Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans.  The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, […]

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Financial

Sales in Rocket Internet’s portfolio companies rise 30%

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Currencies

Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

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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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Categorized | Capital Markets

Trump trade gives ECB room for manoeuvre


Posted on November 17, 2016

Amid all the attempts to guess what Donald Trump’s election means for Europe’s trade, security and populist politicians, one conclusion stands out: his administration may be good news for the European Central Bank.

The reason is not any particular act by the president-elect; rather, it is the reaction of markets, which could help the European economy and give the central bank more room to act.

Foreign exchange provides one example. The euro has weakened 3 per cent against the dollar since election day, to trade at the lowest level of 2016. “The move in the currency is clearly quite helpful,” says Mike Amey, portfolio manager at Pimco, the bond specialist.

A weaker currency, while it is not an explicit aim of the ECB, helps exporters at a time when the central bank is trying to stimulate economic growth and inflation.

European bond yields, particularly for longer-dated debt, have moved sharply upwards since November 8.

In part this is because Treasury yields have jumped as investors worry that Republican tax cuts and spending plans will cause inflation to rise.

But the moves also reflect a shift away from the politics of austerity, with a rising chance of increased government spending while short-term interest rates remain low thanks to central bank policies.

“People aren’t revising yet their global interest rate expectations, but they are revising their fiscal policy assumptions,” says Charlie Diebel, head of rates for Aviva Investors.

Given fixed coupon payments, a bond’s value is vulnerable to inflation, and prices fall as yields rise. Higher yields for long-dated euro bonds thus suggest that investors see at least the risk of inflation returning.

Such movement erodes the effect of the ECB policy of buying €80bn of securities a month to suppress borrowing costs. But it also gives policymakers breathing space.

For most of the year a crunch had been looming because of rules that govern the ECB purchases. The money is split between the 19 members of the eurozone according to a strict formula, on top of other restrictions to do with the price and type of securities.

As yields dropped below zero for the safest bonds, it began to look likely that the ECB would run out of German bonds to buy, either constraining its ability to act or forcing a rule change.

Six weeks ago the volume of Bunds that met the ECB’s criteria had fallen to about €300bn. Now it is €600bn.

Frederik Ducrozet, senior economist at Pictet, estimates that the sell-off in eurozone government bond markets has bought the ECB six months of asset purchases. He also said the central bank might announce a new round of bond purchases to bolster the economy.

Yields, meanwhile, remain depressed by historical standards, with the German benchmark bond offering income of just 0.3 per cent a year for a decade.

Vítor Constâncio, ECB vice-president, sounded a warning on Monday. Eurozone core inflation was “not recovering” and rising protectionism could damp any spillover from an acceleration in the US economy, he said.

Europe has had prematurely rising yields before. In April 2011 the ECB was the first big monetary authority to raise interest rates, to 1.25 per cent. Three months later, as the debt crisis gathered strength, it did so again, only to reverse course not long after.

“In the US the market is saying inflation will return,” says Mr Ducrozet. “In the eurozone the market is reflecting contagion. There is nothing in the economy that justifies the moves up in yields. We are still in the second leg of the eurozone’s recovery and I think this move higher in yields will be seen as unwelcome tightening.”

Marie-Anne Allier, head of euro fixed income at Amundi, points to the growing gap in borrowing costs for Germany and Italy, where the 10-year is above 2 per cent. “At some point [the ECB] will have to do something,” she says.

That point may come at an ECB meeting days after an Italian constitutional referendum — the next opportunity for voters to register discontent with the status quo.