Banks, Financial

Banking app targets millennials who want help budgeting

Graduate debt, rent and high living costs have made it hard for millennials to save for a house, a pension or even a holiday. For Ollie Purdue, a 23-year-old law graduate, this was reason enough to launch Loot, a banking app targeted at tech-dependent 20-somethings who want help to manage their money and avoid falling […]

Continue Reading

Economy

Eurozone inflation climbs to highest since April 2014

A welcome dose of good news before next week’s big European Central Bank meeting. Year on year inflation in the eurozone has climbed to its best rate since April 2014 this month, accelerating to 0.6 per cent from 0.5 per cent on the back of the rising cost of services and the fading effect of […]

Continue Reading

Financial

Wealth manager Brewin Dolphin hit by restructuring costs

Profits at wealth manager Brewin Dolphin were hit by restructuring costs as the company continued to shift its focus towards portfolio management. The FTSE 250 company reported pre-tax profits of £50.1m in the year to September 30, down 17.9 per cent from £61m the previous year. Finance director Andrew Westenberger said its 2015 figure was […]

Continue Reading

Financial

Travis Perkins and Polymetal to lose out in FTSE 100 reshuffle

Builders’ merchant Travis Perkins and mining company Polymetal face relegation from the FTSE 100 after their recent performances were hit by political events. The share price of Travis Perkins has dropped 29 per cent since the UK voted to leave the EU in June, as economic uncertainty has sparked concerns among some investors about the […]

Continue Reading

Banks

RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

Continue Reading

Archive | November, 2016

Europe must prepare an emergency plan

Posted on 31 May 2012 by

Eurozone leaders may be nearing a “break the glass” moment: when one smashes the pane protecting the emergency fire alarm. While those living in the eurozone building, especially those on the executive floors, will not want to hear an alarm, they had best read the instructions. Events in Greece could trigger financial fright in Spain, Italy, and across the eurozone, pushing Europe into a danger zone.

The summer of 2012 offers an eerie echo of 2008. Markets are signalling anxieties about a major asset class. In this round, eurozone sovereign debt has replaced mortgages as the risky investment. Banks are under stress. Depositors have not yet begun to run, but they are starting to jog. The European Central Bank, like the US Federal Reserve in 2008, has sought to reassure markets by providing generous liquidity, but collateral quality is declining as the better pickings on bank balance sheets are used up.

    We cannot predict the outcome of the Greek election, nor whether a new Greek government will simply drive a harder bargain for more subsidies, rather than seek to leave the eurozone. Greece’s eurozone partners are frustrated, although they still seem willing to offer considerable aid to avoid a crisis precipitated by a Greek exit from the euro – if Greece’s leaders and public commit to a viable programme.

    If Greece leaves the eurozone, the contagion is impossible to predict, just as Lehman had unexpected consequences. A Greek exit would trigger a hit to confidence in other sovereign euro assets. Eurozone leaders need to be ready. There will not be time for meetings of finance ministers to discuss the outlook and debate the politics of incrementalism. In panicked markets, investors flee to safe assets, sparking other flames.

    Some argue that if a crisis begins the ECB can overwhelm it. Yet the differences of views on the ECB board raise doubts about its ability to respond fast, fully, and forcefully. Moreover, the states that stand behind the ECB would have to decide to permit it to provide further funds to banks with poor collateral, or those that flirt with insolvency. Eurozone leaders need to be prepared – psychologically and through the European Stability Mechanism – to recapitalise banks.

    Even massive injections of ECB liquidity may not be enough. When I ask developing-country veterans of financial panics what advice they would offer, their response is uniform: governments have to guarantee bank deposits and probably other liabilities. In the eurozone, the guarantees of some national sovereigns are unlikely to be sufficient and only that of the “euro-sovereign” will suffice. It is far from clear that eurozone leaders have steeled themselves for this step.

    After Lehman’s collapse, the illiquidity began to choke the corporate sector, too. Major companies feared they could not get bank loans or roll over commercial paper. Bankruptcies loomed.

    Eurozone banks have spent three years under pressure to deleverage, build capital, and reduce risk. I doubt that the first instinct of their executives in a crisis will be to pump out loans to business borrowers. But if we wake up to news of a major corporate bankruptcy, lenders and savers may pull back just as they would from a blow to banks.

    When financial markets get anxious, peril often strikes two or three links down the financing chain. So eurozone leaders need to be monitoring liquidity risks in the corporate sector. And if banks get emergency assistance, bank executives will need to be pressed to keep providing customers with cash.

    No one wants to have to act on the “break the glass” instructions. But it is wise to read them and to be prepared
    . The seriousness of the emergency steps should encourage eurozone leaders to take precautions – such as getting ESM capital into banks now and agreeing on a medium-term funding assurance for countries such as Spain. This assurance could come from the ESM or partial deployment of eurozone bonds in ways that maintain market discipline on state financings.

    This recommendation does not conflict with Germany’s call for fiscal discipline and microeconomic reforms. Those steps must be taken. Germany has understandably been unwilling to turn on its fiscal tap unless those reforms are realised. Yet Germany will not achieve its strategic aims of a more integrated and fiscally sound eurozone unless it supports reforming states and prepares for contagion. Good leaders anticipate. They ready themselves to move quickly – and seize the moment to further larger ends.

    The writer is president of the World Bank Group

    Bloomberg poaches NYSE data unit chief

    Posted on 31 May 2012 by

    Bloomberg, the financial data and news group, has underscored its determination to become a significant player in the fast-growing data management business by hiring Stanley Young from NYSE Euronext, the transatlantic exchanges operator.

    Mr Young’s departure, announced internally on Thursday, signals further upheaval at NYSE, which announced on Wednesday the impending departure of Garry Jones, the head of its derivatives business, as part of a management restructure.

      Trading in equity and derivatives markets has been soft in the past six months amid uncertainty over the eurozone crisis, and the group has also responded by deepening cost cutting.

      Mr Young’s business, NYSE Technologies, was one of the better-performing parts of the group, posting a 4 per cent rise in first-quarter turnover, although below its target of 10 per cent quarterly growth.

      NYSE is placing increased emphasis on supplying technology and services and connectivity to exchanges and data centres for traders after European antitrust officials blocked the group’s planned merger with Deutsche Börse in February.

      The unit had been set a target of reaching $1bn in revenues by 2015, double its current total, and Mr Young had been expected to play a key role.

      Instead, Mr Young will become chief executive of Bloomberg’s enterprise products and solutions division. Dan Doctoroff, Bloomberg’s chief executive, said this month it would manage the unit independently to avoid any client concerns about it pushing Bloomberg data on them or sharing their proprietary data with its other customers.

      Bloomberg wants to push into the unglamorous world of managing ever-expanding volumes of data, at a time when regulators are mandating greater transparency around such information.

      To that end it purchased PolarLake, a privately held Dublin-based software maker, two weeks ago. The move pits it against Markit, a smaller London-based financial data supplier that recently bought Cadis, another enterprise data management company.

      Indonesian rule threatens DBS takeover

      Posted on 31 May 2012 by

      One of Asia’s biggest proposed banking takeovers was cast into doubt on Thursday when the Indonesian central bank unveiled plans to cap individual investors’ ownership of banks at 40 per cent.

      The restriction could prevent Singapore’s DBS from completing a potentially transformative $7bn take­over of Bank Danamon, an Indonesian bank that is 67 per cent-owned by Temasek, the Singapore state investor that controls DBS.

        Halim Alamsyah, a deputy governor of Bank Indonesia, told analysts on Thursday that the bank ownership cap, which he first proposed last year, would be set at 40 per cent for financial institutions and 30 per cent for other investors.

        But he said the regulation would apply only to new investments and would not be retroactive, providing relief to foreign banks such as HSBC and Standard Chartered, which had feared they would be forced to sell down their respective stakes in local lenders Bank Ekonomi and Bank Permata to the new threshold.

        He also told analysts on a call that the rules might allow banks that had better than “average” corporate governance to hold more than 50 per cent.

        Indonesia has one of the most liberal bank ownership regimes in Asia, with foreign investors allowed to own up to 99 per cent of local banks. Foreign lenders such as DBS are keen to gain access to Indonesia’s fast-growing banking sector. The central bank said it wanted to restrict ownership by individual investors to improve governance.

        Foreign investors fear the regulation is part of a trend towards economic nationalism in the run-up to the presidential election in 2014.

        DBS announced in early April that it was planning to buy the 67 per cent stake in Bank Danamon that is held by Temasek. Analysts said that if DBS was unable to obtain majority control, it would probably walk away from the deal.

        “Without the path to ownership, my guess would be that it will be difficult for DBS to continue with this deal,” said Kevin Kwek, an analyst at Sanford Bernstein in Singapore.

        The final regulation would need approval by the central bank’s board of governors. Mr Kwek warned that Bank Indonesia had a history of shifting course on regulatory issues.

        Danamon shares fell 2.75 per cent on Thursday to Rp5,300 and are down 17 per cent since the proposed deal was unveiled in early April. DBS shares closed down 0.3 per cent at S$13.22.

        Temasek declined to comment. DBS was not immediately available to comment.

        Osborne sues to deter EU overreaching

        Posted on 31 May 2012 by

        George Osborne is taking legal action in a bid to stop the EU from overreaching its powers by giving a pan-European supervisor the right to ban short selling of financial products.

        The chancellor’s decision to sue reflects his determination to prevent EU institutions overstepping their mandate, rather than any opposition to short selling regulation reforms, which he strongly supports.

          The papers filed yesterday at the European Court of Justice set the stage for a big test case of the balance of powers within the EU, with potentially important implications for London’s ability to protect its sovereignty.

          In practice, the legal battle at the ECJ – which could last for several years – may also act as a deterrent, helping Britain to blunt future legislative proposals to give EU agencies powers over sovereign authorities.

          The step is to be characterised by the Treasury as a matter of legal principle, relating to a specific power. Officials argue it is better to bring the case at a time of relative calm rather than to argue over the legality of actions taken during an emergency.

          But it is likely further to irritate EU officials who see Britain’s obsession with sovereignty as hampering the formation of a true single market in financial services and stunting the capability of pan-European supervisors.

          Britain is to bring the case jointly with the Czech Republic, which is often in lock-step with the UK about sovereignty issues.

          It is the second important ECJ case opened by the Treasury. Last year Mr Osborne sued the European Central Bank for allegedly discriminating against UK based clearing houses.

          At issue in the latest legal action is agreed legislation that hands the European Securities and Markets Authority (Esma) the power, in an emergency, to limit or to ban short selling of certain financial instruments.

          British lawyers will contend that these Esma responsibilities are illegal because the EU agency is delegated wide discretionary powers, which are not forseen by any EU treaty.

          This case is built around the so-called “Meroni doctrine”, established in a landmark 1958 case about the balance of institutional powers within the then European Coal and Steel community.

          While the primary purpose of the case is to clarify the law in regard to this principle, the legal challenge is technically against the European Council of member states and the European parliament.

          After the short selling legislation was agreed, the UK and Czech Republic warned they might take steps to address elements of the law that were “unlawful and [which] contravene the principle set out in the . . . case of Meroni”.

          Ex-Lloyds head charged with £2.5m fraud

          Posted on 31 May 2012 by

          The former head of fraud and security for digital banking at Lloyds Banking Group appeared in court yesterday facing charges of allegedly claiming nearly £2.5m in fake invoices.

          Jessica Harper, 50, of Croydon, south London, stood in the dock at Westminster magistrates’ court to confirm her name and address and listened as four charges were read out during the 10-minute hearing.

            Ms Harper is accused of one charge of fraud by abusing her position, relating to alleged wrongdoing at the bank between December 2007 and December 2011 by submitting false invoices to claim payments.

            It is alleged that she, dishonestly and with the intention of making a gain for herself, abused her position as an employee of Lloyds, in which she was expected to safeguard the financial interests of the bank, by submitting false invoices to claim £2,463,750 to which she was not ­entitled.

            She also faces three charges of concealing, converting and transferring criminal property, namely the proceeds of fraud, between September 2008 and December 2011.

            She was not asked to enter a plea. The court was told that her bail conditions were that she must live and sleep at her Croydon address and that she does not apply for international travel documents. She will reappear at Westminster magistrates on June 28.

            Ms Harper, who was a middle-ranking manager, is no longer an employee of the bank.

            The court case comes as at a sensitive time for Lloyds, which is 41 per cent owned by the taxpayer.

            The bank is grappling with challenges of reducing its share of the mortgage market and having to set aside additional provisions to cover mis-sold payment protection insurance.

            Lloyds’ net interest income slumped by more than a third to £1.9bn in the first quarter of 2012, though the bank ended up with pre-tax profit of £288m for the period.

            But it took a £375m charge to cover PPI ­compensation to mis-sold customers in the first-­quarter results in addition to an earlier £3.2bn ­provision.

            The bank cut customer lending by 5 per cent to £538bn in the three months to the end of March, allowing it to reduce its reliance on wholesale ­funding.

            Lloyds must also sell 632 branches to satisfy European Union rules on state aid and has been talking to the Co-operative Group, although no deal ­has been finalised and the talks have ceased to be exclusive.

            Ford Motor upgrade sparks junk shift

            Posted on 31 May 2012 by

            Junk bond investors are facing significant changes to their portfolios as Ford Motor and Ford Motor Credit, its finance unit, on Thursday quit key benchmark indices and returned to the investment grade market.

            The move officially sends about $30bn of Ford debt out of the junk bond market and could spark a flurry of activity as some investors who closely track the index may have waited to rotate out of the carmaker’s bonds.

              Ford debt regained investment grade status from Moody’s last week following a similar upgrade from Fitch Ratings in April. The company has been a mainstay of junk bond portfolios since it was relegated to junk status in 2005 amid a broad downturn in the US car industry.

              At roughly 3 per cent, Ford has had the largest weighting in the Barclays US High-Yield index. After Thursday’s close of business, Barclays will shift Ford debt to its investment grade index.

              Other large issuers of junk bonds, which are rated double B plus or lower, and those that have similar characteristics to Ford in terms of its business or creditworthiness will fill the gap.

              “For the high-yield market, it means, gradually, you want to replace Ford bonds,” said Dan Fuss, vice-chairman of Loomis Sayles. “Now we have a new universe.”

              The weightings of CIT, the middle market lender, and the other top constituents of the Barclays index, including International Lease Finance, a unit of AIG; First Data; hospital operator HCA; and Ally Financial, the former finance unit of General Motors, will increase. That puts them in line to benefit from the rebalancing.

              “There are still plenty of names out there of companies that, like Ford, originally sold debt when they held investment-grade status and later had their ratings downgraded,” said Francis Rodilosso, a portfolio manager at Van Eck Associates.

              He cited so-called fallen angels Sprint and Regent Financial.


              There are still some pretty big names that everybody knows in the airlines and telecommunications groups. This may spark some sector diversification within high yield,” Mr Rodilosso said.

              Risk aversion in the financial markets is likely to mitigate spillover gains related to Ford’s ascent, however. Some investors have been selling Ford bonds to meet recent mutual fund redemptions. Others trimmed holdings in response to the upgrades or as Ford’s yields fell with its improving prospects.

              Analysts were sceptical that the economic recovery that helped revive Ford would lead to a groundswell of other junk companies moving to investment grade.

              After hitting single digits in 2008 and 2009, 16 US companies rated double B plus are on watch for an upgrade, according to Standard & Poor’s. The recent high was 26 in 2006.

              “The recovery is uneven in the US,” said Diane Vazza, head of global fixed income research at S&P. “More immediately [there] are the credit linkages with Europe and the ricochet effect on the US market.”

              Irish voters left with bitter taste

              Posted on 31 May 2012 by

              After a bitterly fought referendum on the fiscal compact intended to help stabilise the eurozone, Irish voters looked on Thursday as though they were grinding out a grudging endorsement through gritted teeth.

              If they do vote Yes – and both sides in this fight know they could say no – it will be more because of Ireland’s likely need for more European Union bailout funds next year than out of conviction.

                Should the Yes vote prevail after Friday’s count – the result is expected on Friday evening – it will be made up of “a lot of angry Yeses”, said Joan Burton, a senior Labour party minister in the Fine Gael-Labour government.

                The result due on Friday may well keep Ireland inside the eurozone status quo but will certainly add its voice to the EU-wide clamour for an economic growth agenda.

                The surge in the polls of Sinn Féin, the republican party, and the high level of undecided voters going into the plebiscite, signal that Irish citizens are fed up after being bundled into an EU-International Monetary Fund rescue programme in 2010, when vast bank debts run up in a real estate binge overwhelmed the national finances.

                The crisis has helped Sinn Féin shrug off its paramilitary past and eclipse Fianna Fáil, the near-hegemonic party until its implosion at last year’s general election, as the voice of Irish nationalism. One recent poll even ranked Gerry Adams, the Sinn Féin leader, as more popular than Enda Kenny, the Fine Gael prime minister.

                Speaking in front of the General Post Office where the Easter Rising against British rule was launched and the republic proclaimed in 1916, Mr Adams said all such gains had “been given away”.

                “The Taoiseach [Mr Kenny] says he’ll win back sovereignty by the centenary in 2016, but this is not the way to do it,” Mr Adams argued. “We need to send a very clear signal to the rest of Europe that we need a different direction.”

                Lucinda Creighton, Europe minister, says that Ireland’s prospects are “entirely dependent on stability in the eurozone”, and on insuring access to its new bailout facility, the European Stability Mechanism.

                Whatever the result, all sides agree the referendum campaign must now give way to a debate about the future. Yet the mould of Irish politics, set by the tribal divisions of the 1922-23 civil war, looks to be cracking as a result of the crisis. Sinn Féin is moving out from its working class base into the middle classes, and starting to recast its populist economics and anti-EU attitude.

                “The question now is, are you going to get a Sinn Féin that swallows up Fianna Fáil and eclipses Labour, and get you to a left-right divide?” asks Diarmaid Ferriter, one of Ireland’s leading historians.

                Ireland’s politics are conditioned not just by its small, export-dependent economy, bobbing in the wake of the eurozone crisis, but the sensitive issue of sovereignty, as it approaches the centenary of 1916. The winner will be the party that can most plausibly link regaining sovereignty to the day-to-day concerns of a reeling nation.

                Mr Kenny’s government must address issues ranging from a gathering crisis over home loans to a stimulus – of up to €10bn – it hopes EU institutions will facilitate and co-fund. Dublin has also been fighting for a deal to restructure €31bn of the banking debts assumed into Ireland’s sovereign debt – without which it is hard to see it regaining entry into the bond markets in 18 months’ time. “We’ve made it very clear we want some progress on this,” says Brian Hayes, deputy finance minister.

                Ms Creighton adds that “in the event Spanish banks have to be bailed out, and it happens through the ESM function, we will be looking for the same opportunities retrospectively”.

                But aspects of the Irish model, such as how to build bridges between the buoyant export and foreign investment-driven economy and a domestic economy on its knees, are also entering the debate.

                Neil O’Leary, chairman of Ion Equity, a leading private equity firm, suggests a short-term rise in Ireland’s cherished 12.5 per cent rate of corporation tax to 15 per cent.

                “What investors worry about is high taxation and uncertainty, but 15 per cent is still low taxation. If you made clear the country needs five years at 15 per cent you could do it without too much damage,” he says. “It would demonstrate that the country as a whole is sharing the burden.”

                But the 12.5 per cent corporation tax has become a touchstone of independence, defended vigorously against EU attempts to raise it.

                “It has been turned into the flag and the national anthem, so emotive in the public debate that even Sinn Féin signed up to it,” says Elaine Byrne, a politics lecturer at Trinity College. “This is seen as our one Green card,” says Prof Ferriter. “The last vestige of our sovereignty.”

                Tsipras pledge resonates in Greek town

                Posted on 31 May 2012 by

                As campaign pledges go, a promise not to privatise the rubbish removal industry does not typically inspire the masses.

                But it had a special resonance in the small Greek town of Keratea when delivered on Thursday evening by Alexis Tsipras, the leftwing leader vying to become the country’s next prime minister.

                  Keratea, an hour’s drive from Athens, was the scene last year of a 128-day stand-off between police and protesters over a government plan to build an EU-funded rubbish dump to serve the capital.

                  Petrol bombs and banners in hand, Mr Tsipras’ party, the Coalition of the Radical Left – better known as Syriza – flocked to the Keratea cause. Some questioned whether the resistance merely served to protect the land for developers.

                  Nonetheless, the party emerged from the struggle with a fresh chapter to add to its grass-roots myth, and then went on to reap what was arguably Mr Tsipras’ greatest electoral triumph.

                  After taking 4 per cent of the Keratea vote in 2009 national elections, Syriza jumped to 28 per cent in last month’s contest, trouncing PASOK and New Democracy, the traditional parties, that have held sway here for a generation.

                  “We can learn from you how a society that struggles collectively can win things and change things!” Mr Tsipras told hundreds of supporters at a rally on the town’s main square.

                  The event marked the unofficial launch of Syriza’s campaign before a June 17 rerun that may be Greece’s most important election since a military junta collapsed and democracy was restored in 1974. At stake is whether the country will seek a radical new course in its effort to emerge from five years of crisis that have shrunk the economy by nearly a fifth, and perhaps, its future in the EU.

                  “We are in a battle zone and it’s very serious,” said Chryssanthos Lazarides, a top New Democracy official. “The winner takes all.”

                  For Mr Tsipras, a charismatic 37-year-old who vaulted to prominence by promising to tear up Greece’s “barbaric” loan agreement with the EU and the IMF, the challenge will be to demonstrate that Syriza’s surprising second place finish was more than a temporary expression of populist rage.

                  So far, the polls suggest he is succeeding. Most show Syriza just ahead or just behind the centre-right New Democracy. All show the party’s base expanded from a month ago.

                  “It’s too close to call,” said Dimitris Mavros, head of the MRB research firm, who credited Mr Tsipras with capturing “the emotional part of the voters”.

                  In Keratea, the young leader flashed some of the skills that made that possible, barely consulting his notes during a 45-minute speech that was fluid and forceful.

                  He blamed corrupt politicians – not the Greek people – for the country’s debts, and promised to renegotiate the unpopular bailout. He ridiculed a cast of villains – the IMF, bankers, Angela Merkel, the German chancellor, Siemens, PASOK and New Democracy – but always with a smile.

                  “Throw them in jail!” someone screamed at one point, and the crowd roared.

                  “The speech was wonderful because it transmitted the feelings of the people,” said Theodore Kaklamanakis, a 57-year-old teacher whose two adult sons are unemployed. “This town is a very conservative town, but things have changed in the last two years.”

                  Konstantinos Papathymios, a 28-year-old musician, dismissed as scaremongering the chief argument levelled against Syriza: that the party’s programme would ultimately force Greece to leave the euro and the EU itself.

                  “The problem is not that we have the euro or the drachma or anything else,” Mr Papathymios said. “The real problem is whether people will starve and leave the country or work and have something to eat.”

                  Not everyone views the Keratea rebellion in such a warm light. To some, it was a worrying sign of Syriza’s propensity for fanning social flames.

                  “We felt law and order had broken down. The Syriza people brought bulldozers to dig up the main road to Athens, and the riot police were scared to tackle them,” said Katerina Priftis, a housewife.

                  In Athens, mention of the town calls to mind the city’s own riots last year – a conflagration that Mr Tsipras did not condemn.

                  Dora Bakoyannis, the centre-right politician from one of Greece’s most famous political dynasties – and one of Mr Tsipras’ favourite punching bags, has sought to focus on a cast of unsavoury characters and political retreads lurking behind the fresh-faced Syriza leader. In particular, she has accused some members of ties to the 17th of November Marxist terrorist group that gunned down her first husband in 1989.

                  “You say Syriza is new,” she said. “Syriza, in truth, is everything which resists change in Greece. It’s the real old.”

                  But on Thursday in Keratea, Mr Tsipras’ gospel went unchallenged. “We tell the truth, we are not corrupt, and that’s why you trust us,” he told the crowd. “Let’s finish what we started!”

                  Additional reporting by Kerin Hope in Athens

                  Global stocks investors head for exits

                  Posted on 31 May 2012 by

                  As investors prepare for summer, the heat is already on equity markets.

                  Global equities are set to post their worst monthly performance since September as the eurozone crisis and slowing emerging market economies propel investors to the exits across Asia, Europe and the Americas.

                    Click to enlarge

                    Global stocks turned negative for the year in May and on Thursday the FTSE All World index was set for a decline of nearly 10 per cent over the month. Among the hardest hit markets during May have been Spain, down nearly 14 per cent and Italy, off 12 per cent. The losses are greater in dollar terms.

                    The flagging performance reflects a profound lack of conviction among investors about a near-term resolution of eurozone debt problems. Investors have flocked to the havens of core government bonds, sending benchmark yields in Germany, the UK and US sliding to historic lows this week.

                    Equities now look even more attractive when compared with the meagre yields of haven bonds. Yet investors remain wary of stocks given the volatile macro backdrop.

                    Policy makers have yet to convince markets that they have the will and means to stop the eurozone crisis from escalating to the point where a country leaves the single currency area. Attention is also focused on China not disappointing consensus forecasts of 8 per cent growth as fears also grow on whether the US economy can resist further slowing, with the May employment report on Friday the next major event for investors.

                    “The market is looking for a resolution in the eurozone and wants to see signs of re-acceleration in stable economies, led by the US and China,” says Andrew Root, US head of equity research at Macquarie Group.

                    Such uncertainty leaves investors weighing the potential for either a powerful rebound in risk appetite or further selling of equities this summer.

                    “The news-driven nature of this gyrating global equity market may only be one or two headlines away from renewed risk-on or increased risk-off,” says Sam Stovall, chief equity strategist at S&P Capital IQ.

                    May was certainly a risk-off month. Asian stocks are down more than 10 per cent over the past month, with losses even greater in US dollar terms. In a classic scramble for safety, the dollar has surged against most Asian currencies as well as the euro in recent weeks.

                    On the Chinese mainland, where equities are cut off from international capital flows, the Shanghai Composite is little changed on the month although it has spent the year bumping along close to three-year lows.

                    But, amid the broad sell-off in May, two markets – the German Dax and the S&P 500 – have been more resilient. Despite hefty losses during May, they remain up 5.8 per cent and 3.6 per cent respectively for the year.

                    In the US, the S&P has benefited from haven flows.

                    “In a world of “black and white,” US assets have clearly enjoyed the spotlight even as most other countries’ stock markets slowly fade to at least a very deep grey,” says Nicholas Colas, chief market strategist at ConvergEx Group.

                    Over the month, as the S&P posted a slide of 8 per cent from above 1,400 to under 1,300 before bouncing modestly, high yielding and defensive telecom, utilities and consumer staples outperformed the benchmark.

                    Not surprisingly, energy, financials, materials, technology and industrials have all fallen more than the benchmark’s overall slide of 6.9 per cent.

                    For some, the divergence between equities and bonds is now overdone given no recession for the US economy – albeit with slow growth – and expectations of S&P earnings rising to a record $105.44 a share in 2012.

                    “The combination of the rising equity risk premium, falling stock prices, improving corporate earnings and lower Treasury yields means that stocks have become quite cheap relative to bonds,” says Bob Doll, chief equity strategist at BlackRock.

                    The S&P is priced at 13.2 times earnings and has a dividend yield of 2.2 per cent, well above the record low 10-year Treasury yield of less than 1.54 per cent.

                    Jack Ablin, chief investment officer at Harris Private Bank, says that the low level of bond yields implies earnings growth for the S&P 500 will turn sharply negative this year.

                    “Somebody will be right and there is a huge valuation differential between equities and bonds,” he says.

                    “Ultimately, fundamentals win and we still see the US economy growing at 2 per cent, plus or minus a quarter point this year, which makes the US market sub-trend, but resilient,” predicts Macquarie’s Mr Root.

                    But much still depends on the response of eurozone policy makers.

                    “With valuations already suggesting that stocks are very cheap relative to bonds, a compromise in Europe which keeps Greece in the euro and is accompanied by genuine attempts to reflate the European economy, could be seen as a major positive for global markets,” says David Kelly, chief market strategist at JPMorgan Funds.

                    Over the long term, Mr Doll believes valuations for stocks are compelling: “Assuming that the world is not headed for a renewed deflationary spiral, there is little doubt in our view that stocks are poised to provide superior long-term returns over bonds given their current levels,” he says.

                    Poland growth defies eurozone crisis

                    Posted on 31 May 2012 by

                    Poland’s economy remained resilient in the face of the eurozone crisis, with data on Thursday showing the country’s gross domestic product grew 3.5 per cent year on year in the first quarter, largely on the strength of domestic demand.

                    However, the underlying data suggest that the Polish economy may not be able to continue defying gravity for much longer.

                      The GDP increase was in line with analysts’ expectations, and showed a slight slowdown from the last quarter of 2011, when the economy was growing at a pace of 4.3 per cent year on year.

                      The figures from the Polish statistical agency showed weaker export growth – a result of eurozone troubles – and some signs of slowing investment growth, partly due to the completion of some of infrastructure projects associated with the European football championships, which kick off in Warsaw next Friday.

                      But Poland’s consumers continued their role as the main support of the economy, something they have done for the last four years. Strong domestic demand is one of the reasons that Poland was the only country not to fall into a recession in 2009, and why it has since been one of the EU’s fastest-growing economies.

                      Unlike the other smaller economies of central Europe, trade only accounts for about 40 per cent of Polish GDP, and the country’s large internal market provides more of a buffer against the storms raging on the rest of the continent. Poland is also insulated by its generally solid banking sector, by the government’s successful fiscal consolidation programme and because the finance ministry has already secured more than 70 per cent of this year’s borrowing needs.

                      The European Commission recently estimated that the Polish economy would grow 2.7 per cent this year, while some economists think growth of 3 per cent is possible.

                      “Households have not been afraid of the crisis, and it is thanks to individual consumption that our economy is growing at a decent pace,” said Malgorzata Starczewska-Krzysztoszek, chief economist for Lewiatan, the Polish employers confederation.

                      However, there are some worrying signs. Consumption is growing at a slower than expected pace, as is investment in production. Analysts at Bre Bank, a unit of Germany’s Commerzbank, estimate that growth will slow to about 2 per cent by the second half of this year.

                      “First quarter GDP confirmed what we’ve known for a while: Poland is more resilient than her peers to the crisis in the eurozone, but equally she is not immune,” said William Jackson, an emerging markets economist with Capital Economics, a consultancy. “And with the euro crisis deepening, a mini investment boom about to tail off, and household savings rates near record lows, we think growth is set to slow by more than most expect this year,”