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from Breakingviews:

ECB deserves to lose market’s inflation confidence

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own. 

The case of the euro zone’s vanishing inflation rate has so far stumped European Central Bank President Mario Draghi. Quite rightly, investors’ faith in his ability to do anything about the problem is also evaporating.

The clearest sign is a sharp decline in the ECB’s preferred barometer of market inflation expectations, which tracks how investors see inflation behaving over a five-year period beginning five years from now. At first glance, the measure’s modest drop - from 2.12 percent at the end of July to this week’s 1.94 percent low - doesn’t seem to reflect scepticism in the ECB’s ability to lift inflation back up to its 2 percent medium-term target. But things aren’t that simple.

Immune to the blips and dips of monthly data, the “five year/five-year forward” gauge rarely moves much. Yet it has just suffered its biggest four-week decline since 2012, and is now at its lowest since 2011, according to Credit Agricole. More sensitive indicators of inflation expectations have fallen even lower.

from Breakingviews:

Blackstone finds way to outsource skin in the game

By Neil Unmack

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Blackstone has devised a novel definition of ”skin in the game”: other people’s money. The buyout and debt management firm is taking advantage of newly relaxed rules on how much risk needs to be retained in securitisations, to improve its returns. Its structure looks acceptable – but regulators and investors should still watch for sharp practice from future copycats.

from Breakingviews:

German yield curve is the safest one to play

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

 Bull flattening may sound like an exotic, and rather cruel, sport, but for today’s bond investor, it describes an investment opportunity. Some juicy bear flattening is also available, although it comes with somewhat more risk.

from Global Investing:

Sanctions bite Russia but some investors are fishing

By Andrew Winterbottom

Russian stocks are up today, for the fifth day in a row and at the highest level in two weeks. What's going on? As we wrote  here earlier in the week, foreign investors have been fleeing this market.  However it could be that some of them are starting to put aside concerns about the potential for further sanctions on Moscow and are scouring Russia's stock markets for contrarian buying opportunities.

Russian stocks, chronically undervalued, are trading now at a discount of more than 60 percent to broader emerging markets, and to China which by all accounts is the standout beneficiary of the Russian woes. Just how cheap Russian shares are can be gauged from the fact they trade at a discount event to turbulent Pakistan. Here is a link that compares Russian equity valuations with other emerging and developed markets:  http://link.reuters.com/guv77v

from Breakingviews:

BlackRock is right: European IPOs need more work

By Dominic Elliott

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

BlackRock is right: European initial public offerings need more work. The world’s largest asset manager recently emailed bookrunners asking why a third of new listings in Europe this year were trading down and how matters could be improved. The IPO market is much healthier than when BlackRock railed against UK listings in 2011. But there are still too many banks per deal and buyers are still rushed into decisions.

from Counterparties:

Draghing on

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The EU mess slogs on. The European Central Bank met today and left interest rates unchanged, as the economic situation in Europe (well, France and Italy) looks to be worsening. ECB president Mario Draghi said during the press conference today, “the recovery remains weak, fragile and uneven.” The big news from the euro zone earlier this week, of course, was that Italy has unexpectedly fallen into a triple-dip recession. Ambrose Evans-Pritchard writes that Germany’s economy is also weakening, and certainly isn’t strong enough to make up for its southern neighbors.

Inflation in Europe is almost non-existent — it was just 0.4 percent in July, far below the central bank’s 2 percent target, though core inflation, less food and energy, is at a somewhat higher 0.8 percent. “Policy makers seems to be in denial that falling prices are a threat,” writes Mark Gilbert. Draghi today blamed low inflation on energy prices, and said he expects it to rise in the next year or two.

from Breakingviews:

BES bail-in leaves CDS traders struck out

By Neil Unmack

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Banco Espirito Santo’s bail-in has been a nice earner for some bond traders. Anyone who bet that Portuguese authorities would save senior creditors but burn bonds lower down has made a killing. But anyone who tried to follow suit with BES credit default swaps will be feeling much less cheery.

from Breakingviews:

French T-Mo bid looks like peak TMT Entrepreneur

Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

TMT-men are the superheroes of finance today. A market boom has let telecoms, media and technology dealmakers such as John Malone of Liberty Global and Masayoshi Son of SoftBank finance ever-bigger dreams. Xavier Niel, the billionaire behind French telecoms group Iliad, is now bidding $15 billion in cash for 56.6 percent of T-Mobile US, listed but two-thirds owned by Deutsche Telekom. Maybe this idea should have stayed in the lab.

from Breakingviews:

Shock loss at BES makes bail-in a real risk

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

A solution to the Banco Espirito Santo debacle looks increasingly likely to involve creditors. The troubled Portuguese lender revealed a much bigger-than-expected 3.6 billion euro loss on July 30 and warned of possible past law-breaking. If the kitchen-sinking was intended to help fill BES’s capital deficit with private investment, it may not work.

from Breakingviews:

EU will find Russian sanctions worth the pain

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

It took time for European Union leaders to agree on tough economic sanctions against Russia. The EU is slow. Its members have conflicting interests. Their economies don’t all have the same exposure to Russia. Yet they have finally agreed with the United States on a list of measures to punish Russian banks and oil companies. The already weak EU economy will suffer in return. But over time, Europe will find that the sanctions were worth the pain.

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