What To Expect From The ECB Today: Today’s ECB meeting just seems to have a different feeling about it. European Markets Lag As The U.S Jump Back On The Bull: What we see is a return to the bull market in the U.S and a lagging European stock market. Argentine Bonds. A good Investment…? Good news for those interested in investing in emerging markets as Argentina is soon to release its first bonds in fifteen years. Brexit’s Effect On The Average Household: The UK economy could potentially be around 6% smaller by 2030 if Britain decides to leave the E.U. Putin rules out QE, in favour of structural reform.
What To Expect From The ECB Today
21.04.2016 It’s not just the normal expectations for the path of monetary policy from the central bank, but the complete lack of faith that markets have in the policy available to central banks now, let alone the equally complete lack of faith that markets have in the word of the ECB themselves. While market consensus seems to be taking Mario Draghi at his word that there will be no more interest rate cuts (well at least taking his word that it wont be at this particular meeting), the way that he delivers his comments during the accompanying press conference is going to be key for price direction of the Euro. Remember back in March when Draghi and the ECB last met to decide interest rates? The decision should have actually been very negative Euro, with cuts to interest rates and QE stimulus galore. But all their work on getting the Euro lower was undone by just one line in Draghi’s press conference when he alerted markets that he didn’t expect to cut rates again. Of course since then, the ECB have back pedalled on this line, but looking at the EUR/USD chart says that markets don’t care what they say now because their trust is gone. The damage has been done and Draghi is the boy who cried wolf! Negative rates, currency wars, even helicopter money. If that’s not a central bank running past their limits, then I don’t know what is.
European Markets Lag As The U.S Jump Back On The Bull
20.04.2016 Following the big January/February scare, markets have had a nice, healthy rebound. Although I still believe this bull market is incredibly artificial, we have to trade what we see, not what we “want to happen”. What we see is a return to the bull market in the U.S and a lagging European stock market. This lag could be due to a number of reasons, including; Russia’s trade embargo, the continued disinflation in Europe, the Chinese growth issues or of course the fact that there just isn’t much growth within Europe. What ever the reason may be, we’re still struggling in regards to European stocks. With the ECB instituting negative interest rates in conjunction with increased QE, it may indeed be a possibility that the bull market, which was kicked off,off the back of U.S QE, could potentially be extended by the ECB’s QE. Maybe this was the two major central banks’ plan the whole time; to use their QE together in order to provide a continued period of artificial growth to the global economy. In my opinion it all rests on the back of the Chinese at this point. If the Chinese government can continue to control their economic decline from reaching the point of a “hard landing”, then I don’t see why global markets shouldn’t see an extended period of growth. This however, does not mean that we should expect a rampaging bull market. We will most likely see a ranging market that slowly breaks new highs, moving back and forth; this will be the case in the U.S. Europe however, could see some major gains this year, as we are currently sitting in what many see as an under valued range. The head and shoulder bottom in the Dax could may well be the reversal pattern that extends back up to the highs seen last year. At this point, we’ll just have to wait and see though.
Argentine Bonds. A good Investment…?
19.04.2016 Good news for those interested in investing in emerging markets as Argentina is soon to release its first bonds in fifteen years. These bonds promise yields of 6.75%, 7.5% , 8% and 8.85% for 3, 5,10 and 30 year bonds respectively. This has many investors extremely eager, the bonds already oversubscribed, with $15billion on offer but demand for around $70billion. All this comes in spite of Argentina’s rocky history of defaults, with American investors hungry for high yields due to rock bottom interest rates domestically, many investors are looking to Mexico, Colombia and other Latin American markets and many are willing to overlook the Argentina’s past. Rating agencies S&P and Moody’s have put the bonds at B minus and B3 respectively, this is mostly due to the recent changes in Government with the Kirchner dynasty finally removed and the election of President Mauricio Macri, who has made significant changes to the Argentina’s financial institutions. Firstly, by instating orthodox finance minister Mr Prat-Gay and numerous other reliable hands across the ministry of finance, central bank and statistics office.
Reform has been happening at a fair clip this year in order to reassure investors and creditors of Argentina. These reforms include; freeing trade and exchange rates, raising interest rates, lifting capital controls, laying off public sector workers and crucially settling the long-running trial of Argentina’s sovereign debt. These actions have now allowed Argentina a reprieve from sanctions and access to foreign investment once more but the key question for investors should be how long lasting Mr Macri’s reformist leadership may last, considering his Coalition holds a minority of seats in Congress and is relying upon swing votes from the opposition and on the common sense of state governors in the Senate. Although Mr Marci has enjoyed popular support for his pecuniary prudence and reformist attitude, his approval rating has already begun to slide, mostly because of high inflation and tough wage negotiations, should his popular support diminish, his position may become untenable. Investors in Argentinian bonds need to consider the future of the country in order to make a choice on whether to buy or not buy. Mr Macri has made some dramatic progress but if his reforms don’t stick or he is replaced in coming years by a reactionary government of the likes of General Peron (who thought of foreign investment as selling his country) then owning these bonds could become a major headache. Remember Argentina has defaulted on sovereign wealth bonds before and it could happen again.
Brexit’s Effect On The Average Household
19.04.2016 The Chancellor of the Exchequer, George Osborne, came out with a warning yesterday declaring that a British exit from the European Union could potentially have catastrophic economic consequences in regards to not only businesses, but to regular households; ultimately making them poorer. When one begins to go down the ‘Mums and Dads’ route, the lines between politics and fact can become blurry very quickly. While Osborne’s interpretation of the numbers could indeed be correct, the campaigners backing Brexit have replied in force, calling it a fear mongering tactic. Using fresh government analysis on the situation, Osborne stated that the UK economy could potentially be around 6% smaller by 2030 if Britain decides to leave the E.U, due by in large to the loss of the free trade benefits that come with being an E.U member. “That is a loss of income equivalent to GBP 4,300 a year for every British household.” Interestingly, one phone based poll from the Guardian phone has shown ‘Remain’ having an eight-point lead over ‘Leave’, while another online poll also for the same paper has shown Remain and Leave neck and neck. Is that a representation of the generational difference in voting?
Putin rules out QE, in favour of structural reform.
18.04.2016 Russia is faced with a recession this year with a predicted GDP shrinkage of 4%, the economy has been struggling with western sanctions over the Ukrainian conflict and the drastic fall in oil prices since 2014, this has led to stagnating growth and rocketing inflation. Yet the head of the Central Bank of Russia Elvira Nabiullina has stated, that monetary policy in Russia will pursue an orthodox course and not rely on Quantitative easing as other economies have, in an address to a banking conference in Moscow. Ms Nabiullina has relied heavily upon interest rates in the past to prop up to Rouble as was the case in December when she hiked interest rates from 10.5% to 17%, now in order to curtail inflation she has begun slashing the interest rate bringing it down to 14% in March. This move is intended to bring inflation down from its current high of 9% down to 4pc in the medium term.
As one of the world’s major energy producers the oil price collapse of mid 2014 has hit Russia hard, with the Finance Ministry stating that the federal budget deficit has risen to 3.7% of GDP in the past year, whilst domestic prices have appreciated upwards of 50%. This has led to Russia, with 43% of state revenues coming from Oil and Gas, being one of the driving forces behind dealing with the global oil glut and attempting to co-ordinate a production cut amongst OPEC and non-OPEC members. Russia efforts have thus far been fruitless with the recent failure of the Doha summit to tackle the issue, predominantly due to maleficent feelings between Saudi Arabia and Iran. Analyst have also predicted that the Russian banking sector may undergo a wave of defaults this year which could exacerbate the situation further, however many analyst do agree with Ms Nabiullina’s policy of avoiding Quantitative easing citing a risk it could increase inflation and capital outflows further weakening the Rouble and the Russian economy; with economist at Fidelity Worldwide Investments warning of Russian financial woes potentially spilling over in 2016.
