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from MacroScope:

Juncker begins to fill in the gaps

juncker.jpg

European Commission president-elect Jean-Claude Juncker will hold talks with the various political groupings in the European Parliament as he seeks to develop policy positions. Most interesting would be indications about which way he is bending in the growth versus austerity debate.

Italy’s Matteo Renzi, resurgent after a strong performance in May’s EU elections, is pressing for a focus on measures to get the euro zone economy firing and has even managed to get Germany to talk the talk. But any leeway will be within the existing debt rules, not by writing new ones.

We know from the history of the euro debt crisis that Berlin can only move so far, so fast and only last week it proudly proclaimed it would not be a net borrower of zero next year, for the first time in over 45 years. Having said that it has just passed into law a generous national minimum wage and its labour costs are rising, so there is some rebalancing going on.

Euro zone finance ministers met in Brussels late yesterday and affirmed that EU countries can get more time to cut budget gaps provided they deliver reforms with a clear long-term impact. A similar pledge was made by EU leaders at a summit last month.

from MacroScope:

Balance tilted in Ukraine?

slaviansk.jpgUkrainian forces pushed pro-Russian rebels out of their stronghold of Slaviansk on Saturday. Its re-capture represents Kiev's most notable military victory in three months of fighting in which more than 200 Ukrainian troops have been killed as well as hundreds of civilians and rebels.

The regions of Donetsk and Luhansk are likely to be next in the government forces’ crosshairs.

from MacroScope:

Renzi and Schaeuble: Compare and contrast

renzi2.jpgItalian Prime Minister Matteo Renzi will spell out to the European Parliament his priorities for Italy’s six-month tenure of the EU presidency.
Emboldened by a strong showing in May’s EU elections, Renzi is pressing for a focus on growth rather than austerity and has even managed to get Germany to talk the talk.

At an EU summit last week, leaders accepted the need to allow member states extra time to consolidate their budgets as long as they pressed ahead with economic reforms. They pledged to make "best use" of the flexibility built into the bloc's fiscal rule book – not, you will notice, countenancing any change in the rules.

from MacroScope:

Clock ticking

Amid all the furore over David Cameron’s failure to block Jean-Claude Juncker for the top EU job at a summit last week, the bloc’s leaders signed a free-trade pact with Ukraine and said they could impose more sanctions on Russia unless rebels de-escalate in the east of the country by Monday.

In turn, Ukraine president Poroshenko extended a ceasefire by government forces until 10 p.m. local time today.

from Counterparties:

MORNING BID – To my brother Russell…

The index business is a big business, so it's not for nothing that the London Stock Exchange agreed on Thursday to buy Frank Russell Co and its Russell Indexes.

Those indexes are benchmarked to more than $5 trillion in index funds and puts the LSE in the third position behind S&P Dow Jones and MSCI in the ETF world as well, a lucrative business that involves using their well-known indexes like the Russell 2000 and its "value" and "growth" versions into a multitude of funds.

from Expert Zone:

Higher tax revenue from higher growth

(Any opinions expressed here are those of the author and not of Thomson Reuters)

The 2013-14 budget got completely out of hand because of a whopping shortfall in tax revenue. Development outlays had to be drastically cut to manage the fiscal deficit.

The key to the budget is revenue. The ratio of gross tax revenue to GDP reached a high of 11.9 percent when GDP growth was at its peak of more than 9 percent in 2007-08. Since then, both declined and the ratio has been in the narrow range of 10-10.7 percent. GDP growth is a painless way of raising revenue.

from MacroScope:

Better U.S. growth and just muddling along both point to low rates for longer

UFaith that the U.S. economy may finally be at a turning point for the better appears to be on the rise, as many ramp up expectations for a better Q2 and second half of the year.

But that does not mean that interest rates are likely to rise any sooner.

Goldman Sachs’s Jan Hatzius, one of the most dovish economists on when the Federal Reserve will eventually raise rates, has lifted his growth outlook but stuck to the view that the first interest rate rise off the near-zero floor won’t come for nearly two years, in early 2016.

from Counterparties:

MORNING BID – All bonds, all the time

There’s nothing dull these days about the bond market, which is exhibiting an unforeseen, profound level of strength that’s spread through the various asset classes on the fixed income side, and that continues to remain unexpected for the most part.

As of Wednesday the Barclays US Aggregate Index had notched a year-to-date return of 3.62 percent; the 10-year-plus index was up a crazy 9.39 percent, and the Barclays Intermediate High Yield Index was up 4.05 percent. Looking at one of their competitors, the Bank of America/Merrill Lynch Corporate Index has so far netted a 5.39 percent return year-to-date while the Merrill High Yield CCC and Lower Index is up 4.45 percent. So that’s pretty solid returns across the board – comparing favorably with the S&P 500’s total return of 4.3 percent so far this year. Explaining how it’s all happening in the bond market is the more difficult task, but let’s give it a whirl.

from MacroScope:

Evening of reckoning

EU heads of government and state dine in Brussels this evening to discuss their response to a big slap in the face from the bloc’s electorates.

Italy’s Matteo Renzi, who bucked the trend by winning handsomely as an incumbent prime minister, has the wind in his sails and has pledged to change Europe’s focus towards growth and job creation after years of fiscal austerity in response to the euro zone’s debt crisis.

from MacroScope:

France flatlining

We get a flood of EU GDP reports today. Germany’s figure, just out, has marginally exceeded forecasts with quarterly growth of 0.8 percent but France is underperforming again and stagnated in the first three months of the year, missing estimates of 0.2 percent growth.

Robust German growth has been driven largely by domestic demand, which could help its European peers with their exports. Where all that leaves the overall euro zone figure, due later, remains to be seen. The bloc is predicted to have expanded by 0.4 percent.

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