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from Breakingviews:

Fragility is bigger worry than volatility for the markets

By Rob Cox

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

It has been impossible to escape the V-word for the past week. Turn on the television, and it is easy to conclude that central bankers, corporate chiefs, investors and politicians think volatility is the biggest problem vexing global markets. The rollercoaster ride recently experienced by financial assets is nettlesome. But it’s merely a symptom of a bigger malady: the fragility of widely accepted assumptions about where the world is headed.

The see-sawing of markets is succinctly illustrated by the Chicago Board Options Exchange Volatility Index, or VIX. It uses the prices of S&P 500 Index options to give an indication of investors’ expectations of near-term swings in the stock market. Conventional wisdom suggests that the higher the index goes, the greater the fear is among investors that markets will forge an unstable path in the weeks ahead.

Market volatility makes it hard for people in the real economy to plan ahead. So, a fund manager fearing zigzagging prices may be better off keeping funds invested in cash. Company executives may hold back on hiring new staff or buying new equipment until things calm down. And central bankers pondering what to do about interest rates may have a change of heart.

from Hugo Dixon:

Markets right to worry about euro zone

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

The markets are right to worry about the euro zone, the epicentre of last week’s fright. Its three big economies – Germany, France and Italy – are, in their own ways, stuck.

from Anatole Kaletsky:

An ‘atomic bomb’ is hovering over France’s economy

France's President Hollande and German Chancellor Merkel talk during a conference on jobs in Milan

An “atomic bomb” is about to blow up in “the confrontation between Paris and Brussels.”

It was in these terms that Le Figaro, perhaps the most influential French newspaper, reported the European Commission’s near-certain rejection of President Francois Hollande’s 2015 budget on Oct. 29.  That is the date the commission must issue a judgment on the French budget, which proposes a two-year delay in reducing the  budget deficit to the EU-mandated maximum of 3 percent of gross domestic product.

from Hugo Dixon:

UK faces unpalatable election choice

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

The UK faces an unpalatable choice in next May’s general election. The Labour opposition, which is currently ahead in the polls, has a somewhat anti-business agenda. Meanwhile, the Conservatives want to hold a referendum on Britain’s EU membership. If the people vote to quit the EU, industry will lose full access to its biggest external market.

from The Great Debate:

Is there a new crack in the West’s sanctions regime against Russia?

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President Barack Obama’s speech at the United Nations Wednesday offered to roll back the U.S. sanctions if Russia takes the “path of diplomacy and peace.” This overture comes on the heels of an emerging ceasefire between Russia and Ukraine and continuing discussions in Minsk to find a political solution to the turmoil in eastern Ukraine.

Obama’s U.N. speech, however, opens up the possibility of creating some daylight between the United States and the EU sanction programs. The European Union remains openly divided over the current sanctions -- and far more economically bruised than the United States.

from Hugo Dixon:

Now on to the Brexit referendum

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

With Scotland voting to stay part of the United Kingdom, attention will turn to the next potential British referendum: on whether the country will remain in the European Union. David Cameron has promised to hold an In/Out referendum on the EU if he is re-elected as prime minister in next year’s general election. There are comparisons and contrasts between the two votes, as well as lessons to be learned.

from Anatole Kaletsky:

Why this Ukraine ceasefire will stick

A boy sits on an APC as he poses for a picture during a parade in Luhansk, eastern Ukraine

The war in eastern Ukraine, which has had more impact on the European economy than any news coming out of Frankfurt or Brussels, appears to be ending. Despite the sporadic attacks that have wrecked previous ceasefire attempts.

Investors have mostly assumed that the ceasefire would not hold, either because Russian President Vladimir Putin is deceitful and greedy for more territorial conquest, or because Ukraine’s President Petro Poroshenko would not accept the splintering of his country that Russia demands. But this fashionable pessimism is probably wrong.

from The Great Debate:

Why this Ukraine ceasefire will stick

[CROSSPOST blog: 2545 post: 1399]

Original Post Text:

A boy sits on an APC as he poses for a picture during a parade in Luhansk, eastern Ukraine

The war in eastern Ukraine, which has had more impact on the European economy than any news coming out of Frankfurt or Brussels, appears to be ending. Despite the sporadic attacks that have wrecked previous ceasefire attempts.

Investors have mostly assumed that the ceasefire would not hold, either because Russian President Vladimir Putin is deceitful and greedy for more territorial conquest, or because Ukraine’s President Petro Poroshenko would not accept the splintering of his country that Russia demands. But this fashionable pessimism is probably wrong.

from Hugo Dixon:

Capital markets union needs deregulation

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

One of the biggest projects for the next European Commission, which takes office in November, will be to create a “capital markets union.” President-elect Jean-Claude Juncker last week gave Britain’s Jonathan Hill the task of creating such a union “with a view to maximising the benefits of capital markets and non-bank financial institutions for the real economy.”

from Anatole Kaletsky:

Why breaking up Britain could tear apart the EU, too

A bunch of 'Yes' balloons are seen as Scotland's First Minister Alex Salmond campaigns in Edinburgh, Scotland

While recent opinion polls have swung slightly back toward the "no" camp, there remains a distinct possibility that Thursday's Scottish referendum will trigger a previously unthinkable breakup of Britain.

If this were to happen, the biggest risks for global businesses and investors do not lie in the economic problems created by Scotland’s choice of currency or the inevitable arguments about sharing North Sea oil revenue and the British national debt. These are crucial challenges for Scotland and have been much discussed in financial institutions and think tanks. But the crucial issue for the world economy and financial markets is about the resulting impact on the European Union -- and especially on Britain, which would remain the world’s sixth largest economy even if Scotland departs.

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