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from MacroScope:

G7 test of mettle

Another crunch week in the East-West standoff over Ukraine kicks off today with Barack Obama in the Netherlands for a meeting of more than 50 world leaders at a nuclear security summit in the Netherlands. There, he and his fellow G7 leaders will hold separate talks on Ukraine.

Obama upped the ante on Vladimir Putin last week with sanctions that hit some of his most powerful allies and strayed firmly into Russia’s banking and corporate world. The EU acted more cautiously but is looking at how financial and trade measures would work, getting ready in case Putin escalates the crisis further.

There is certainly no signs of de-escalation. Over the weekend forced Russian troops forced their way into Ukrainian military bases in Crimea and took them over. NATO's top military commander said Russia had built up a "very sizeable" force on its border with Ukraine and may be eyeing up a region in the ex-Soviet republic of Moldova too.

Nonetheless, Dutch Prime Minister Mark Rutte, who will host Obama and the leaders of Germany, Britain, Canada, France, Japan and Italy for today’s talks, said the West might want to move slowly from here.

from MacroScope:

Osborne stakes out election ground with little fiscal leeway

The annual UK budget is always a big set piece but it’s hard to remember one where there have been fewer advance leaks – indicative of a steady-as-she-goes approach by George Osborne.
Having put so much political capital into reducing the deficit, to switch now at a time when the economy is recovering strongly would be politically risky. And with debt falling only slowly there is little fiscal leeway.

That’s not to say this isn’t a big political moment. Yes there is the finance minister’s autumn statement and another budget before May 2015 elections but this is the moment when the narrative for the economy and Britons’ wellbeing is staked out.

from MacroScope:

The Iranian thaw

A landmark deal curbing Iran’s nuclear programme in return for a loosening of sanctions appears to be underway, an agreement intended to buy time for a permanent settlement of a decade-old standoff.

Under the deal, Iran must suspend enrichment of uranium to a fissile concentration of 20 percent. An Iranian official has just said Tehran will start its suspension of uranium enrichment up to 20 percent in a few hours.

from MacroScope:

Abe’s European spring break: Japan stimulus sends euro zone yields to record lows

It wasn't just the Nikkei. Euro zone government bonds rallied following Japan's announcement of a massive new monetary stimulus. That sent yields on the debt of several euro zone countries to record lows on bets that Japanese investors might be switching out of Japanese government bonds into euro zone paper, or might soon do so.

The Bank of Japan on Thursday announced extraordinary stimulus steps to revive the world's third-largest economy, vowing to inject about $1.4 trillion into the financial system in less than two years in a dose of shock therapy to end two decades of deflation.

from MacroScope:

Another euro zone week to reckon with

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Despite Mario Draghi's game changer, or potential game changer, the coming week’s events still have the power to shape the path of the euro zone debt crisis in a quite decisive way, regardless of the European Central Bank's offer to buy as many government bonds as needed to buy politicians time to do their work.

The nuclear event would be the German constitutional court ruling on Wednesday that the bloc’s new ESM rescue fund should not come into being, which would leave the ECB’s plans in tatters since its intervention requires a country to seek help from the rescue funds first and the ESM’s predecessor, the EFSF, looks distinctly threadbare. That is unlikely to happen given the court’s previous history but it could well add conditions demanding greater German parliamentary scrutiny and even a future referendum on deeper European integration. For the time being though, the markets are likely to take a binary view. ‘Yes’ to the ESM good, ‘No’ very bad.

from MacroScope:

Austerity light? Maybe a shade lighter

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There is a groundswell building in the euro zone that austerity drives should be tempered.

France’s Francois Hollande, favourite to take the presidency next month, said last night that  leaders across Europe were awaiting his election to back away from German-led austerity, and even ECB President Mario Draghi called yesterday for a growth pact.

from MacroScope:

ECB to the rescue? Hold your horses

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ECB policymakers from Mario Draghi down will come at us from all angles today. Expect a united front on the main theme of the moment; calls for it to consider yet more liquidity operations essentially creating money and/or resuming its government bond-buying programme. That call was first heard at the IMF spring meeting over the weekend and the ECB president’s response could hardly have been clearer, saying: “None of the advice of the IMF has been discussed by the Governing Council, in recent times at least".

Since then a number of his colleagues have followed up. The message: they are looking more to inflation now and banks and governments have to put their own houses in order after the ECB gave them time with its colossal three-year money-creating exercise.
The ECB's man in Spain, Gonzalez-Paramo, is already out this morning saying Spain will not struggle to meet its debt issuance target this year despite its rising yields.

from Global Investing:

Research Radar: Beyond Hollande and Holland…

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Markets have been dominated this week so far by the fallout from Sunday's French presidential election, where Socialist Francois Hollande now looks set to beat incumbent conservative Nicolas Sarkozy in the May 6 runoff , and the collapse of the ruling Dutch coalition on Monday.  Public anxiety about budgetary austerity in Europe was further reinforced by news on Monday of a deepening of the euro zone private sector contraction in April. That said, euro equity, bond and currency prices have stabilised relatively quickly even if implied volatility has increased as investors brace for another month or so of political heat in the single currency bloc. The French runoff is now on the same day as the Greek elections and May 31 sees Ireland going to the polls to vote on the EU's new fiscal compact.  Wall St's volatility gauge, the ViX, is back up toward 20% -- better reflecting longer term averages -- and relatively risky assets such as emerging market equities remain on the back foot. The euro political heat and slightly slower Q2 world growth pulse will likely keep markets subdued and jittery until mid year at least. At that point, another cyclical upswing in world manufacturing together with the passing of the EBA's euro bank recapitalisation deadline as well as the introduction of the new European Stability Mechanism may well encourage investors to return at better levels.

Following are some interesting tips from Tuesday's bank and investment fund research notes:

from MacroScope:

Euro zone goes Dutch

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So the euro zone debt crisis morphs again and there is a hint of schadenfreude about the Dutch, who lectured and hectored the Greeks, now falling into the same mire.

The Dutch premier, Mark Rutte, will probably try to cobble together an unholy alliance in parliament in order to meet an April 30 EU deadline for it to present budget plans for the next year. But with elections not until late June at the earliest, there will be an unnerving period of vacuum for the markets and no guarantee that opposition parties will play ball and allow a budget to be put together.

from MacroScope:

Netherlands at core of the crisis

The Netherlands has become the latest country to come into the firing line of the euro zone crisis.

The cost of insuring five-year Dutch debt against default jumped to its highest since January as the government's failure to agree on budget cuts spiraled into a political crisis and cast doubt over its support for future euro zone measures.

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