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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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Archive | November, 2016

Gedesen Holdings Limited thinks digital currency investments

Posted on 30 June 2016 by admin

With current technology development paces it is wise to follow up the main trends. Gedesen Holdings Limited thinks over the possibility of investing in Bitcoin.

Crypto currency becomes more and more widespread phenomena across the globe. Bitcoin, for example reached the level at which it was acknowledged as property. Technology moves forward and people invent new things that will simplify day-to-day operations in all spheres of human activity.

Gedesen Holdings

Crypto currency and Bitcoin in particular has very high level of protection. There is no way to counterfeit this currency – users can make reserve copy or crypt the digital wallets. Bitcon was created to decrease the scam or fraud possibility to a minimum. Users have complete control over the funds.

Accessibility is another vital component. Bitcoin users can send the funds to anyone in any part of the world, with or without bank account. Bitcoin is already available in those states that yet have restricted access to certain payment systems. In future this crypto currency can favor the international trade development.

Gedesen Holdings Limited started developing internet platform to create a pipeline delivering equipment needed for Bitcoin mining. The platform is to be launched by the end of the third quarter of 2016. The company is going to offer this option to all its clients across the globe irrespectively of the residence location. Bitcoin has no area limitation so all interested parties can participate.

CEO of Gedesen Holdings Limited Martin Terry also mark that the company may overview its current investment plans to span the opportunities delivered by the advantages of crypto currency. Bitcoin may become just a first step in company movement in this direction. Still this sphere is quite young so Gedesen Holdings Limited may need an advertisement campaign to drag attention of a wider audience to this opportunity.

Public Relations Chief:

Rodney Griffin
Onisilos, 18, Saint Anthony,
CY-1015, Nicosia, Cyprus

Janus buys into ex-Pimco manager’s fund

Posted on 30 June 2016 by

Bill Gross poses at investment firm Janus Capital Group, Inc. in Denver, Colorado in this undated handout photo provided by Figge Photography on October 10, 2014. Gross, in his first public appearance since his shocking departure from Pimco, said there will be more flexibility in managing less money at Janus Capital Group Inc, but said he was disappointed over being forced to leave Pimco. REUTERS/Figge Photography/Handout via Reuters (UNITED STATES - Tags: BUSINESS PROFILE) ATTENTION EDITORS - NO SALES. NO ARCHIVES. FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS. THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. IT IS DISTRIBUTED, EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS©Reuters

Janus Capital, the new home of veteran investor Bill Gross, is making a bet on another Pimco alumnus.

Janus, which oversees about $191bn, has bought a minority stake in LongTail Alpha, the hedge fund Vineer Bhansali started this year after he left Pimco in December. Terms were not disclosed.

    The purchase comes at a time when investors are thinking anew about “tail risks” — unlikely but damaging events — in the wake of political uncertainty and concerns over the trajectory of the global economy.

    Mr Bhansali said the market cycle is turning over, with low rates, central banks “making their last-gasp effort”, and the increasing presence of algorithmic trading strategies.

    “All of those things point to this being more frequent than it has been past,” Mr Bhansali said of market shocks. “The world has changed and what has worked in the past for the last 25 years may not work. You’re going to see all these unforeseen things happening.”

    “I’m not saying I can forecast any better than anybody else, but I do think we have a particular skill set in positioning for these things.”

    The minority stake is Janus’s latest addition to chief executive Dick Weil’s strategy of “intelligent diversification”.

    Janus has been amassing a cadre of former employees from Pimco, the company Mr Gross co-founded in 1971. Mr Weil worked there for 15 years, 10 of which as chief operating officer, before taking the helm at Janus in 2010.

    Last July, Janus bought a majority interest in Kapstream Capital, a $6.6bn Australian-based fixed-income manager in a bid to bolster Mr Gross’s efforts. Kumar Palghat was the head of Pimco’s Asia-Pacific portfolio management from 2001 to 2006 and co-founded Kapstream in 2006.

    The world has changed and what has worked in the past for the last 25 years may not work [now]

    – Vineer Bhansali

    Mr Bhansali joined Pimco in 2000 and was the head of the firm’s quantitative investment portfolios, which total almost $50bn in assets.

    Mr Gross joined Janus in September 2014 after an unceremonious exit from Pimco, a dispute over which he is now suing.

    His arrival helped reignite interest in Janus’s funds, but now Mr Weil is once again dealing with long-term outflows, and net income at the Denver-based company was down 21 per cent in the first quarter.

    Janus’s move is also in keeping with a broader trend of financial services companies buying stakes in hedge funds — a bet on the continued growth in the industry despite soured public sentiment amid mixed average performance.

    Additional reporting by Stephen Foley in New York

    Mexico raises rates to shore up peso

    Posted on 30 June 2016 by

    Mexican peso coins©Dreamstime

    Mexico’s central bank announced a higher than expected 50 basis point hike in its benchmark interest rate to contain inflation and shore up a peso that has taken a beating since Britain voted to leave the EU a week ago

    It was the second time this year that the Bank of Mexico, or Banxico, led by Agustín Carstens, had taken such a bold move. In February, with the peso under pressure, it delivered an extraordinary half-point rise.

      The Bank of England, by contrast, announced earlier in the day that it expected to cut rates or renew quantitative easing this summer and is expected to slash growth forecasts in the wake of the vote to leave the EU.

      In a statement, Mexico’s central bank said that a “large deterioration” in external conditions could have an adverse effect on inflation that was already ticking up. Capital Economics said in a statement: “This is central bank-speak for ‘we’ve been spooked by the recent drop in the currency’.”

      Though Mexico has only a small trade relationship with Britain and little to lose directly from the EU vote, the peso is the most liquid emerging market currency, with $135bn traded daily. That status makes it an ideal vehicle to hedge risks.

      It took a hammering in the global Brexit market sell-off, briefly hitting an all-time low of 19.5187 against the dollar, although it later recovered and did not tank to levels of 20 or 21 as some analysts had feared.

      The currency had been treading water at about 18.48 to the dollar before Thursday’s bold hike prompted a sharp bounce to around 18.19. The peso, which has shed about 7 per cent this year against the greenback, later weakened again slightly.

      But Capital Economics noted that such recoveries can fade quickly — after the February rate hike, the peso soon came under renewed pressure.

      “Although the available information still suggests a base scenario for the short and medium term for inflation congruent with the permanent goal of 3 per cent, external conditions have suffered a significant deterioration, a situation which could adversely affect the future behaviour of inflation,” Banxico said.

      “With this action, we are seeking to avoid the depreciation of the national currency that we have seen in the past months, and the adjustment of some relative prices, translating into a de-anchoring of inflation expectations in our country,” it added.

      There’s still a lot of uncertainty. We don’t know if the Fed will hike and the peso is going to still be very volatile

      – Marco Oviedo, chief economist at Barclays in Mexico City

      The bank will remain vigilant and stood by to take any action, “with all flexibility and whenever conditions dictate”.

      Enrique Covarrubias, head of strategy, fixed income and economics at Actinver in Mexico City, said Banxico was betting that inflation was heading above 4 per cent — a far cry from the “very manageable” 2.6 per cent current headline rate.

      A rise in gasoline prices from July, announced this week, adds to higher food, merchandise and other price rises that are stoking inflation.

      Marco Oviedo, chief economist at Barclays in Mexico City, said the bank had little alternative. “There’s still a lot of uncertainty. We don’t know if the Fed will hike and the peso is going to still be very volatile,” he added.

      Carney prepares for ‘economic post-traumatic stress’

      Mark Carney, governor of the Bank of England (BOE), speaks during a news conference in the City of London, U.K., on Thursday, June 30, 2016. Carney said the Bank of England will probably have to loosen policy within months to deal with the fallout of the Brexit vote as he warned that there's only so much he can do to protect the economy. Photographer: Chris Ratcliffe/Bloomberg

      Bank hints at more easing as sterling falls and Gilts go negative

      A further rise of at least a quarter-point before the year-end is widely expected in the market.

      Before Banxico’s February hike, which came after the peso breached 19 to the dollar, the central bank had followed the US Federal Reserve with a quarter-point hike last December, and had been keen to keep in step with its northern neighbour. Brexit could represent a break with those plans.

      Also weighing on Mexico’s outlook is the US election, in which a vote for presumptive Republican nominee Donald Trump — who has pledged to build a wall between the neighbouring countries — is seen as negative for Mexico. Investors are also concerned about the financial health of state oil company, Pemex, and the risk of its liquidity crisis spilling over into government accounts.

      Explaining Asia’s brutal Brexit reaction

      Posted on 30 June 2016 by

      An investor sits in front of a board displaying stock prices at the Australian Securities Exchange (ASX) in Sydney, Australia, May 10, 2016. REUTERS/Steven Saphore FOR EDITORIAL USE ONLY. NO RESALES. NO ARCHIVES©Reuters

      In the event, Henderson Group and Clydesdale Bank did not stand a chance on Friday. Sydney brokers were already taking orders for opening trade when the news broke about the strong “Leave” leaning in the Sunderland and Newcastle votes on the EU referendum.

      Soon after the market opened, selling of the two dual-listed, UK-centred spin-offs of Australian parents began in earnest. Other well-known UK-linked groups in the region, from HSBC to Li Ka-shing’s empire, soon followed suit.

        What was really notable about Asia’s reaction to Friday’s events was its geographic range and its sheer brutality compared with other markets. Stocks in Tokyo, the second-largest market in the world, ended off 7.2 per cent. London’s FTSE 100, in contrast, ended down 3.2 per cent.

        There are several explanations, among them time zones, liquidity but, most importantly, the deepening links between markets — many of which were overlooked in the run-up to Friday’s vote. Now these are coming to the fore and they need more examination.

        Even now, the Topix is still 4 per cent below its pre-vote level while UK blue-chips have recovered the ground they lost. Time zones were not in Asia’s favour as traders were forced to react live to lumpy newsflow for an unprecedented event. Cross-border liquidity in Asia, split as it is between Sydney, Tokyo, Hong Kong and Singapore as well as smaller centres, is generally thinner that London or New York. That adds to the risk of outsized moves.

        But many investors were also unprepared. So strong was the conviction the UK would remain in the EU that few strategists had done detailed work on which assets, particularly stocks, to watch. Instead the focus was on sterling, where liquidity was bolstered by London trading desks operating around the clock, and the yen, which acts as the region’s fear gauge.

        Both deserved attention, the yen especially so, since its sharp rally against the dollar, pushing it to near two-year highs, was the driver for Tokyo’s stock sell-off. But the days that followed saw analysts and some investors scrambling to draw up lists of the most exposed assets, including companies — that went beyond Friday’s obvious victims. Property developments and factories have been examined for their impact — as they should have been before the vote.

        Even the most prepared market followers have spent this week explaining the consequences in more depth for the region. The strong dollar is not necessarily a positive, even for exporters, amid slowing growth in global demand. The yen’s strength is also an added headache for Japan’s efforts to revive its economy.

        “Brexit is so far an accelerator of trends already in place for Asia,” says Mohammed Apabhai, head of Asia-Pacific trading strategy at Citigroup, who had recommended a short-Topix, long FTSE trade to clients ahead of Friday’s vote. “Bond yields were already heading lower, the renminbi was already depreciating gradually — the question was one of timing, not direction.”

        Growth forecasts are being revised lower. Analysts at Nomura have one of the bolder forecasts out there, predicting outright recession in Hong Kong. The bank estimates Brexit will knock a full percentage point from its previous expectations for 0.8 per cent growth in the former British colony while knocking 0.7 of a point off Singapore’s outlook to growth of 1.1 per cent.

        “We’ve cut these the most because they’re the biggest financial hubs and they’re very exposed to UK banks,” said Rob Subbaraman, head of regional global markets research at the bank. “They’re also very open economies and they have very managed exchange rates.”

        For now, the analysing and the theorising continues. Some are even advancing a positive spin on China.

        “For investors, the US doesn’t have a great story at the moment and it has an election coming. The UK and Europe are together in their uncertainty, whether they like it or not. And Japan is not a long-term investing solution with negative rates, a strong currency and a weak economy,” said Stephane Loiseau, head of Société Générale’s cash equities business in Asia. “With all that, people should start looking again at China.”

        Now that would be one outcome from Brexit that no one could have predicted.

        Irish shares are not smiling

        Posted on 30 June 2016 by

        The Irish Stock Exchange logo is displayed at the entrance to the company headquarters in Dublin, Ireland, on Tuesday, Dec. 14, 2010. The European Union will have to take more decisions next month in its bid to find a ÒwatertightÓ solution for the debt crisis in the region, according to LuxembourgÕs Jean-Claude Juncker, who leads the group of euro- area finance ministers. Photographer: David Levenson/Bloomberg©Bloomberg

        Earlier this year, Ireland commemorated the centenary of the Easter Rising — the rebellion that set it on the path to independence from Britain. For the country’s investors, a more recent “independence day” has been a rather less happy occasion.

        Between the close of trading on June 23 — the day of the UK’s referendum on EU membership — and the close on June 29, the ISEQ Overall share index dropped more than 12 per cent. That is worse than any other major European stock benchmark and more, in local currency, than even the UK-centric FTSE 250. In euro terms, the FTSE 250 fell by more than the ISEQ, although not much more.

          Aside from the UK itself, Ireland has the most to lose from Brexit. The Economic and Social Research Institute has estimated that each percentage point reduction in UK GDP knocks 0.3 points off Ireland’s.

          But the links are not as strong as they were. About 15 per cent of Ireland’s exports go to the UK, whereas it used to be half. And Ireland’s economy has been powering ahead: it grew by more than 6 per cent last year.

          Also, what applies to the broader economy does not always apply to the stock market. Esri’s analysis found that the impact of Brexit would be more acute for smaller companies. Ireland’s largest listed companies — the top five account for almost three-quarters of the stock market’s capitalisation — are more international. Sterling revenues vary: 28 per cent of the total at food group Kerry, about the same at Ryanair. At building materials group CRH, the Americas account for twice as much profit as Europe. Many of the sterling-dominated companies, such as Paddy Power and Grafton, have moved their primary listings to London.

          What, then, might explain the index fall? Ireland’s stock market is small: the FTSE 250’s capitalisation is almost five times that of the ISEQ Overall. That could have exacerbated the decline. In times of stress, investors sell the stocks they can, not necessarily those they should.

          The Easter Rising ended in defeat, yet within a decade Ireland achieved independence. Now, Brits are queueing for Irish passports. Brexit could be nasty for some Irish companies, but the latest steep declines seem to be pricing in an awful lot of bad news. Things should get better.

          Carney warns of ‘post-traumatic stress’

          Posted on 30 June 2016 by

          Mark Carney, governor of the Bank of England (BOE), speaks during a news conference in the City of London, U.K., on Thursday, June 30, 2016. Carney said the Bank of England will probably have to loosen policy within months to deal with the fallout of the Brexit vote as he warned that there's only so much he can do to protect the economy. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

          Mark Carney at press conference by Bank of England governor

          The Bank of England is preparing to unleash another round of monetary stimulus as it battles to contain the economic fallout of The UK’s decision to leave EU.

          Full text of Mark Carney speech

          Mark Carney, governor of the Bank of England (BOE), speaks during a news conference in the City of London, U.K., on Thursday, June 30, 2016. Carney said the Bank of England will probably have to loosen policy within months to deal with the fallout of the Brexit vote as he warned that there's only so much he can do to protect the economy. Photographer: Chris Ratcliffe/Bloomberg

          ‘To emerge from an uncertain world with confidence, people and businesses need a fixed point by which to navigate’

          In a stark warning to politicians, governor Mark Carney said a downturn was on its way and Britain was already suffering from “economic post-traumatic stress disorder”.

          He said the central bank would take “whatever action is needed to support growth”, which probably included “some monetary policy easing” in the next few months, in an attempt to reassure the markets and the general public.

          But Mr Carney also said that central bankers could do only a limited amount to mitigate the pain.

          Sterling fell more than 1 per cent to $1.32 as traders began preparing either for rates to be cut to historic lows, more quantitative easing, or a combination of both. The pound hit $1.50 just before the results of the referendum on EU membership last week. Equities rose, with the FTSE 100 index closing up 2.3 per cent on the day.

            British government bond yields entered negative territory for the first time following Mr Carney’s speech, with the yield on one two-year bond hitting -0.003 per cent. This put the UK alongside countries with negative yields including ­Germany and Japan. The global figure for government bonds in negative yield has soared to $11.7tn as borrowing costs around the world collapse.

            Part of the BoE’s plan to support growth involved “ruthless truth-telling”, Mr Carney said. “One uncomfortable truth is that there are limits to what the Bank of England can do. In particular, monetary policy cannot immediately or fully offset the economic implications of a large, negative shock,” he said.

            He added that the economic uncertainty generated by a series of crises over the past few years and the additional shock of Brexit risked causing businesses and households to delay spending and investment, hitting demand and employment levels.

            To guard against the risk of the banking system seizing up, the BoE is holding weekly liquidity auctions until the end of September to ensure that British banks have easy access to credit.

            Mr Carney, who faced a barrage of criticism from Leave campaigners over his warnings about the economic dangers of a vote to exit the EU, said the BoE was likely to cut its growth forecasts in its August inflation report.

            Despite the gloomy prognosis, there was a general sense of relief in the market that the governor was promising tangible action. Toby Nangle, co-head of asset allocation at asset manager Columbia Threadneedle, said Mr Carney had set out a “considered road map” for how the BoE would support the economy. “Institutional continuity and credibility in times like these are vital. Carney stepped up to the plate,” he said.


            Brexit carnage calls for calm Carney


            With sterling heading south and no sign of an end to UK political instability, the market will be looking to the Bank of England governor to calm nerves, Baring Asset Management’s Alan Wilde tells Roger Blitz

            Charlie Diebel, head of rates for Aviva Investors, said that “Mr Carney is no doubt trying to steady the ship and provide solace that they will act as needed”.

            Mitul Patel, head of interest rates at Henderson said the Gilt market had responded strongly to the Carney speech: “The market now expects interest rates to fall to close to 0 per cent, and whilst Carney has previously stated a dislike of negative interest rates, nothing can be taken off the table.”

            In a swipe at the political disarray that has characterised the aftermath of the Brexit vote, Mr Carney said there needed to be a new strategy for engaging with the EU and the rest of the world — as well as clarity on the UK’s future trading arrangements. “To emerge from an uncertain world with confidence, people and businesses need a fixed point by which to navigate,” he said.

            One uncomfortable truth is that there are limits to what the Bank of England can do

            – Mark Carney

            But the deep animosity between Mr Carney and parts of the Leave campaign was undiminished. Ukip leader Nigel Farage said on Twitter that Mr Carney was “once again talking down Britain”.

            When asked whether he would work with Jacob Rees-Mogg, Andrea Leadsom or other critical Leave campaigners, the governor said he and the other members of the MPC and FPC would “continue to do our jobs . . . whatever individuals are in the government”.

            “This is a professional, technocratic institution,” he added.

            Additional reporting by Sarah O’Connor, Gemma Tetlow and Dan McCrum

            Now watch the interest rate outlook shift

            Posted on 30 June 2016 by

            The MetLife Inc. headquarters building stands behind the Helmsley Building in New York, U.S., on Monday, May 2, 2016. MetLife, the largest U.S. life insurer, is expected to release earnings figures on May 4. Photographer: Michael Nagle/Bloomberg©Bloomberg

            When the results of the UK’s EU referendum emerged last Friday morning, the share price of MetLife, the stolid American insurance group, tumbled. In the course of two days its stock fell 14 per cent, making it one of the worst performers on the American indices.

            At first glance, that seems bizarre. MetLife does not sell policies in the UK and its exposure to Europe is small. So it should be shielded from the more obvious potential effects of the vote that are looming over UK companies, eurozone banks and Wall Street giants, such as a European recession or a loss of business and influence for the City of London.

              But MetLife has a vulnerability that highlights one impact of Brexit that will have further-reaching consequences. Market actors have turned their attention to the wider outlook for interest rates. Most notably, in recent days, investors have sharply downgraded their expectations for inflation and interest rates, not just in the UK but across the west.

              That has nasty implications for asset managers of all stripes, including insurance companies, which need to earn decent returns to pay policyholders. It is also painful for banks, since low rates typically hurt their earnings.

              When future historians look back at the Brexit shock, they may conclude that this shifting rate outlook is one of the most important ripple effects of the Leave vote — even if the implications of a Brexit for bond prices look less thrilling than, say, the political soap opera around Boris Johnson, the leading Leave campaigner who has pulled out of the race to be UK prime minister.

              To understand this, take a look at the numbers. A couple of years ago negative-yielding bonds — which, in nominal terms, pay less at maturity than investors initially paid — were rare. But this week, Fitch Ratings agency calculated that there is now
              $11.7tn worth of sovereign debt in the global market that carries negative nominal interest rates.

              That is extraordinary. Furthermore, this pile has swelled by $1.3tn in the past month alone, and includes $2.6tn of long-term bonds (those with more than seven years of maturity). Meanwhile, the pile of bonds with a yield that investors used to consider normal — above 2 per cent — is barely worth $2tn.

              Most of this negative debt sits in Japan and the eurozone. But rate expectations in the UK and US are sliding, too. The US Treasuries market, for example, now expects a mere 125 basis points of rate rises in the next decade, with barely any hikes in the next two years. Indeed, one of America’s largest hedge funds is now warning its clients that “markets in aggregate are discounting . . . effectively no monetary tightening for a decade across the developed world”.

              Can this gloomy market prognosis be believed? Maybe not. After all, the global economy is still growing overall, with lacklustre expansion in the US. A dash to havens may also have influenced some of the recent bond price swings. If the political climate stabilises and the Remain camp’s prediction of economic disaster in Europe turns out to be overblown, the downbeat outlook of the markets could be reversed.

              But, there again, it is also possible to draw an even gloomier conclusion: that Brexit has crystallised and intensified more fundamental investor fears that the west is slipping ever-deeper into economic stagnation. After all, that $11.7tn negative-yield bond pile did not just emerge after the referendum but has in fact been swelling for many months.

              BoE expects to cut rates or boost QE following Brexit

              Mark Carney, governor of the Bank of England (BOE), speaks during a news conference in the City of London, U.K., on Thursday, June 30, 2016. Carney said the Bank of England will probably have to loosen policy within months to deal with the fallout of the Brexit vote as he warned that there's only so much he can do to protect the economy. Photographer: Chris Ratcliffe/Bloomberg

              Bank says likely to slash growth forecasts as ‘economic outlook has deteriorated’

              Either way, the one thing that is clear is that unless that pile suddenly and unexpectedly shrinks, investors and policymakers need to prepare for yet more ripple effects in the months ahead. For one thing, asset managers and insurance companies will see their earnings slide unless they start buying more risky debt — which will bring dangers of its own.

              Second, the central banks’ policy dilemma will intensify since they will face pressure to engage in further loosening monetary experiments — even though it is unclear that these unprecedented measures are actually boosting growth.

              And there is another nasty twist. Negative, or low, rates may exacerbate income inequality, too, since these typically raise the value of assets that wealthy people own, such as property and stocks. If so, that might create even more political populism, sparking more political uncertainty and economic gloom.

              The real ripple effects of Brexit, in other words, may have barely been seen yet. All eyes are on the political polls and trade flows, and on those bond prices.


              Renzi needs a banking plan that will work

              Posted on 30 June 2016 by

              Italy's Prime minister Matteo Renzi©AFP

              Matteo Renzi

              Matteo Renzi’s government faces many serious challenges. It is contending with sluggish economic growth and a European migrant crisis, while waging running battles with Brussels over its public finances. Mr Renzi is even fighting a potentially existential referendum over reforms to Italy’s political system. Yet the issue that may derail the centre left leader is the uncertainty engulfing his country’s banks.

              After years of Italian governments dodging the problem, Mr Renzi is at least trying to confront it. He has already had one go this year, obliging a group of largely private institutions to inject €5bn into an optimistically named fund called “Atlas”, whose purpose is to recapitalise some of Italy’s ailing banks. This week, alarmed at the shockwaves rippling through the markets after the UK’s Brexit vote, Mr Renzi decided that this popgun was inadequate and rummaged for something more in the line of a bazooka. This would have involved him persuading his eurozone partners to allow Italy to inject €40bn into the sector in the form of direct state aid.

                Mindful of new EU rules on bank resolution, the European authorities have rebuffed Mr Renzi’s entreaties. But even had they not, it is hard to see even his larger scheme being enough to set the banks back on their feet.

                On Thursday, the Atlas fund announced that it would take control of Veneto Banca after an €1bn capital increase demanded by EU bank regulators attracted zero interest. That means the fund has already devoured more than half of its capital simply rescuing two midsized regional banks.

                The snag is that this barely scratches the surface. There are still €200bn of bad loans on Italian bank balance sheets — of which €85bn remains unprovided for. These numbers may grow if Italy’s still fragile economy is forced back into reverse by the shock of Brexit. Already they dwarf even the larger rescue plan for which Mr Renzi has been pushing. Analysts have estimated that the gap may amount to some €100bn.

                Mr Renzi’s concern is that cleaning up the banks while living within EU rules could provoke a political earthquake. To do so would require him to bail in bank bondholders whose ranks may include many retail investors. An attempt to do just this with four failing regional banks last year provoked a political outcry. It doesn’t help the premier that many of Italy’s weakest regional banks happen to be in areas dominated by the centre left.

                But Mr Renzi has neither the luxury of options nor of procrastination. The European Central Bank is poised to publish the results of its latest stress tests next month. These may result in further capital demands Italian banks are ill-placed to meet.

                Italy rescues Veneto Banca after bailout plea fails

                (L-R) French President Francois Hollande, German Chancellor Angela Merkel and Italy's Prime Minister Matteo Renzi address a press conference ahead of talks following the Brexit referendum at the chancellery in Berlin, on June 27, 2016. Britain's shock decision to leave the EU forces German Chancellor Angela Merkel into the spotlight to save the bloc, but true to her reputation for prudence, she said she would act neither hastily nor nastily. / AFP PHOTO / John MACDOUGALLJOHN MACDOUGALL/AFP/Getty Images

                Germany turns down Renzi’s request to ease rules during Brexit turmoil

                Mr Renzi’s concerns regarding retail investors are understandable. But he cannot allow these to hold up the strengthening of the financial sector nor the urgently needed consolidation of Italy’s myriad small regional banks. Forcing solvent institutions to bail out weaker ones by expanding the Atlas fund will not strengthen the whole system. Instead he should grit his teeth and go ahead with what resolutions are needed, while taking steps to protect the vulnerable. This could be achieved by compensating retail holders for any bail-in related losses on their bonds up to a certain monetary value.

                There are no easy options for Mr Renzi. He must somehow balance the needs of the financial system without trashing his party’s own popularity ahead of a crucial referendum. Italy’s EU partners should show some understanding. The consequences of continued inaction could be ugly indeed.

                Pound resumes slide after Carney speech

                Posted on 30 June 2016 by

                Wads of British Pound Sterling banknotes are stacked in piles at the GSA Austria (Money Service Austria) company's headquarters in Vienna July 22, 2013. REUTERS/Leonhard Foeger/File Photo©Reuters

                The pound resumed its post-Brexit decline after a two-day rally, dropping more than 1 per cent after Bank of England governor Mark Carney announced likely monetary easing over the summer.

                Telling journalists that the BoE’s objectives included some “ruthless truth-telling” about the economic consequences of Brexit, Mr Carney said the big moves in sterling in the 48 trading hours following the referendum outcome had been expected.

                  “There was a need for the currency to find a new level,” he told reporters after delivering a speech at the Bank.

                  The effect of his speech was a 1.6 per cent drop in the pound to $1.3211, taking a sizeable bite out of the midweek rally of 3 per cent.

                  The pound set a 31-year low of $1.3118 on Monday, and analysts expect it is only a matter of time before it finds a lower level. A range of $1.20 to $1.25 is favoured by several analysts.

                  Mr Carney said sterling’s sharp fall meant any boost to net trade would be damped by uncertainty around future trading relationships.

                  “A lower exchange rate will also entail higher prices for imported consumer goods, energy and capital goods, and consequently lower real incomes,” said the governor.

                  As the UK continued to be roiled by political turmoil, Mr Carney said the deterioration in the economic outlook meant “some monetary policy easing will probably be required over the summer”.

                  Jane Foley, FX G10 strategist at Rabobank, said: “Carney was a pioneer of the forward guidance movement and he didn’t hold back in his warnings that further easing will probably take place this summer.

                  “While Carney’s speech is designed to reassure investors that the BoE and banks are prepared for the shock that may await them, his words may also have the effect of driving home to the UK electorate the economic risks that it has brought upon itself.”

                  Derek Halpenny, FX strategist at MUFG, said that after weakening economic momentum at the start of the second quarter, Brexit’s impact in the third quarter would see falls in a number of indicators, including personal consumption, business investment and housing.

                  In the long term, analysts expect a bottom will form in sterling as markets adjust to a new reality, but Brexit was likely to cause a sterling correction to around $1.25.

                  “However, we find it difficult to argue that Brexit will eventually lead to GBP/USD falling below 1.2000 or certainly below 1.1000,” Mr Halpenny said.

                  Ms Foley added that further signs of pressure on the pound would come from the UK’s current account deficit, which data revealed was 6.9 per cent of GDP in the first quarter.

                  Although below the 7.2 per cent of the previous quarter, “it is still a huge deficit and a reminder of the vulnerability of the pound to the whims of capital flows”, she said.

                  “We see risk of GBP falling further in the coming months as the reality of the political uncertainty undermines economic growth.” She is targeting $1.23 for sterling by the end of the year.

                  Insurers want a voice in Brexit talks

                  Posted on 30 June 2016 by

                  Lloyds of London for the big page. Underwriters and brokers cut deals on the trading floor at Lloyds where face to face negotiations still rule.

                  Underwriters and brokers cut deals on the trading floor at Lloyds

                  The insurance industry is stepping up its lobbying efforts to prepare for Brexit as it faces losing business to other parts of the EU.

                  John Nelson, chairman of London’s commercial insurance market, Lloyd’s, met the prime minister’s business advisory group on Thursday and will speak to Sajid Javid, the business secretary, next week in an effort to push the industry’s case.

                    The London Market Group, which represents insurers and brokers in the commercial market, is also meeting parliamentarians.

                    The industry is keen to make sure its voice does not get lost in the clamour of groups pushing their case ahead of the exit talks.

                    Financial services are expected to play a big role in the negotiations, but insurers are concerned banking will dominate.

                    “We’re all singing in the same choir, but our harmonies are slightly different,” said Huw Evans, director-general of the Association of British Insurers this week.

                    “We need to recognise that there are sector specific issues, not just generic financial services sector issues,” he added. One of those specific issues is regulation of the insurance industry. Mr Evans believes there is scope for regulators to help UK insurers become more competitive.

                    Lloyd’s, which campaigned for a Remain vote, has outlined its plans as it prepares for life outside the EU. In meetings with the insurers that operate in the market, chief executive Inga Beale laid out a twin-track approach.

                    Lloyd’s is campaigning to retain “passporting rights” — which allow insurers to operate across the EU — but is also putting in place plans for how the market can operate in the continent if those rights are lost.

                    Lloyd’s says that only about 4 per cent of its £27bn worth of annual premiums are at risk because of Brexit. It has been keen to stress that policies written before any formal exit — including multiyear policies — would remain valid.

                    The commercial insurance market is a big part of the City’s economy. According to London Matters, a 2013 report, it employs 34,000 people and contributes about a fifth of the City’s gross domestic product. Many of the big insurers who have set up shop in London have done so because of the UK’s passporting rights into the EU.

                    Without those rights, insurers say they would have to set up new operations within the EU. An executive at one insurer says that his company might be forced to send up to two-fifths of its London workforce to other cities over the next five years.