NEWS,15.01.2013

Global economy enjoys sweeter sentiment

Global investors have entered 2013 in buoyant but not yet exuberant mood‚ according to the BofA Merrill Lynch Fund Manager Survey for January.The new year sees asset allocators assigning more funds to equities than at any time since February 2011‚ while their confidence in the world’s economic outlook has reached its most positive level since April 2010.Investors’ appetite for risk in their portfolios is now at its highest in nine years‚ while an increasing number judge equities as undervalued – particularly in Europe. Moreover‚ investors have reduced cash holdings to 3.8% from 4.2% in December.This marks the most positive reading of this measure of willingness to hold riskier investment assets since April 2011‚ though it has not reached levels that would represent a contrarian sell signal.Participants’ perception of the US fiscal crisis as the biggest “tail risk” for asset markets has calmed (down nearly 20% points in two months)‚ though it remains their largest concern. Views of China remain very positive‚ with a net 63% still anticipating a stronger economy this year‚ but one in seven sees a Chinese hard landing as their number one risk.Investors’ bullishness reflects a growing confidence in economic recovery. A net 59% now expect the global economy to strengthen this year‚ compared to a net 40% a month ago. This marks the panel’s most positive outlook since April 2010. An increasing proportion of respondents expect inflation to pick up as well.“Following the resolution of the US fiscal cliff‚ sentiment has surged. Half of investors now tell us that they would sell government bonds to buy higher-beta stocks‚ which is consistent with increasing growth and inflation expectations‚ and with our call for a ‘Great Rotation’ to start in 2013‚” said Michael Hartnett‚ chief investment strategist at BofA Merrill Lynch Global Research. “While the survey reveals pockets of exuberance‚ undemanding valuations in Europe should underpin equities unless earnings growth fails to materialize‚” added John Bilton‚ European investment strategist.49% of respondents now expect government bonds to be sold to fund purchases of higher beta equities and sustain the “risk on” rally. Last month‚ in contrast‚ only 37% saw the instrument as the likeliest source while 28% expected this to be reduction of cash balances (now 22%) and 19% expected defensive equities (now 15%).In this environment‚ the perception of Italy as a substantial “tail risk” for Europe has declined sharply. Only 17% of the panel now views the country as the biggest threat to the European story‚ compared to 26% in December. Assessments of the threats from France and Spain have worsened from last month‚ however‚ up to 34% and 29%‚ respectively.The panel has shifted its stance on financial stocks strongly‚ moving to its first net overweight in global bank names since February 2007 following a 15% move versus last month. Nevertheless‚ banks are still perceived as the global equity market’s most undervalued sector. The existing overweight in insurance has also been extended‚ particularly in Europe‚ and now stands its highest level since January 2007.In contrast‚ appetite for telecoms stocks has fallen to a net 25% underweight. This marks the sector’s lowest weighting from asset allocators since December 2005. While still in positive territory‚ pharmaceuticals have declined to a net 11% overweight. Their fall from a net 24% last month is January’s largest sectoral move.The perception that consumer staples companies are the most overvalued has also accelerated month-on-month.The new Japanese government’s policies continue to improve the country’s outlook. Its growth composite indicator now stands at a striking reading of 96.Against this background‚ global fund managers are turning more positive. A net 3% are now overweight Japanese equities‚ a sharp reversal of last month’s net 20% underweight. The proportion of investors viewing Japan as the most undervalued market increased this month as well‚ while a growing number see it as having the most favourable outlook for corporate profits.

US could lose gold-chip rating

The United States could lose its top credit rating from a leading agency for the second time if there is a delay in raising the country's debt ceiling, Fitch Ratings warned Tuesday.Congress has to increase the country's debt limit, which effectively rules how much debt the US can have, by March 1 or face a potential default.There are fears that the debate will descend into the sort of squabbling and political brinkmanship that marked the last effort to raise the ceiling in the summer of 2011. The US Treasury Department warned then that it had nearly reached a point where it would be unable "to meet our commitments securely".Standard & Poor's was so concerned by the dysfunctional nature of the 2011 debate that it stripped the US of its triple A rating for the first time in the country's history. Like Fitch, Moody's has a negative view on the US outlook."The pressure on the US rating, if anything, is increasing," said David Riley, managing director of Fitch Ratings' global sovereigns division. "We thought the 2011 crisis was a one-off event ... if we have a repeat we will place the US rating under review."Fitch already has a negative outlook on the US as the country's debt burden has risen to around 100% of its gross domestic product, and has said it will make a decision on the rating this year, regardless of how the debt ceiling discussions pan out. The US government reached its statutory debt limit of nearly $16.4 trillion at the end of 2012 but has engineered extraordinary measures that should see it through February.Riley's comments come just two weeks after US lawmakers agreed a budget deal with the White House that avoided the so-called fiscal cliff of automatic tax increases and spending cuts that many economists thought could plunge the US economy, the world's largest, back into recession. Relief that a deal was cobbled together, albeit at the final hour, is one of the reasons why sentiment in the financial markets has been buoyant in the first trading days of the new year. Many stock indexes around the world are trading at multi-year highs."The fiscal cliff bullet was dodged .... (but it's) a short-term patch," said Riley.Riley warned that the different arms of the US government still have a number of issues to address. As well as increasing the debt ceiling, they have to agree to spending cuts that were delayed as part of the fiscal cliff agreement and back measures to avoid a government shutdown, potentially in March.Though short-term fixes are more likely than not, Riley said the US political environment is not as good as it should be for a country holding the gold-chip AAA rating. The past few years, Riley said, have been marked by "self-inflicted crises" between deadlines.The major reason behind the lack of swift action in the US is that the Democrats control the White House and the Senate, while the Republicans have a solid majority in the House of Representatives. Both sides have differing visions of the role of the state in society and often varying political objectives.Despite his cautious tone on the rating, Riley said the US has a number of huge advantages and that getting the country's public finances into shape will not require the same level of austerity that many countries in Europe have had to enact over the past few years, partly because the US economy is growing at a steady rate.Other factors that support the US's AAA rating are the country's economic dynamism, lower financial sector risks, the rule of law as well as the global benchmark status of the country's bonds and the dollar, Fitch says.However it says these "fundamental credit strengths are being eroded by the large, albeit steadily declining, structural budget deficit and high and rising public debt".

US debt ceiling hike critical

Federal Reserve Chairperson Ben Bernanke on Monday urged US lawmakers to lift the country's borrowing limit to avoid a potentially disastrous debt default, warning that the economy was still at risk from political gridlock over the deficit. Likening Congress to a family arguing that it can improve its credit rating by deciding not to pay its credit card bill, Bernanke said that raising the legal borrowing limit was not the same as authorising new government spending. "It's very, very important that Congress takes the necessary action to raise the debt ceiling to avoid a situation where our government doesn't pay its bills," he told an event sponsored by the University of Michigan. The US Treasury says the country bumped into its borrowing limit on December 31, and it is now employing special measures to enable the government to meet its financial obligations. US leaders did agree at the beginning of January to extend tax cuts for all American families earning less than $450 000 a year to avoid a portion of a "fiscal cliff" of policies that Bernanke had warned would likely tip the economy into recession. But lawmakers must still navigate the debt limit as well as thrash out a deal over drastic automatic spending cuts that were postponed until March 1."We're not out of the woods because we are approaching a number of other fiscal critical watersheds coming up," Bernanke warned on Monday.The Fed last month opted to keep buying $85bn worth of Treasury bonds and mortgage-backed securities a month until it saw a significant improvement in the labor market outlook, in an aggressive bid to push down borrowing costs and spur hiring.It has held interest rates at nearly zero since December 2008 and has said it will keep them at this ultra-low level until unemployment reaches 6.5%, provided that inflation does not look likely to breach a threshold of 2.5%. US unemployment in December remained at a lofty 7.8%.The president of the San Francisco Federal Reserve Bank, John Williams, said earlier on Monday that he expected the central bank's bond buying would be needed "well into the second half of 2013." Minutes from the Fed's December 11-12 policy meeting released earlier this month showed several policy makers favored ending the bond purchases well before the end of this year, while a few officials thought the purchases would be warranted until the end of 2013.A third policy-maker who spoke on Monday, Dennis Lockhart, president of the Atlanta Federal Reserve Bank, stressed that the open-ended, or meeting-to-meeting nature, of the Fed's commitment to buy assets did not mean the policy would continue indefinitely. "'Open ended' does not mean 'without bound.' The program is not 'QE Infinity,'" he told the Rotary Club of Atlanta.

NEWS,24.07.2012

Germany's credit rating downgraded

Germany's Aaa credit rating outlook has been lowered to negative by Moody's.The rating agency cited "rising uncertainty" about Europe's debt crisis.Risks that Greece may leave the euro and the "increasing likelihood" of help for Spain and Italy also caused the downgrade."Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form," Moody's said. Germany's vulnerable banking system, which Moody's deems exposed to the most stressed euro countries, could leave them open to further deepening of the crisis.However, it will retain its Aaa rating because of the country's "advanced and diversified economy" with high productivity and strong demand for German products.Finland held on to its top ranking, getting a stable outlook from Moody's.

 

Deutsche Bank's Internal Libor Investigation Finds Deutsche Bank Mostly Innocent

 

Great news, you guys. We can go ahead and scratch at least one bank off the list of egregious interest-rate manipulators. That's because this bank has heroically determined that it is totally innocent. Almost totally, anyway.Deutsche Bank, the biggest German bank, has carefully investigated its own role in the habitual, fraudulent, global rigging of Libor, the most important interest rate in the world. And you might want to sit down for this, but Deutsche Bank has determined, to what we can only imagine is its own profound relief, that Deutsche Bank was only barely involved in the scandal. Hardly any involvement, really. If you blur your eyes a bit, it even kind of looks like Deutsche Bank wasn't involved at all. Certainly not in its top executive ranks. That's the way Deutsche Bank would like you to see it, anyway.Hmm, one small problem, though: Handelsblatt is reporting that Deutsche Bank is bracing for "a huge fine" in the Libor scandal, setting aside between $300 million and $1 billion -- the middle point of which would be higher than the $450 million Barclays paid. Does that sound like a bank that really expects to get out of this without any mud getting splashed on the C-suite?Anyway, we can only imagine that if Deutsche Bank is indeed planning on paying such a huge fine, then it is only doing so out of the goodness of its heart, a sense of civic duty really. Because it turns out, according to Deutsche Bank's investigation, that every bit of Deutsche Bank's involvement in the constant, gleeful rigging of Libor for years came down to just two very bad Deutsche Apples, who were fired last year. Both of those, let's call them, slimeballs apparently were part of the global Libor-rigging cartel that involved nearly every large bank in the world. But they're gone now, and we can only imagine that their desks have been taken out back and chopped into dust, that their pictures have been photoshopped out of all the company's birthday-party photos, and that their names are no longer spoken around Deutsche Bank's offices in any tones other than scorn or maybe shame.A Deutsche Bank internal probe has found that two of its former traders may have been involved in colluding to manipulate global benchmark interest rates but there was no indication of failure at the top of the organization, three people close to the investigation said.No indication of failure at the top of the organization! This will be a tremendous relief to spanking-new Deutsche Bank chief Anshu Jain, who is already on thin ice with the Germans because he came up from the bank's investment-banking arm. Germans don't much like investment bankers. To make matters worse, it was Jain's investment-banking arm that happened to be in charge of these bad-apple traders that were fiendishly rigging Libor. A major scandal that originated in Mr. Jain's area of the bank could damage his chances to continue on as sole CEO of the bank after co-head Jürgen Fitschen's contract expires in three years.Thank goodness for Jain that such a risk is apparently all gone now, according to Deutsche Bank's unflinching review of its own leadership. In fact, Reuters seems to imply that Deutsche Bank will likely avoid the sort of unpleasantness that beset Barclays, where the chairman, CEO and chief operating officer all walked the plank as a result of that bank's admitted Libor manipulation. And we can only imagine that the ongoing investigations by "regulators and governmental entities" in the U.S. and Europe, including German markets regulator BaFin, are now a mere formality. All that's needed now is to bring those two pesky scapegoats to justice, and Deutsche Bank can get back to doing the Lord's work.

Italy pushes for Sicilian recovery plan

Italian Prime Minister Mario Monti imposed a compulsory plan to restore financial stability to the cash-strapped Sicily region and overhaul its bloated public administration, a government statement said today.The statement, issued after a meeting between Monti and regional governor Raffaele Lombardo, said the leaders had agreed "a plan for financial recovery and reorganisation of the region's public administration, with a binding timeframe and objectives".The statement stopped short of saying that Sicily would be placed under special administration but made it clear that the programme would be monitored from Rome and that it would insist on cuts to the region's notoriously swollen payroll."The programme is to be finalised in the coming weeks and will be formally signed by the regional and national governments," the statement said.Sicily, which accounts for about 5.5% of Italy's gross domestic product, has been at the centre of growing concerns over the financial stability of Italy's regional and city governments after Monti said last week there were serious concerns about the possibility that it could default.The autonomous island region has some 5.3 billion euros in debt, a long history of waste and mismanagement and an outsized public sector payroll that critics say has been used by successive governments to buy votes.Officials have since played down fears of an immediate crisis with Interior Minister Annamario Cancellieri saying on Monday that there was no risk either of default or of a special government administrator being appointed.Worries about Sicily come as Italy itself moves to the forefront of concerns in the euro zone crisis, with the cost of servicing huge debts jumping on contagion fears for the bloc's third biggest economy linked to the worsening plight of Spain.Following the meeting, Lombardo repeated his own insistence that Sicily had sound and sustainable finances and dismissed talk of default as "rubbish" but confirmed he would resign by the end of the month as previously agreed.He also said the government had released 240 million euros to help cover funding gaps in the health system, one of the regional administration's key responsibilities.While the plight of Italy's regional and municipal authorities has not reached the levels seen in Spain, where several regions have been reported to be close to asking for state aid, there have been growing signs of strain from successive cuts to government transfers.On Tuesday, mayors from around Italy held a demonstration outside the Senate to protest against the cuts which they say will force them to curtail vital local services.The Corte dei Conti, Italy's top public finance watchdog, has made a damning series of criticisms of the regional administration in Sicily, which has overseen a steady deterioration in the island's finances over the past decade.With an unemployment rate of 19.5%, almost twice the national average, Sicily is among the regions hardest hit by the recession but its public sector payroll has been constantly increased, particularly in the health sector.

NEWS,14.01.2012.

Nine eurozone countries have had credit ratings cut


Nine eurozone countries have had their credit ratings cut in another massive blow to the single currency, it was confirmed last night.

European leaders had hoped the single currency area was starting to stabilise but France has lost its gold-plated AAA status in the Standard & Poor’s ratings.
Austria, Malta, Slovakia and Slovenia also slipped by one notch while Portugal, Cyprus, Italy and Spain were downgraded by two.
 The downgrade is a serious blow to French President Nicolas Sarkozy who is fighting for re-election this spring.
Mr Sarkozy has staked his reputation on France keeping its triple-A credit rating and had even boasted that Britain’s credit rating was in a worse state.
Deputy Prime Minister Nick Clegg said the French downgrade underlined the “urgency” of solving the debt crisis in the eurozone. He called for a more “concerted effort” by all 27 EU members to boost growth and productivity.
EU leaders will meet on January 30 for the latest emergency summit aimed at saving the single currency from collapse.
Germany has retained the triple A rating and Chancellor Angela Merkel last night made a veiled swipe at Mr Sarkozy for avoiding budget cuts to win votes.
She said: “Every member of the eurozone must have a debt brake in its constitution, so leaders don’t use elections or other opportunities according to their mood to live beyond their means.”
World markets fell as news emerged that the downgrade was about to be announced.
At one point the FTSE 100 Index was down more than 1% though it rallied to 0.5% down. Frankfurt’s Dax fell 0.6%, and the Dow Jones in New York was down 0.8%. Reports of a breakdown in talks between Greece and its banks to restructure its debts fuelled fears of a default and drove markets lower.
UK Independence Party leader Nigel Farage said Standard & Poor’s announcement could mean “the beginning of the end” for the eurozone.
He said: “Now that France has been downgraded I expect the bond yields of countries like Italy and Spain to rise, leading to a need for a bailout and more trouble for the euro currency.
“The euro, the ultimate federalist fantasy, has become a nightmare for those caught in its embrace.
“This downgrade of France’s credit rating will make its debt more expensive and may prove to be the beginning of the end for eurozone as we know it.”
The leader of Britain’s Tory MEPs Martin Callanan said the downgrade, coupled with fresh difficulties for Greece, increased pressure on EU leaders to “stop fiddling with treaties and start tackling the immediate crisis”.

Twenty-six member states are trying to finalise a new “fiscal compact” to tighten controls on eurozone debt and deficit levels but Mr Callanan said: “If European leaders really want to save the euro, they need to listen to what the markets have already told them. It is time for some countries to leave the single currency.
"The longer we dither, the worse the crunch will be.” He said the negotiations on the new pact had done little to calm markets.
He added: “While European leaders have been gazing at their collective navel, market confidence has continued to decline. We take one step forward and five steps backwards in this crisis.”
And he warned: “We can’t afford to keep buying time with taxpayers’ money. Eurozone leaders must face up to the reality the eurozone disease will not begin to be cured until we remove the infected limb.
“The EU summit at the end of this month really is the last chance saloon for an injection of realism from EU leaders.
“If we see yet more discussion of treaties, bailout mechanisms and attacks on financial services then I fear we will soon pass the mark where we can salvage anything from the wreckage.”
A statement from Standard & Poor warned: “The outlook on the long-term ratings on Austria, Belgium, Cyprus, Estonia, Finland, France, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, and Spain are negative, indicating there is at least a one-in-three chance that the rating will be lowered in 2012 or 2013.”
In an attack on EU leaders, it went on: “Today’s rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone.”
Austria’s economy has been partly hit because it is a big exporter to struggling Italy, while its banks are facing losses on subsidiaries they own in troubled Hungary.