Saturday 6th February 2016
NEWS TICKER: Friday, February 5th: According to Reuters, Venezuela's central bank has begun negotiations with Deutsche Bank AG to carry out gold swaps to improve the liquidity of its foreign reserves as it faces debt payments of some $9.5bn this year. Around 64% of Venezuela's $15.4bn reserves are held in gold bars, which in this fluid market impedes the central bank's ability to mobilise hard currency for imports or debt service. We called the central bank to confirm the story, but press spokesmen would not comment - The Hong Kong Monetary Authority (HKMA) says official foreign currency reserves stood at $357bn (equivalent to seven times the currency in circulation or 48% of Hong Kong M3) as at the end of January, down compared with reserve assets of $358.8bn in December. There were no unsettled foreign exchange contracts at month end (end-December: $0.1bn) - BNP Paribas today set out plans to cut investment banking costs by 12% by 2019 to bolster profitability and reassure investors about the quality of its capital buffers. The bank is the latest in a line of leading financial institutions, including Credit Suisse, Barclays and Deutsche Bank which look to be moving away from capital intensive activities. BNP Paribas has been selling non-core assets and cutting back on operations including oil and gas financing for the last few years as it looks to achieve a target of 10% return on equity. Last year the bank announced a €900m write-down on its BNL unit in Italy, which pushed down Q4 net income down 51.7% to €665m - Johannesburg Stock Exchange (JSE)-listed tech company, Huge Group, will move its listing from the Alternative Exchange (AltX) to the JSE main board on March 1st - Moody's says it has assigned Aaa backed senior unsecured local-currency ratings to a drawdown under export credit provider Oesterreichische Kontrollbank's (OKB) (P)Aaa-rated backed senior unsecured MTN program. The outlook is negative in line with the negative outlook assigned to the Aaa ratings of the Republic of Austria, which guarantees OKB’s liabilities under the Austrian Export Financing Guarantees Act – As the first phase of talks between Greece and its creditors draws to an end, International Monetary Fund chief Christine Lagarde stressed to journalists in Greece that debt relief is as important as the reforms that creditors are demanding, notably of the pension system. "I have always said that the Greek program has to walk on two legs: one is significant reforms and one is debt relief. If the pension [system] cannot be as significantly and substantially reformed as needed, we could need more debt relief on the other side." Greece's pension system must become sustainable irrespective of any debt relief that creditors may decide to provide, Lagarde said, adding that 10% of gross domestic product into financing the pension system, compared to an average of 2.5% in the EU, is not sustainable. She called for "short-term measures that will make it sustainable in the long term,” but did not outline what those measures might be. According to Eurobank in Athens, IMF mission heads reportedly met this morning with the Minister of Labour, Social Insurance and Social Solidarity, Georgios Katrougalos, before the team is scheduled to leave Athens today. According to the local press, it appears that differences exist between the Greek government and official creditors on the planned overhaul of the social security pension system. Provided that things go as planned, the heads are reportedly expected to return by mid-February with a view to completing the review by month end, or at worst early March. In its Winter 2016 Economic Forecast published yesterday, the European Commission revised higher Greece’s GDP growth forecast for 2015 and 2016 to 0.0% and -0.7%, respectively, from -1.4% and 1.-3% previously - Fitch says that The Bank of Italy's (BoI) recent designation of three banks as 'other systemically important institutions' (O-SIIs) has no impact on its ratings of the relevant mortgage covered bond (Obbligazioni Bancarie Garantite or OBG) programmes. Last month, BoI identified UniCredit, Intesa Sanpaolo. and Banca Monte dei Paschi di Siena as Italian O-SIIs. Banco Popolare and Mediobanca have not been designated O-SIIs. This status is the equivalent of domestic systemically important bank status under EU legislation. Fitch rates two OBG programmes issued by UC and one issued by BMPS, which incorporates a one-notch Issuer Default Rating (IDR) uplift above the banks' IDRs. The uplift can be assigned if covered bonds are exempt from bail-in, as is the case with OBG programmes under Italy's resolution regime and in this instance takes account of the issuers' importance in the Italian banking sector – Meantime, according to local press reports, Italian hotel group Bauer and special opportunity fund Blue Skye Investment Group report they have completed the rescheduling and refinancing of Bauer’s €110m debt through the issue of new bonds and the sale of non-core assets, such as the farming business Aziende Agricole Bennati, whose sale has already been agreed, the Palladio Hotel & Spa and a luxury residence Villa F in Venice’s Giudecca island – Meantime, Russian coal and steel producer Mechel has also agreed a restructuring of its debt with credits after two intense years of talks. The mining company, is controlled by businessman Igor Zyuzin - Asian markets had a mixed day, coming under pressure. Dollar strengthening worries investors in Asia; from today’s trading it looks like dollar weakening does as well. Actually, that’s not the issue, the dollar has appreciated steadily over the last year as buyers anticipated Fed tightening; but it has hurt US exports and that has contributed to investor nervousness over the past few weeks, which is why everyone is hanging on today’s The nonfarm payrolls report, a bellwether of change – good or bad in the American economic outlook. Back to Asia. The Nikkei 225 ended the day at 16819.15, down 225.40 points, or 1.32%; and as the stock market fell the yen continued to strengthen. The Nikkei has shed 5.85% this week. The dollar-yen pair fell to the 116-handle, at 116.82 in afternoon trade; earlier this week, the pair was trading above 120. It is a hard lesson for the central bank, whose efforts to take the heat out of the yen by introducing negative interest rates has done nothing of the sort. Australia's ASX 200 closed down 4.15 points, or 0.08% after something of a mixed week. The index closed at 4976.20, with the financial sector taking most of the heat today, with the sector down 0.7%. In contrast, energy and materials sectors finished in positive territory, buoyed by gains in commodities. The Hang Seng Index closed at 19288.17, up 105.08 points (or 0.55%) while the Shanghai Composite was down 0.61%. down 17.07 points to 2763.95. The Shenzhen composite dropped 20.36 points (1.15%) to 1750.70, while the Kospi rose marginally by 0.08% to 1917.79. Today is the last day of trading on the Chinese exchanges for a week.

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BlackRock's 2013 market outlook predicts improving investment prospects

Sunday, 23 December 2012
BlackRock's 2013 market outlook predicts improving investment prospects Prospects are improving for a positive albeit gradual turn next year in global economic and investment conditions, according to the BlackRock Investment Institute’s 2013 investment outlook.  The report, entitled ‘Slow Turn Ahead?’ urges investors to keep a close eye on the impact of government policy – first and foremost, the urgent effort to avoid the fiscal cliff in the US, which will drive the direction of both the US and global economies in the New Year. http://www.ftseglobalmarkets.com/

Prospects are improving for a positive albeit gradual turn next year in global economic and investment conditions, according to the BlackRock Investment Institute’s 2013 investment outlook.  The report, entitled ‘Slow Turn Ahead?’ urges investors to keep a close eye on the impact of government policy – first and foremost, the urgent effort to avoid the fiscal cliff in the US, which will drive the direction of both the US and global economies in the New Year.

“Our big questions for 2013 are whether the wave of ultra-loose monetary policies and quantitative easing has crested and if private sector credit can stage a modest recovery,” says Ewen Cameron Watt, BII’s chief investment strategist. “Trillions of dollars in monetary stimulus and record low interest rates have failed to spur much credit growth and economic activity so far. But what if this changes? Policy - fiscal, monetary and regulatory - drove markets in 2012 and will remain central to 2013 outcomes,” adds Cameron Watt.

With central banks apparently refocusing monetary stimulus away from preventing a financial sector collapse and towards targeting economic growth, next steps by the US Federal Reserve will merit particularly close attention, according to the report.



“We do not expect the Fed to raise rates any time soon. But it could take its foot off the monetary accelerator on signs of quickening job growth in the second half of 2013,”says Cameron Wat. “Markets need only a whiff of a Fed preparing to slow its QE programmes because of improving employment to empty some of the vast store of investor money in cash and low-yielding fixed income assets, and put it into equities.”

In the US, much hinges on efforts to avoid the fiscal cliff, a set of tax hikes and spending cuts set to go into effect on 1 January. "The United States may turn the corner on growth – if Washington can avoid falling off the fiscal cliff and negotiate a long-term budget reduction plan,” according to the report. Regulation remains an important focus too, whether it be financial sector reform in the developed world or social security and welfare reforms in emerging economies. Politics also will play a role again in 2013 with elections in, among other nations, Italy, Germany and Israel, alongside US budget reform.

BII’s Five-Point Summary for 2013

  1. We have become more upbeat about the prospects for risk assets and stabilising economic growth (albeit at low levels). Low expectations = potential upside surprises.
  2. The US economy should gain momentum and help boost global growth – IF Washington can avoid the “fiscal cliff” and compromise on a sustainable budget.
  3. Many investors lack conviction in markets where risk taking is often punished and trends last a skinny minute. Rome – and confidence – was not built in a day.
  4. The era of ultra-loose monetary policy may draw to a close, challenging “safe” fixed income assets and heralding a shift toward equities. Safety = new tail risk.
  5. Income investing works in a zero-rate world – but the hunt for yield has narrowed valuations between top-quality and not-so great income assets. Take out the garbage. 

So What Do I Do With My Money?

Here is a summary of the BII’s investment recommendations for 2013:

Fixed Income: Danger in Safety

Prices of safe-haven government bonds and similar assets could plunge when yields start to rise. Low yield = high price risk.  We like global high yield and US munis for income – but do not expect much capital appreciation. We favour emerging market debt.  In Europe, we prefer Italian and Spanish bonds over debt of weaker core countries. We are bullish on commercial mortgage-backed securities and collaterised loan obligations.

Equities: Global Smorgasbord

We like global companies with strong balance sheets, steady cash flows and growing dividends. We favour high-quality US stocks, global energy and emerging markets.  We are bullish on domestic consumption plays in Brazil and China, North Asian cyclical stocks, and Mexican banks and industrials. We like discounted exporters on Europe’s periphery and small “self-help” UK companies.

Commodities: Long View

We like metals with long-term supply gaps and agricultural commodities.  China’s appetite is huge.

Currencies: Dollar Bulls

We are bullish on the US dollar due to the country’s energy boom and long-term growth prospects.

Good and Bad Income

Income investing remains our strategy of choice in a zero-rate world. The hunt for yield has created pockets of overheating and narrowed valuations between top-quality and less desirable income assets. The report details the state of play in fixed income, high yield, emerging market debt, municipal bonds, dividends, and real estate investment trusts.

 

Pain Trades

Our biggest contrarian idea is buying Japanese exporters while selling the yen. Other pain trades include selling “safe” tobacco stocks, buying US companies with cash piles abroad, and buying securities of European and US financials. We have warmed up to Indian equities after the country’s reforms on foreign investment.

The Gift of Insurance

Short-term implied volatility is eerily low whereas policy uncertainties are near financial crisis levels. Consider options to hedge downside and upside risks.

Volatility Reversal?

The fire hose of monetary liquidity and investor hunger for yield has depressed short-term volatility, so maybe a reversal will have the opposite effect.

 

 

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