Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Archive | November, 2016

UK house prices surge amid bubble fears

Posted on 31 October 2013 by

House prices surged at their fastest annual rate in more than three years in October, according to Nationwide, as concerns over the risk of another period of boom and bust mounted.

Prices rose 5.8 per cent year-on-year to an average £173,678, showing the strongest increase since July 2010, the building society said. Monthly prices climbed 1 per cent, the biggest upswing since July and marks the sixth consecutive month of increases.

The launch of a new phase of the government’s Help to Buy offering state-backed mortgages to those with deposits as low as 5 per cent was brought forward to this month from an expected start in January 2014.

State-backed lenders Royal Bank of Scotland, NatWest, Halifax and Bank of Scotland have started offering mortgages under the scheme and other providers including HSBC, Santander and Barclays have confirmed similar plans.

Critics argue that rather than launching initiatives to lure more aspiring buyers which will contribute to the pressure on house prices, the government should instead be concentrating efforts on addressing a lack of supply by building more homes.

Reports have pointed to housing market activity hotting up in recent months. The Bank of England reported this week that mortgage approvals granted to home buyers reached a five-and-a-half year high in September, even before this phase of Help to Buy had been fired into action.

In another sign of strengthening demand, Hometrack, property analysts, reported this week that the typical percentage of the asking price buyers are willing to pay has risen to 95.2 per cent, half a percentage point off an all-time high seen at the height of the boom in 2007.

“House price growth has accelerated as buyer demand has picked up more quickly than the supply of new homes,” said Robert Gardner, chief economist at Nationwide.

“The risk is that if demand continues to strengthen while the supply of property remains constrained, affordability could become stretched. Indeed, average wages have continued to decline in real terms even though employment growth has been fairly robust in recent years.”

Mr Gardner said that despite the existence of other schemes to help mortgage borrowers, such as Funding for Lending which was launched last year and gives lenders access to cheap finance, it is only in more recent months that consumer confidence in the economy has “improved markedly”, increasing the willingness of would-be buyers to step into the market.

Despite the recent price increases, Nationwide said that house prices remain around 7 per cent below their peak at the height of the property boom in 2007.

Ultra-low interest rates as the Bank of England base rate remains at a historic 0.5 per cent low are also helping to keep mortgage payments affordable.

Nationwide said that the typical mortgage payment for a first-time buyer equates to about a third (29 per cent) of their take-home pay, which is in line with the long-term average.

Ireland banking system suffers setback

Posted on 31 October 2013 by

Customers sit in an open air cafe opposite a Danske Bank©Bloomberg

Danske Bank is closing all its operations in Ireland

Ireland’s fragile banking system suffered its second big setback in a week on Thursday with an announcement by Danske Bank that it is closing all business and personal banking operations.

The pullback follows a similar move by ACC Bank, a subsidiary of Dutch lender Rabobank, and is raising concerns in Dublin about a continuing contraction in bank lending as it prepares to exit its international bailout.

    “The credit squeeze is a factor that is going to depress domestic demand for a number of years ahead,” said Karl Whelan, economics professor at University College Dublin.

    “It’s all part of a European pattern in which banks are looking to downsize and since many have received implicit or explicit help from the governments in their own countries, it’s understood they are to prioritise running down their foreign operations,” he said.

    Danske’s withdrawal marks the first action of the new chief executive of Denmark’s largest lender, Thomas Borgen.

    The Norwegian also announced job cuts and a cost-saving programme, and cut two profit targets as he seeks to put his stamp on a bank that has suffered far more from the effects of the financial crisis than its Scandinavian rivals.

    Figures published by Ireland’s central bank show bank lending to Irish households and businesses is continuing to fall despite signs of a recovery in the economy. Loans to households fell by 4.2 per cent on an annual basis in September while lending to business declined by 4.5 per cent.

    Bank lending has fallen steadily since the financial crisis struck in late 2008 and the pullback by Danske and ACC has prompted Irish business organisations to warn the banking sector is still “not fit for purpose”.

    “Access to credit for SMEs is deteriorating, the application process is lengthening and the general consensus is that the banking system is not playing its part in the economic recovery,” said the Irish Small & Medium Enterprises Association.

    Ireland’s financial sector has shrunk dramatically since a property bubble burst in 2007, crippling its main lenders and prompting Dublin to inject €64bn into its banks. Anglo Irish Bank, Bank of Scotland Ireland and Irish Nationwide Building Society have all been closed while the remaining Irish-owned banks – Bank of Ireland, Allied Irish Banks and Permanent TSB – are loss making.

    “The banking market has shrunk to such an extent that it is not economic for smaller players who don’t have enough scale,” said Eamonn Hughes, analyst with Goodbody Stockbrokers.

    He said a government levy on banks, which was announced this month and will raise €150m a year, probably did not help foreign-owned banks.

    A decision on the future of Ulster Bank, Ireland’s third-biggest bank, is expected on Friday by its parent Royal Bank of Scotland. Most analysts expect the 177-year-old bank will be retained by its UK parent, at least in the short to medium term.

    Danske said the closure of its personal and business banking units is necessary to stem Irish losses, which totalled €3.38bn between the start of 2008 and the end of 2012. The lender entered the Irish market in 2005 when it acquired National Irish Bank and Northern Bank for €1.4bn, close to the peak of the property bubble. Danske said it would continue to operate in the Irish corporate sector and institutional sectors.

    Larry Broderick, general secretary of the Irish Bank Officials’ Association, said the pullback by Danske would reduce banking competition.

    “The likelihood is that we may have just three banks and, indeed, maybe two banks if Permanent TSB doesn’t turn the corner with the troika [European Commission, European Central Bank and International Monetary Fund], he said. “That’s a very serious position for customers and the Irish economy,” he told Irish radio.

    The future of Permanent TSB, a mortgage lender nationalised during the financial crisis, remains in doubt as the European Commission has not yet signed off on its restructuring plan.

    The retrenchment in the banking sector is taking place amid the first signs that Ireland’s economy is recovering. Unemployment has fallen from above 15 per cent to 13.2 per cent, house prices are rising again and consumer confidence is growing.

    But it also occurs at a sensitive time for Dublin, which is preparing to exit its EU-IMF bailout in December. European banks are set to undergo stress tests next year, prompting many to accelerate moves to tidy up balance sheets.

    Additional reporting by Richard Milne, Nordic correspondent

    Direct Line in talks to sell Tracker unit

    Posted on 31 October 2013 by

    The Direct Line Insurance Group Plc website is seen on an Apple Inc. iPhone 4 smartphone©Bloomberg

    Insurer has utilised app as money-saving enticement

    Direct Line is in advanced talks to dispose of a telematics business to a private equity house, people familiar with the matter said. Backers believe the deal will create the UK’s biggest corporate vehicle-tracking network.

    The FTSE 250 insurer, spun off from Royal Bank of Scotland last year, is expected to fetch only a token sum for the lossmaking Tracker business from Disruptive Capital, chaired by the financier Edmund Truell.

    No deal has yet been sealed. The two sides hope to reach an agreement in November but the talks could yet fall apart. All parties declined to comment.

    More than a million vehicles have been fitted with a Tracker device, which can locate vehicles if they are stolen. Each month police recover about £2m worth of vehicles fitted with the “black boxes”.

      The prospective buyers believe the technology has a wider application than only vehicle recovery as companies turn to telematics to monitor driver behaviour. Possible benefits include lower fuel bills.

      The insurance division of RBS bought Tracker in 2005 but Direct Line’s existing managers are planning to offload it because owning a manufacturing division does not fit with its strategy.

      Some analysts believe telematics is the future of motor insurance. However, Direct Line has cautioned that the technology is “moving quickly” and “as yet there is no one-size-fits-all solution”.

      If it goes ahead with the disposal, Direct Line would retain other telematics-related interests, including a mobile phone app it launched in June. Consumers who use the app can save up to 10 per cent on their car insurance.

      If Disruptive completes the acquisition, it plans to combine the business, which makes hardware, with a company it owns called Lysanda, which designs telematics-related software and whose clients include TNT, a logistics group.

      The combined technology group would cover about 400,000 vehicles and be called Tantalum, after a metal used in the production of mobile phones.

      People familiar with the talks said Direct Line expected to fetch only about £8m for the business, which lost about £2m last year but has installed an estimated £100m worth of equipment nationally.

      The planned disposal of Tracker is the latest by Direct Line, which three weeks ago said it had agreed to sell all its historic life insurance policies to Chesnara for £39m.

      At the time, analysts said the sale raised questions about what other “under the radar” assets the company might sell.

      Direct Line will unveil third-quarter results on Friday, though it may not disclose the disposal at the same time. It will be the first UK non-life insurance company to report since a storm struck southern Britain this week.

      Treasury targets foreign property owners

      Posted on 31 October 2013 by

      London’s booming high-end property market – fuelled by cash-rich foreign investors – has been targeted by ministers for a new tax raid, as George Osborne tries to fill a £1.2bn hole in the public finances.

      The chancellor needs cash to fund two party conference spending commitments: the Liberal Democrats’ £600m promise to give free school meals to all infants and the Tories’ own £600m plan to reward marriage through the tax system.

        Treasury officials are looking at ways to generate more revenue from the property boom in certain parts of London – an idea backed by Nick Clegg, Lib Dem leader, who has long favoured higher taxes on expensive properties.

        Mr Osborne’s aides described as “speculation” Sky News reports that he may use his autumn statement in December to impose capital gains tax on foreign owners of British property.

        Britain’s taxation of foreign property owners is generous by international standards: while UK residents have to pay CGT when reselling all but their main home, non-resident property owners are exempt for all their properties.

        Treasury officials have long balked at the idea because of the practical complications; however the option is expected to be put to Mr Osborne as he prepares his statement.

        A UK-based buyer who purchased an investment property or second home for £1m and subsequently sold it for £5m would pay capital gains tax of £1.1m as a result, assuming they were a top-rate taxpayer. Foreign investors, by contrast, are currently exempt from CGT, but under the Treasury’s plans would also owe the Exchequer £1.1m if they sold up.

        Tax advisers said it was unclear what mechanism would enforce payment of CGT by individuals who no longer had any link with the country. Rosalind Rowe, real estate tax partner at PwC, predicted “a lot of administration and hassle”.

        A simpler option would be for Mr Osborne to increase the rate of stamp duty charged on the sale of expensive properties, which tend to be concentrated in Kensington & Chelsea and parts of Westminster.

        Last year, he increased to 7 per cent the stamp duty charged on the purchase of homes worth more than £2m and closed down loopholes that allowed buyers to avoid stamp duty by putting their homes into corporate “envelopes”.

        David Cameron has vetoed previous attempts by the Lib Dems – supported by Mr Osborne – for an annual levy on the value of homes worth more than £2m, popularly described as a “mansion tax”.

        I don’t think these measures are necessarily about controlling house prices, as tax is just one of the many reasons why overseas investment is attracted to London. It is much more about equality in the tax treatment of UK and non-UK investors

        – Lucian Cook, head of residential research at Savills

        Last year’s stamp duty rise has done nothing to subdue the wave of foreign investment in London property, which is increasingly being bought with cash by investors from countries such as China, Hong Kong and Singapore.

        More than £7bn of international cash was spent on prime London homes last year, figures from estate agent Savills show – a record high.as foreign investors look for safe havens for their assets. Figures from the Nationwide show London prices have risen by 10 per cent year-on-year.

        The capital’s property market has received increasing attention from international investors seeking safe havens for their assets. Nearly three-quarters of new-build homes in central London were purchased by international buyers last year, the FT revealed this summer.

        More than a quarter of these buyers were from China and Hong Kong, outnumbering even the British buyers. The second-largest group of international buyers was from the rest of Asia.

        The proportion of homes being bought outright with cash hit an all-time high of more than a third of all purchases earlier this year.

        However, Treasury officials believe the spike in prices for prime properties in central London is relatively self-contained and not a major driver of price inflation in the rest of the capital’s housing market. Higher taxes on foreign buyers would not, according to that calculation, do much to depress house prices for ordinary families.

        Mr Osborne is also being urged by some Tory MPs not to impose punitive taxation on foreign residents who want to own property in London. “Lots of countries would love to have this problem,” said one adviser to David Cameron.

        Lucian Cook, head of residential research at Savills, said: “I don’t think these measures are necessarily about controlling house prices, as tax is just one of the many reasons why overseas investment is attracted to London. It is much more about equality in the tax treatment of UK and non-UK investors.”

        Matthew Pointon, a property economist at Capital Economics, said a CGT change would be “a logical move to level the playing field” but said it would have little impact on prices at the top end of the market.

        Property experts said the only realistic way for the government to take some heat out of the housing market would be to release more land for development.

        Three ways to get a slice of the property pound:

        Extend capital gains tax

        Imposing CGT on foreign buyers when they sell a property would allow the Treasury to tap into the booming London market, but could be complicated to administer. It would be a break from normal principles of taxation, which are based on residence.

        Raise stamp duty

        Last year, the chancellor raised the stamp duty rate for houses worth more than £2m to 7 per cent and closed loopholes. He could put up rates further: the new rate is raising big sums for the Treasury and sales show no sign of slowing.

        Bring in other taxes

        Labour and Liberal Democrats favour a “mansion tax” levy on homes worth more than £2m. David Cameron has vetoed such a tax, fearing it would hit Tory supporters (and donors). He also opposes a new top council tax band for expensive homes.

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        Letter in response to this article:

        Let a UK lawyer deduct CGT on sale / From Mr Jeremy Taylor

        Plea over new rules for boom era debt

        Posted on 31 October 2013 by

        Participants in the booming market for bundled leveraged loans have mounted a last-ditch effort to persuade regulators to reconsider new rules that would force banks to hold on to a piece of the “sliced and diced” debt.

        October 30 was the last day to submit feedback on the proposed “risk retention” rules covering the market for collateralised loan obligations, part of the sweeping financial reform mandated by the Dodd-Frank Act.

          CLOs buy up leveraged loans and slice them into pieces that can be tailored to the risk appetite of a variety of investors.

          BlackRock, the world’s biggest asset manager, said in its comment letter that the rules proposed by US regulators “risk causing a contraction in the CLO market [that] could be expected to impact the corporate credit markets”.

          Other CLO managers and industry groups argued that the market for new CLOs would shrink by 75 per cent if the rules went ahead as currently proposed.

          Demand for CLOs dried up after the financial crisis but has come roaring back in recent years as yield-hungry investors seek exposure to the leveraged bank loans.

          But many market participants have warned that the new risk retention requirements are one of the few things that could derail the resurgent market.

          The proposed rules require CLO managers to retain a 5 per cent interest in the securities or for banks to hold on to 5 per cent of the loans bought by a CLO.

          The idea is to better align the interests of CLO managers and originators with those of investors but critics of the rules argue that this idea applies more to the mortgage securities that banks built and distributed before the financial crisis.

          “CLOs, managed by professional investment firms independent of the sellers of the loans, are wholly different from the sponsored asset-backed securities that we believe are the proper focus of the risk retention regulations,” BlackRock said.

          The Loan Syndications and Trading Association (LSTA), an industry group, pushed in its letter for regulators to create an exemption for higher quality loans.

          Such an exemption would mimic the “qualified mortgage” provision that excludes certain home loans from similar risk retention rules applied to mortgage-backed securities.

          “Over the past 16 years, there have been impairments on less than 1.5 per cent of CLO notes and most were cured with no losses to note holders,” said Meredith Coffey, of the LSTA. “This level of financial performance surpasses that of investment grade bonds.”

          Still, the leveraged loans that underlie CLOs have drawn scrutiny in recent months with regulators including the Office of the Comptroller of the Currency criticising 42 per cent of the leveraged loan portfolio in their last review of US credits.

          About $64.2bn worth of CLOs have been sold in the US so far this year, according to S&P Capital IQ LCD.

          That is the highest since the $88.9bn sold in 2007, just before the crisis, and surpasses last year’s issuance total of $54.3bn.

          ECB faces pressure to cut interest rates

          Posted on 31 October 2013 by

          The European Central Bank headquarters in Frankfurt©Getty

          The European Central Bank headquarters in Frankfurt

          Pressure grew on the European Central Bank on Thursday to cut interest rates after inflation slowed sharply in the euro area.

          Meanwhile Germany hit back at a jibe from the US Treasury that laid the blame for deflationary trends at Berlin’s door.

          The euro area’s annual inflation rate unexpectedly slowed to 0.7 per cent in October, well below the ECB’s target of close to, but below, 2 per cent.

          The slowdown came as Germany, the biggest eurozone economy, reacted angrily to accusations by the US Treasury that its large and persistent current account surpluses created a deflationary bias in the global economy. The Treasury urged Berlin to do more to boost domestic demand.

            “The German current account surplus is no cause for concern, neither for Germany, nor for the eurozone or the global economy. There are no imbalances in Germany that need correction,” the country’s finance ministry said.

            The Treasury’s semi-annual currency report, released on Wednesday, elevated the Germany criticism to a “key finding” at the top of the report – alongside China’s undervaluation of the renminbi and Japan’s monetary stimulus. It comes at a low ebb in German-US relations after allegations that the US tapped Chancellor Angela Merkel’s mobile phone.

            Slowing eurozone inflation highlights how sluggish the region’s recovery is and raises the risk of Japan-style deflation, when prices persistently fall. It also effectively raises the debt-reduction bar for the currency union’s crisis-hit members, since less of their national debt is inflated away over time.

            The so-called “flash” or initial inflation estimate by Eurostat, the EU’s statistical office, represented a further slowdown since September, when inflation was 1.1 per cent, which is roughly what economists had predicted for October.

            A sharp outright fall in energy costs, by 1.7 per cent, drove the slowdown in the harmonised indices of consumer prices, which the ECB targets but the “core inflation” rate, which strips out energy, food, alcohol and tobacco, also dropped, from 1 per cent to 0.8 per cent .

            The ECB’s governing council meets next week to discuss interest rates. It has been divided for months over whether a further cut below 0.5 per cent on its main refinancing rate would be justified.

            Slowing inflation and the appreciation of the euro, which may explain the energy price falls, are strong arguments for those in favour of a cut. The bloc’s fragile recovery and an expectation that inflation will pick up next year are the main reasons cited by those favouring no change on monetary policy.

            German policy makers, in particular, are likely to resist calls for a rate cut, given their view that monetary policy is already too loose in a country with low unemployment and rapid price rises in some parts of its property market.

            Despite the increased pressure to loosen policy, the central bank may yet wait until its December meeting, when new staff forecasts will give it an updated medium-term inflation forecast – the timescale over which it is meant to keep prices stable.

            “We see December as the most probable timing for a 25 basis point cut in the refi [refinancing] rate, in tandem for another round of low staff projections for inflation,” Ken Wattret, economist at BNP Paribas, said in a note.

            Unemployment data for the bloc, also released by Eurostat on Thursday, remained stable at 12.2 per cent in September compared with the August rate. This illustrates how the bloc’s recovery has yet to help reduce unemployment, which is highest in Spain and Greece, where more than one in four is out of work.

            Although Portugal reduced its unemployment rate from 16.5 per cent to 16.3 per cent, the lack of major progress on jobs fuels the disinflationary trend as there is no upward pressure on wages.

            Economists at Commerzbank pointed out that wage freezes and cuts were helping companies in stressed countries improve their competitiveness.

            “The low rate of inflation is a positive sign as it is largely due to weak price pressure in the crisis countries,” Commerzbank’s Christoph Weil said in a note. “Declining prices in Greece and Spain confirm that companies are using the drop in unit labour costs to improve their price competitiveness.”

            However, inflation is also undershooting in Germany, where it slowed from 1.4 per cent in September to 1.2 per cent in October, according to the federal statistics office. The German slowdown was attributed to lower petroleum prices in October compared with a year ago.

            If the ECB does decide to cut its refinancing rate it will have to choose between lowering its 0 per cent deposit rate into negative territory for the first time, or narrowing the corridor between the two rates.

            A narrower corridor between the rate at which it lends money to commercial banks and pays them for their deposits could disrupt how money markets function. A negative deposit rate, where the ECB would in effect charge banks to deposit funds with it, would be a first for any major central bank and could also lead to unexpected consequences.

            Additional reporting by Jeevan Vasagar in Berlin

            Tensions over BoJ stimulus resurface

            Posted on 31 October 2013 by

            Haruhiko Kuroda, governor of the Bank of Japan, delivers the keynote address at the Institute Of International Finance Annual Membership Meeting in Washington, DC©Bloomberg

            Tensions over the Bank of Japan’s radical stimulus programme spilled into the open once more on Thursday, as three of the nine board members reiterated objections to the bank’s growth and price forecasts.

            In April the BoJ embarked on what it called a “new phase” of monetary easing, seeking to double the country’s monetary base to hit a 2 per cent target for inflation within about two years.

              Later that month, as the BoJ presented its semi-annual report on the outlook for the economy and inflation, three members refused to endorse certain phrases, minutes of a board meeting later showed.

              On Thursday, as the BoJ presented its latest six-monthly report, governor Haruhiko Kuroda said that the same three members – Takahide Kiuchi, Takehiro Sato and Sayuri Shirai – had dissented. Ms Shirai wanted to put more emphasis on the downside risks mentioned in the report, while Mr Kiuchi and Mr Sato expressed doubts over the BoJ’s ability to hit its 2 per cent target by the latter half of the 2015 fiscal year. Their proposals were all defeated, the governor said.

              This latest rebellion over terminology is less serious than a fallout over actual monetary policy decisions, which have been approved unanimously since April. On Thursday the board voted once more to keep pumping up the monetary base at an annual pace of about Y60tn-Y70tn ($610bn-$712bn).

              However, the disclosure suggests enduring disagreements over the pace and scale of the easing required to lift Japan out of the state of deflation that has persisted for much of the past 15 years. Debate among board members may intensify over the next six months, said analysts, as the pass-through effect of a weaker yen begins to fade – dragging on inflation – and as the consumption-tax hike scheduled for April dampens growth.

              Ms Shirai, always seen as one of the more dovish BoJ board members, may be ready to push for extra stimulus, said Masaaki Kanno, chief economist at JPMorgan. But such efforts could be resisted by Mr Sato and Mr Kiuchi, both former private-sector economists, who seem to think that “trying to achieve 2 per cent inflation is too costly,” he said.

              The central bank’s forecasts remain much more optimistic than the consensus outside. While BoJ board members, as a whole, expect growth and inflation of 1.5 per cent and 1.3 per cent (excluding the tax rise) in the next fiscal year beginning in April, for example, private economists expect an average of 0.7 per cent and 0.8 per cent respectively, according to the Japan Centre for Economic Research.

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              Analysts note that under Mr Kuroda, the BoJ’s forecasts have become a more important tool to influence broader expectations of inflation.

              Even so, Mr Sato and Mr Kiuchi “appear worried about damage to the BoJ’s credibility, if forecasts are widely off the mark,” said Hiroshi Shirashi, economist at BNP Paribas in Tokyo.

              Mr Kuroda is counting on radically increased purchases of government bonds to push asset prices higher, keep borrowing costs low and to lure bond-heavy investors into riskier stocks and loans.

              The BoJ has met with some success. Japan’s benchmark 10-year interest rate has steadily sunk since June to less than 0.6 per cent, easily the lowest in the world, while there are signs of an increase in companies’ appetite to borrow. Year-on-year growth in the outstanding stock of loans has been above 2 per cent since April, the highest level since the post-Lehman period.

              Inflation, meanwhile, climbed to a five-year high of 0.8 per cent in August before slipping back to 0.7 per cent in September, pushed up mostly by higher bills for imported fuel as a result of a weaker yen.

              Yet the most obvious beneficiaries have been stock and property markets, which have recorded extraordinary gains since Mr Abe became prime minister last December.

              FinEx extends Russia ETF push

              Posted on 31 October 2013 by

              FinEx, an investment management group, is extending its push to develop an exchange traded funds sector in Russia with the launch of six international equity ETFs on Thursday.

              The new ETFs, which have been listed on the Irish Stock Exchange and cross-listed in Moscow, will track MSCI indices for the US, Germany, UK, Japan, Australia and the US information technology sector. All carry a total expense ratio of 90 basis points.

                Simon Luhr, chief executive of FinEx Capital Management, said the launch marked the beginning of “the ramp-up phase” of FinEx’s plans for developing an ETF market in Russia.

                FinEx launched the first Russia-listed ETF in April, which provided exposure to the Russian corporate bond market, and followed this with a physically backed gold ETF earlier this month.

                It also bid to acquire Dexia Asset Management in September but lost out to New York Life.

                IMF says Africa at risk of financial shocks

                Posted on 31 October 2013 by

                Nairobi, Kenya©Alamy

                The Kenyan capital Nairobi is an economic powerhouse in sub-Saharan Africa

                The International Monetary Fund has for the first time warned that sub-Saharan African countries are becoming “increasingly vulnerable to global financial shocks” as they intensify their reliance on foreign investors.

                The warning in its twice yearly review of the region comes as African frontier markets such as Nigeria, Ghana and Kenya fret about the side-effects of tighter monetary policy in the US.

                African countries have benefited over the past three years from investors’ hunger for yield due to ultra-loose monetary policies in the US, Japan and Europe. Governments from the region have raised a record $8bn in global sovereign bonds – including from several debuts – this year, up from just $1bn a decade ago. And foreign investors have for the first time become active players in some domestic bond and equity markets there.

                Abebe Aemro Selassie, deputy head of the Africa department at the IMF, said that managing capital flows had become “a bigger issue than [it] has ever been” for sub-Saharan states. He warned that African countries should not expect their love-story with international investors for cheap and abundant funding to last for ever.

                  “The example I like to use for capital flows is that they resemble the bee: they produce honey, but they also have a sting,” he said in an interview.

                  In the past countries in Africa relied heavily on aid from donor countries to finance their needs. Since 2010, however, easy global financial conditions combined with sustained high growth led to a significant increase in private capital inflows.

                  During 2010-12, net private flows to sub-Saharan African countries doubled compared with the 2000-07. Flows to several key regional heavyweights, including Ghana, Kenya, Mozambique, Nigeria, Senegal, Uganda, and Zambia, registered a fivefold increase in the same period.

                  The IMF said African countries should anticipate “continuing volatility and increasing funding costs” as advanced economy central banks gradually move away from their unprecedented accommodative policies. “Given the trend toward deeper integration with global financial markets, sub-Saharan African frontier markets are likely to become increasingly vulnerable to global financial shocks,” it said.

                  African policy makers painted a more sanguine view, however. Lamido Sanusi, governor of the central bank of Nigeria, said in an interview that the impact of tighter monetary policy in the US would be felt more acutely in larger emerging economies like India or South Africa than in frontier markets such as Nigeria or Ghana.

                  “Tapering is not going to happen as quickly [as the market fear]”, Mr Sanusi added, saying that the US economy still showed signs of weakness.

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                  In spite of the warning about the potential reversal of capital flows, the IMF painted a relatively rosy view about the outlook for the region. “Sub-Saharan Africa is projected to grow vigorously in the medium term, as it has for much of the past decade,” the Washington-based body said.

                  The example I like to use for capital flows is that they resemble the bee: they produce honey, but they also have a sting

                  – Abebe Aemro Selassie, IMF

                  The IMF forecast that economic growth will accelerate to 6 per cent in 2014, the highest since the onset of the global financial crisis in 2008-09 and up from 5 per cent in 2013. “The main factor behind the continuing underlying growth in most of the region is, as in previous years, strong domestic demand, especially associated with investment in infrastructure and export capacity in many countries.”

                  However, such investment could be a double-edged sword for some African economies that are experiencing deteriorating deficits as they spend on machinery to build the infrastructure. The IMF warned that fiscal and current accounts deficits were likely to deteriorate in the next year.

                  But it added that inflation in the region is expected to remain moderate in 2013-14, reflecting benign prospects for food prices.

                  Earnings leave Europe stocks under pressure

                  Posted on 31 October 2013 by

                  Europe’s main equities markets were weaker on Thursday as investors absorbed a slew of earnings news from the region.

                  French stocks were making the biggest moves at each end of the FTSE Eurofirst 300, with Technip, the oilfield services company, falling furthest and bank BNP Paribas making the biggest gain.

                    Technip fell 7.5 per cent to €80 after it reduced its full-year targets for sales and margins, citing adverse currency movements. It now expects revenue from its subsea business to be €4.1bn, down from previous forecasts of between €4.3bn and €4.6bn previously.

                    BNP Paribas was up 2.4 per cent at €54.0 after a surprise increase in its third-quarter profit. The bank reported net income of €1.36bn for the quarter, a surprise 2.4 per cent increase on the same period in 2012. That bucks the trend reported by the handful of European banks that have reported so far, and outpaces the decline forecast by analysts.

                    The news has helped BNP’s peers. Crédit Agricole, up 2.4 per cent at €8.9, was the second-biggest riser after BNP on the CAC 40 in Paris. Société Générale was in third place, up 1.9 per cent at €41.5.

                    Overall, the FTSE Eurofirst 300 was down 0.2 per cent at 1,285.2. Oil stocks took the biggest toll at sector level as results from Total and Royal Dutch Shell fail to impress.

                    Support from defensive sectors helped prevent wider losses, with drinks makers and tobacco stocks in demand.

                    The CAC 40 in Paris eased 0.1 per cent to 4,268.43, the Xetra Dax in Frankfurt was down 0.1 per cent at 8,999.9 and London’s FTSE 100 fell 0.3 per cent to 6,755.44.

                    Speciality chemicals maker Croda was the biggest single faller on the main London index, down 6.7 per cent at £24.58 after it said third-quarter underlying market conditions were “subdued” and that its third-quarter performance was hit by “the significant devaluation of the Japanese yen and Indian rupee”.