Global Investing

Bullish Barclays says to buy Portuguese debt

Some bets are not for the faint-hearted. Risky punts are even less so following a sovereign debt crisis, one that has riddled European debt markets for two years. Barclays Capital, however, recommends a particularly unusual bet, one that your parents might baulk at.

It will be of little surprise that Barcap is bullish on the year, advising towards assets that will perform well in an environment of US-led global growth, easy monetary policy and tight oil supplies following reduced tail-risks in Europe curbed by cheap money from the European Central Bank.

Now that the rush of the addictive LTRO money is over and the dust is settling on central banks’ balance sheets, Barcap is brave enough to recommend an unlikely candidate and one of the recent targets of financial markets — Portugal.

Laurent Fransolet, Managing Director of Research at Barclays Capital told reporters at a Global Outlook briefing today:

“One of the top trades that we recommend in the global outlook is to be long on Portugal, which is a little bit of a roll of the dice. It is a fairly high risk, high return strategy. The sustainability of the debt, the fiscal consolidation, the long-term economic performance – these are still questions that remain on people’s minds for the foreseeable future.”

from MacroScope:

Greek debt – remember the goats

Greece's creditors have essentially let it off the hook by overwhelmingly agreeing to take a 74 percent loss.  So what better time to  remember  one of the first times Athens got in trouble with paying its debts.

In 490 BC, the bucolic plains before the town of Marathon were the site of a bloodbath. Invading Persians  lost a key battle against Greeks, who were led by the great Athenian warrior Kallimachos, aka Callimachus.

The trouble is, Kallimachos shares some of the difficulty with numbers that  modern Greek leaders appear to have.  Before launching himself upon the  Persians,  he  pledged to sacrifice a young goat to the Gods for every enemy that was killed.

Three snapshots for Friday

The U.S. economy probably created 210,000 jobs last month, according to a Reuters survey. If the forecasts are accurate, the government’s jobs report on Friday would mark the first time since early 2011 that payrolls have grown by more than 200,000 for three months in a row. Refresh chart

China’s annual consumer inflation slowed sharply to a 20-month low in February, and factory output and retail sales also cooled more than forecast, giving policymakers ample room to further loosen monetary policy to support flagging growth.

Greece averted the immediate risk of an uncontrolled default, winning strong acceptance from its private creditors for a bond swap deal which will ease its massive public debt and clear the way for a new international bailout.

Slipping up on oil and Greece?

Thursday’s crude oil price surge to its highest in almost 4 years (apparently due to a subsequently denied report from Iran of a Saudi pipeline explosion…phew!)  illustrates just how anxious and dangerous the energy market has become for world markets yet again this year and HSBC on Friday spotlighted its threat to the global economy and asset prices in a note entitled  “Oil is the new Greece”. The point of the neat headline hook was a simple one:

With Greece disappearing, at least temporarily, from the headlines, investors have quickly found a new source of anxiety thanks to the recent surge in oil prices

Just like many investors and strategists over the past month, HSBC rounded up its various assessments of the impact and fallout from higher oil prices, stressing the biggest risk comes from supply disruptions related to the Iran nuclear standoff and that any major political upheaval in the region would threaten significant crude spikes. “Think $150 or even $200 a barrel,” it said. It reckoned the impact on world growth, and hence the broader risk horizon depended on the extent of this supply disruption and the durability and scale of the price rise.  Worried equity investors should consider hedging their portfolios by overweighting the energy sector. Obvious winners in currency world would be the Norwegian crown, Malaysian ringitt, Brazil’s real and Russia’s rouble, the bank’s strategists said. The most vulernable units are India’s rupee, Mexican and Philippines pesos and Turkey’s lira.

from MacroScope:

Yet more lagging from Italy and Greece

At this stage in the euro zone crisis, we probably don't need to be reminded how uncompetitive the peripheral economies are. (Arguably, of course, they would not be economically peripheral if they were more competitive, but that is for tautologists to debate).  The United Nations, in the form of UNCTAD, has just pinpointed another weakness, however -- huge underperformance  in foreign directed investing, or FDI.

The numbers it has just released only go as far as 2010, so the real crisis cauldron has yet to come.  But they show that Greece and Italy have been punching way below their weight.

Greece has attracted a relatively small amount of foreign direct investment compared to other countries in the European Union (EU). In 2010, Greece’s share in the EU’s GDP was 1.9 per cent. In the same year, however, the inward FDI stock of Greece amounted to €26.2 billion ($35.0 billion), or less than 0.5 percent of the combined FDI stock of EU countries. Similarly, Greece’s share in the total outward FDI stock of EU countries was 0.4 per cent.

Becoming less negative on Europe

Markets are unimpressed today by Europe finally agreeing to bail out Greece for the second time, with European stocks down -0.6% on the day.

But here’s some encouraging news: Credit Suisse has become less negative on Continental European stocks for the first time in almost two years.

The bank has moved to benchmark weighting from 5% underweight for a currency hedged portfolio.

Beneath the Greek bailout hopes…

Who’s tired of the ”Markets up on Greece, markets down on Greece” headlines of the past few weeks? (I am.)

Today it’s an up day, with world stocks hitting a six-month peak on hopes that Greece will secure a second bailout package next week (finally, really).

But beneath the optimism lies a dire Greek economic and fiscal situation.

The Greek economy slumped 7 percent in the last quarter of 2011, with the rate of contraction since Q4 2008 reaching a whopping 16 percent in cumulative, real GDP terms.

Euro periphery: Lehman-type shock still on cards

The passing of Greek austerity measures is fuelling a rally in peripheral debt today with Italian, Spanish and Portuguese yields falling across the curve.

However, one should not forget that peripheral economies are still under considerable risk of becoming the next Greece — rising debt and weak economic growth pushing the country to seek a bailout — as a result of tighter financial conditions.

Take this warning from JP Morgan:

Financial conditions have deteriorated far more in peripheral Europe than in the core. The drag from this on peripheral GDP is akin to that seen following the Lehman crisis.

from Scott Barber:

Breaking point? Greece vs. Argentina

As the crisis in Greece continues, the comparisons with Argentina’s chaotic bankruptcy a decade ago start to look more justified. In Argentina, a bank deposit freeze was the tipping point, triggering mass violent protests. People took to the streets banging pots and pans to protest against an economic collapse that plunged millions into poverty. The government declared a stage of siege and presidents resigned one after another. Greek unemployment and industrial production numbers out yesterday were dreadful but how to they compare to Argentina in late 2001?

The table and charts below show some key economic series in Argentina in the run up to 2002 and after. Argentinean real GDP fell nearly 20% from its peak in 1998 to 2002 -that compares with around a 12% fall so far in Greece. The unemployment rate in Argentina reached a peak of 24% not far above the 21% Greece reported yesterday. On other metrics Greece looks much worse; the IMF puts public debt at 50.8% of GDP in Argentina compared to an expected 166% in Greece this year.

The IMF published its Lessons of the crisis in Argentina in 2003 (approved by Tim Geithner no less). Looking at the conclusions, the IMF faced many problems now becoming familiar in Greece as this passage shows:

Greece’s interest burden, post-PSI, will remain huge

It seems Greece has finally reached a deal on austerity measures needed for a bailout. But what about PSI?

(ECB President Mario Draghi just said he heard it was close to a deal. It’s been close for a few weeks though…)

JP Morgan says Greek PSI is hardly going to change the heavy interest burden on the country and the issue of default will inevitably come up.