that investment grade corporate bond credit spreads are more or less unchanged, year-to-date, but have widened in the last two weeks in response to higher equity market volatility, explaining that: “For long-term followers of US high yield, that benchmark yield is now back above 6% for the first time since the end of 2016. European high yield bonds have not seen such a large move, but the benchmark yield is back above 3%. I doubt that these yields are enough to entice investors back into fixed income just yet, especially when sentiment is bearish and expecting higher yields as we move further into the regime of monetary normalisation. Indeed, the risk scenario is now not about being short but about being long” - Miles Eakers, chief market analyst at Centtrip reports this morning that: “Global stock markets continued to make gains overnight following another positive day on Wall Street. The US S&P 500 is now up close to 8% from last week’s nadir. Equity prices increased after the US Bureau of Labor Statistics released its Producer Price Index (PPI). The PPI, which measures the average change in the selling prices received by domestic producers for their output, showed prices rose by 2.7% on an annualised basis, further supporting robust US economic growth. Market participants have for now brushed aside last week’s ‘healthy’ correction, with global stocks all on the way up. The euro and the pound strengthened against the US dollar, as the latter continues to weaken across the board.” - Are emerging market (EM) equities set to resume their outperformance versus those in developed markets (DMs) after proving their resilience during the global correction? NN Investment Partners (NN IP) thinks they will. NN IP’s analysis suggests that EM equities underperformed those of DMs by just two percentage points during the global correction of the past weeks. The asset manager also notes that the traditional weak links, such as Turkey, Brazil and Colombia, were not responsible for the underperformance, having held up well and even outperforming the EM average, the analysis shows. The only market that clearly underperformed is China. Maarten-Jan Bakkum, senior emerging markets strategist, NN IP, says in a client note today: “The Chinese market and particularly the Chinese Internet names were the segments that had inflated the most within global emerging markets during the previous months. While the Chinese underperformance should not have been a big surprise, it remains remarkable that other EMs that should be more sensitive to big movements in DM interest rates have held up so well. We are therefore inclined to buy into weakness in China and increase our underweights in markets such as Turkey, where macro imbalances are large, economic policies are becoming more unorthodox and higher DM bond yields should eventually push local rates higher.” Even so, there is a caveat. NN IP anticipates that the EM-DM outperformance trend in equities that started two years ago will be sustained only as long as the rising bond yields in the US and Europe do not force EM central banks to tighten policy; thereby keeping EM financial conditions easy and supporting the EM domestic demand growth recovery -

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Patrick Artus

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.

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Germany has greater capital, a higher level of sophistication in its production, higher spending on R&D, a better-quality education system, better labour force skills and a larger industry than France. So, presumably, it should have markedly higher productivity gains than France. However, this is currently not the case.



Contrary to common assumptions, Japan’s economic model – before “Abenomics” was implemented in 2012 – was impressively robust. While the level of public debt was significant, it was sustainable due to even more impressive quantities of private savings (Japan maintained an external surplus until 2013) and very low inflation. These excess private sector savings, offset by the substantial fiscal deficit, led to a rise in public debt and a fall in private debt. The low and frequently negative inflation was caused, in part, by low labour costs with minimal increases – which allowed for a consistently expansionary monetary policy and, in turn, low interest rates. 


The steep deterioration in the eurozone’s economic situation – especially in the peripheral countries and France – is often attributed to the fiscal austerity implemented since 2010, which is judged by some as excessive.

The significant reduction in fiscal deficits between 2010 and 2014 did cause a severe fall in GDP; between 2009-2013 there was a drop of 3.5% in the eurozone as a whole – assuming a fiscal multiplier of 1 – and individually a fall of:

  • 3.0% in France,
  • 3.7% in Spain,
  • 3.5% in Italy,
  • 5.3% in Portugal, and
  • 3.2% in Greece.

While this appears to support the opinion that fiscal deficits should have been reduced more slowly, such a conclusion fails to take into account the exact nature of the eurozone crisis.

Thursday, 11 September 2014 17:28

France must improve supply before demand

The preference for increased purchasing power

Several French politicians and economists continue to reject the idea that companies’ production costs must be reduced – believing instead that an increase in wage-earners' purchasing power would be enough to trigger a growth recovery. Consequently, they are attempting to reverse the ‘Responsibility Pact’ initiative which should create a 40 billion euro reduction in corporate taxes (2% of GDP) – including in corporate earnings, social contributions and production taxes – bringing total corporate taxes to 13% of GDP.

Instead of these tax cuts, such policy makers advocate boosting employees’ purchasing power, either through faster wage increases or via a reduction in social contributions paid by employees. But an observation of past and recent developments clearly demonstrates that stimulation of demand will only be effective in France once supply conditions for goods and services have been improved.


Since 2010, expansionary fiscal policies have been unfeasible thanks to the surge in public debt stemming from the financial crisis – meaning monetary policies have been the sole tool for stimulating economies. This explains the reduction in central banks’ key intervention rates (such as the Federal funds rate in the US, Euro repo rate and Bank of England and Bank of Japan rates) to almost zero. It is also the main cause of the changeover to quantitative easing (QE) in the US, UK and Japan.

However, the combination of increased pressure to stimulate economies with the limitation of tools with which to do has led to a sense of impotence as central banks struggle to implement successful monetary policies. They often face a choice of monetary policies that have either become ineffective – in terms of the acute results required of them – or risk generating serious imbalances and dangers, contradicting central banks’ desire to exercise macroprudential caution. This impotence results from two main factors; the drying up of credit and the unsuitability of quantitative easing.

Wednesday, 20 August 2014 09:59

Does the French economy require shock therapy?

Although much attention has been given to the economic state of peripheral European countries, it is becoming increasingly clear that some key central countries are just as susceptible to the current climate. One such nation experiencing problematic macroeconomic symptoms is France, where the structural economic situation has sparked a number of concerning trends.

While some policy measures have been taken to remedy the situation, it is difficult to say whether the difference they make will be enough to correct it. In order to ascertain what further measures may be necessary going forward, we must first identify France’s ‘symptoms’ and their respective causes, and secondly balance existing measures against their consequences.


We are currently in a period with high levels of geopolitical risk on a global scale, particularly in areas such as Syria, Libya, Iraq, Nigeria and Venezuela or from the tensions between Ukraine and Russia, China and Japan or Israel and Palestine. Increased risk usually brings several predictable consequences – consequences that have been notably absent in this recent period of geopolitical risk. By distinguishing the expected effects of risk, and identifying to what extent they have occurred recently, we can examine the current impact of geopolitical risk on the financial markets.


Europe will continue to experience a divide between the few countries enjoying strong growth and the remainder experiencing sluggish growth. Such clear disparity stems from several underlying differences – and has serious implications for as long as it continues.

In order to categorise eurozone countries as having either strong or sluggish growth, we must first consider their production capacity trends. Doing so reveals that Germany, Austria and Belgium have strong industries and dynamic growth, while the other eurozone countries are more troubled. Finland in particular is suffering from a decline in the production of electronic goods, while the Netherlands faces falling real estate prices, and Ireland must contend with a decline in production in the wake of the country’s economic crisis.

This division between the two groups will continue indefinitely, with the first group growing at a consistently faster pace than the rest of the eurozone. If it is to change, we must first identify and understand the six key factors.