Global Investing

Three snapshots for Monday

The euro zone’s business slump deepened at a far faster pace than expected in April, suggesting the economy will stay in recession at least until the second half of the year. The euro zone’s manufacturing PMI came in below all forecasts from a Reuters poll of  economists, plumbing 46.0 in April – its lowest reading since June 2009. Weak PMI numbers are a bad sign for economic growth (see chart) but also for earnings:

Reuters reports that the Dutch government will resign on Monday in a crisis over budget cuts, spelling the end of a coalition which has strongly backed a European Union fiscal treaty and lectured Greece on getting its finances in order. As this overview shows the Dutch economy looks in better shape than many in the euro zone but is still finding austerity measures difficult to pass.

French President Nicolas Sarkozy appealed directly to far right voters on Monday with pledges to get tough on immigration and security, after a record showing in a first round election by the National Front made them potential kingmakers. See how the votes may transfer from 1st to 2nd round in this interactive calculator (click here).

 

Three snapshots for Thursday

The euro zone’s economy took an unexpected turn for the worse in March, hit by a sharp fall in French and German factory activity. The manufacturing purchasing managers indexes for France and Germany were both worse than even the most pessimistic expectations from economists polled by Reuters.

China’s HSBC manufacturing PMI also fell to 48.1, below 50 for a fifth straight month.

“Reflation trade”? Equities have been tracking the 5yr breakeven inflation rate derived from inflation-protected bonds.

Are global investors slow to move on euro break-up risk?

No longer an idle “what if” game, investors are actively debating the chance of a breakup of the euro as a creditor strike  in the zone’s largest government bond market sends  Italian debt yields into the stratosphere — or at least beyond the circa 7% levels where government funding is seen as sustainable over time.  Emergency funding for Italy, along the lines of bailouts for Greece, Ireland and Portugal over the past two years, may now be needed but no one’s sure there’s enough money available — in large part due to Germany’s refusal to contemplate either a bigger bailout fund or open-ended debt purchases from the European Central Bank as a lender of last resort.

So, if Germany doesn’t move significantly on any of those issues (or at least not without protracted, soul-searching domestic debates and/or tortuous EU Treaty changes), creditor strikes can reasonably be expected to spread elsewhere in the zone until some clarity is restored. The fog surrounding the functioning and makeup of the EFSF rescue fund and now Italian and Greek elections early next year  — not to mention the precise role of the ECB in all this going forward — just thickens. Why invest/lend to these countries now with all those imponderables.

Where it all pans out is now anyone’s guess, but an eventual collapse of the single currency can’t be ruled out now as at least one possible if not likely outcome. The global consequences, according to many economists, are almost incalculable. HSBC, for example, said in September that a euro break-up would lead to a shocking global depression.

from Summit Notebook:

Does Germany need Europe?

Jim O'Neill, the new Goldman Sachs Asset Management chairman who is famous for coining the term BRICs for the world's new emerging economic giants, reckons he knows why Germany might not be rushing to bail out all the euro zone debt that is under pressure. Europe is not as important to Berlin as it was.

Speaking at the Reuters 2011 Investment Outlook Summit being held in London and New York, O'Neill pointed out that in the not very distant future Germany will have more trade with China than it does with France.

"It's a different global environment. That's why maybe Germany (ties)  itself to a rules-based game with the rest of Europe because economically it doesn't mean so much to them now. What goes on in China is more important than what goes on in France and that's puts a different economic (spin) on the situation for the Germans."

from FaithWorld:

France opts for legislative juggling to allow Islamic finance

assemblee-nationaleEager to attract Middle East investment but uneasy about linking faith and finance, the French parliament has opted for some legislative sleight-of-hand to pass a law allowing the issuance of interest-free Islamic "sukuk" bonds. The move is part of France's two-year drive to create a new European hub for Islamic finance, whose value globally is estimated at $1 trillion. But instead of introducing a separate bill, which would attract attention to it, the governing UMP party tucked the proposed change of French trust law into a larger bill on financing reform for small and medium-sized companies. And it chose to do this by introducing it as an amendment in the second reading of the bill -- the one that usually gets fewer headlines. (Photo: French National Assembly, 15 Sept 2009/Charles Platiau)

Sounds confusing? That seems to be exactly what the legislators wanted. As my colleague Tamora Vidaillet wrote here in an earlier post entitled "France courts Islamic finance, as long as it’s not too obvious," bankers, politicians and goverment officials are clearly uneasy about promoting Islamic finance in France. "There is a clear sense of apprehension over how Islamic finance would fit into French society, where the policy of laïcité – the strict separation of church and state — tries to keep anything religious out of the public sphere as much as possible," she wrote. "Many admit that French companies and banks may hesitate to do anything that uses the label Islamic as this could highlight sensitivities over social and cultural divides."

The opposition Socialist Party opposed and attacked the change. "We are introducing Islamic law into the French legal framework. This deeply shocks us, it is unacceptable." said Socialist MP Henri Emmanuelli. "When Muslims are rich, we try to attract them. When they're poor, we expel them."

from FaithWorld:

France courts Islamic finance, as long as it’s not too obvious

eiffel-towerIn researching an article on what lay behind government plans to develop France as a European hub for Islamic finance, I was struck by the uneasy atmosphere surrounding the subject. On the one hand, the government sees it as a way to attract Middle Eastern money and wants to push the idea. But on the other, there is a clear sense of apprehension over how Islamic finance would fit into French society, where the policy of laïcité -- the strict separation of church and state -- tries to keep anything religious out of the public sphere as much as possible. (Photo: Eiffel Tower in Paris, 20 Nov 2007/Mal Langsdon)

The bankers, lawyers, government officials and Islamic finance specialists trying to get Islamic finance off the ground in France speak publicly about the bright prospects they see for the market. France has the biggest Muslim population in Europe at over five million. The government is pushing the idea hard. There is a huge need for financing of future projects.

But privately, many admit that French companies and banks may hesitate to do anything that uses the label Islamic as this could highlight sensitivities over social and cultural divides. Ever since the French Revolution, France has upheld the idea that its people are all individual and equal citizens and not members of regional, ethnic or religious minorities. Stressing membership in a sub-group is considered divisive. The French frequently point to the multicultural approach taken in Britain and the United States as the source of political and social problems -- such as ethnic or religious "ghettoisation" and "identity politics" -- that they want to avoid.

Phew! SocGen profits only slump 63%

socgen.jpgIt doesn’t seem much to cheer about but Societe Generale investors breathed a sigh of relief when second-quarter net profit only fell 63 percent.

The investment banking unit may have taken a 1.2 billion euro hit but higher profits from its international retail banking and consumer credit businesses offset the damage and kept the group in the black.

In today’s doom-laden markets that was something to celebrate – and the shares jumped more than 6 percent.

EDF fails to push Britain’s nuclear button

british-energys-heysham-nuclear-power-station.jpgA dramatic last-minute hitch to plans for France’s EDF to buy British Energy leaves managements, shareholders and especially the British government in a quandary.

It was a 12 billion pounds ($24 billion) deal that was supposed to relaunch Britain’s nuclear energy programme. Everyone had been told to expect it. In fact, the collapse of talks came too late for French newspapers, several of which had been briefed on the deal and splashed it prominently on their front pages on Friday.

In end, however, big insitutional investors persuaded British Energy to reject EDF’s offer as low-ball, despite the best endeavours of the British government, with a 35-percent stake.