Tuesday 7th July 2015
NEWS TICKER: MONDAY, JULY 6TH: Moody's Interfax Rating Agency (MIRA), which specialises in credit risk analysis in Russia, has withdrawn the Baa1.ru national scale rating of Petrocommerce Bank (OJSC) based in Russia (Ba1 negative). This action follows Petrocommerce Bank's reorganisation and merger with Bank Otkritie Financial Corporation PJSC (deposits/senior unsecured Ba3 negative, BCA b1). Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks, report Moody’s. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".ru" for Russia. - PEGAS, the pan-European gas trading platform operated by Powernext, today announced that a total volume of 68.9 TWh were traded in June 2015. This represents a year on year increase of 41% (June 2014: 48.8 TWhPEGAS, the pan-European gas trading platform operated by Powernext, today announced that a total volume of 68.9 TWh were traded in June 2015. This represents a year on year increase of 41% (June 2014: 48.8 TWh).Overall spot trading volumes amounted to 28.4 TWh which represents a year on year increase of 31%. PEGAS recorded volume increases in particular in the German, French and Dutch market areas. The June volume in the German GASPOOL and NCG areas increased to 12.0 TWh (+33%), including 3.6 TWh traded in quality-specific gas products. The volume in the French PEG Nord and TRS market area rose to 8.0 TWh (+40%). The Dutch TTF spot volume reached 8.1 TWh (+17%) while the Belgian ZTP spot market registered a volume of 222,715 MWh. The total volume of spread transactions amounted to 2.3 TWh. - Clearstream has issued an update to the Statement of Holdings report (MT535), covering both HTML and CSV formats: effective immediately the newly added column, “Pledged for Collateral” for non-available positions (introduced as part of the June release) will be renamed "Pledged for Collateral NAVL". This change applies to the Statement of Holdings report (MT535) in HTML format and when downloaded as a CSV file. Other reporting formats are not impacted, says Clearstream. In addition, when downloaded as an MT535 CSV file, the newly named column "Pledged for Collateral NAVL" will now appear as the final column. This allows a better reconciliation of positions, says Clearstream Banking - Christine Lagarde, managing director of the International Monetary Fund (IMF), made the following statement today: "The IMF has taken note of yesterday’s referendum held in Greece. We are monitoring the situation closely and stand ready to assist Greece if requested to do so.” - Morgan Lewis is enhancing its United Kingdom and global employment law capabilities with the addition of employment investigations and data privacy partner Pulina Whitaker, who joins the firm today from another global law firm. Her arrival, says the firm, strengthens the full suite of global client services offered from the Morgan Lewis London office, including those connected to finance, corporate, energy, funds, and litigation - Leading shares in European bourses will continue to struggle today as investors look for direction from European leaders over their response to the Greek referendum decision yesterday. In Asia, Japan’s Nikkei retreated -2.08% while Hong Kong’s Hang Seng went down by 4% and the Shenzhen Composite down by 4.69%. The Shanghai Composite stabilised around 3,709, up 0.61%, as China Security Finance Corp, the institution which managed short selling and margin trading, will receive a capital boost to 76bn “to maintain financial market stability and expand its business".; it is actually something of a turnaround, as Chinese equities have been under pressure for over a month now. In Australia, equity markets are trading into negative territory with the S&P/ASX down -1.14% while AUD/USD broke to the downside the strong support lying at 0.7533 (low from April 2) and is heading toward the following one at 0.7414 (low from October 2010). Tomorrow, the Reserve Bank of Australia will release its interest rate decision. The US dollar is broadly higher against G10 as only the Japanese yen is adding gains versus USD. German Chancellor Angela Merkel will meet French president François Hollande later today. Greece’s main creditors have more pressures on their shoulders; analysts suggest that they will be more willing to provide significant debt relief measures. The next payment is due to the ECB on July 20th.

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Of mice and men and bailouts

Wednesday, 25 July 2012
Of mice and men and bailouts With the sovereign debt crisis still in full swing it is becoming a moot point as to where you should place your money. Popular reflection throws up the usual suspects, gold, bunds, gilts, US T-bonds and so on, but one does begin to wonder whether this accepted order of security is actually right. We have seen haircuts taken on quite a bit of sovereign debt. However, were not for central banks still accepting such debt as collateral, the yields on certain national issuance would be considerably higher than they are at right now. Simon Denham, managing director of spread betting firm, Capital Spreads gives the bearish view. http://www.ftseglobalmarkets.com/

With the sovereign debt crisis still in full swing it is becoming a moot point as to where you should place your money. Popular reflection throws up the usual suspects, gold, bunds, gilts, US T-bonds and so on, but one does begin to wonder whether this accepted order of security is actually right. We have seen haircuts taken on quite a bit of sovereign debt. However, were not for central banks still accepting such debt as collateral, the yields on certain national issuance would be considerably higher than they are at right now. Simon Denham, managing director of spread betting firm, Capital Spreads gives the bearish view.

Simon DenhamSimon Denham, managing director of spread betting firm Capital Spreads. Photograph kindly supplied by Capital Spreads.We have the curious situation of New Spanish issuance being bought by Spanish banks then repoed at favorable rates back into the ECB as collateral against debt taken out for this very purpose. The politicians have now agreed bailouts for the banks (but not for Spain itself) in the full knowledge that most of such bailout monies will be used for exactly the purposes described above.

The question must be: how much more will northern Europe tolerate? As times get tougher in Greece, Spain and Italy more of the little business still being done is actually flowing into the black market, exacerbating already critical deficit problems. 



Forcing through stern excise adherence needs to be done when times are good not when many businesses are struggling for survival. This actually is the knub of the problem of the eurozone since its inception; Southern States previously accepted a generally deteriorating currency in exchange for a certain laxness in fiscal responsibility. Other the other hand, the much bigger North (economically) certainly did not.

When the good times rolled all the politicians basked in the supposed genius of the new bloc studiously ignoring all of the ever more strident warnings of productivity dislocation and failing dismally to impose any form of regional spending controls. The saying ‘your sins will find you out’ could hardly be more apposite in this situation as Germany and France (who were amongst the first to break the piously agreed deficit limitations back in 2003) are now requiring just such a response from the weaker members.

Where then, does this leave equities?

Well, oddly enough there is an argument to say that corporate assets might well become the safe haven investment of the future. The ability to move companies from one jurisdiction to another if the regulatory/tax burdens becomes too extreme, the general fiscal responsibility of the vast majority of executive boards, their generally low debt position and the high profit margins lead one to consider that equities and corporate bonds are a rather safer home than ­sovereign debt (of whichever nation).  

The major advantage of a sovereign nation has always been the accepted lore of their ability to raise taxes no matter what the economic situation. Even so, as we see from Spain and Italy’s recent tax receipt numbers—and even the UK over the past few months—this accepted truism may be starting to wear thin.  People in general continue to lose any respect for their government’s ability to spend wisely. If then the average German, Finn or Dutchman decides that bailing out Southern Europe is not his responsibility and we effectively move towards a Greek position on paying tax, or voting for parties that espouse a more isolationist policy, the general deficit situation may well ­deteriorate exponentially.

All the while, returns on equities look to be attractive in the current interest rate environment. The FTSE 100 yield is over 4% as is the Stoxx 50 and the dividend adjusted price versus the cost of acquisition is now at historically high levels. Obviously, dividends might well be lowered over the coming years as growth looks more remote, but interest rates are likely to remain sub 1% as well, so even a reduction in payments might not be accompanied by a fall in price. Returns on stocks have remained remarkably stable despite the current political brouhaha. However, this might be the time that this ‘value’ was reappraised upwards to reflect falling returns elsewhere. 

For all of the truly awful news of the last six to twelve months the FTSE is still pretty much where it was this time last year. It might not take much in the way of good news to send us higher. Of course, this said, we do still need the politicians to make at least a couple of good choices!

As ever ladies and gentlemen, place your bets! 

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