Month: March 2016

BoE: Credit crunch risks ahead? – BTMU

Analysts at Bank of Tokyo explained that the BoE warns of credit crunch risks.

Key Quotes:

While these developments are good news and limits any near-term escalation of pound selling on increased ‘Brexit’ fears, the uncertainty is still likely to weigh on economic activity over the coming months.

After the failure of the general election opinion polls last year, companies, households and investors will remain cautious of reading too much into opinion polls in the run-up to 23rd June.

As the BOE’s Financial Policy Committee (FPC) stated this week, the EU referendum in June represents “the most significant near-term domestic risk to financial stability”. The BOE pointed to the UK’s large current account deficit that leaves the UK vulnerable to shocks that could result in a reduced willingness of foreign investors to finance that deficit resulting in “a further depreciation of sterling that may affect the cost & availability of financing.””

Analysts at Bank of Tokyo explained that the BoE warns of credit crunch risks.

(Market News Provided by FXstreet)

USDJPY is vulnerable to a resolution – Scotiabank

Eric Theoret, CFA, CMT FX Strategist at Scotibank explained that JPY is steady consolidating its recent gains, trading around the mid-point of its multi-month range.

Key Quotes:

“The broader USD remains the dominant driver for JPY, as market participants recalibrate their expectations for the Fed. Domestically, comments from BoJ Gov. Kuroda continue to reinforce an unwavering commitment to achieving the 2% inflation target.

However the impact has been overwhelmed by U.S. developments driving a 20bpt decline in the 2Y yield spread (in JPY’s favor) over the past week. Risk reversals suggest an ongoing moderation in demand for protection against USD/JPY downside (JPY strength). USDJPY is vulnerable to a resolution.”

Eric Theoret, CFA, CMT FX Strategist at Scotibank explained that JPY is steady consolidating its recent gains, trading around the mid-point of its multi-month range.

(Market News Provided by FXstreet)

Don’t worry, UK deficits are financed with ease – BTMU

Analysts at Bank of Tokyo Mitsubishi explained that the current account deficit has not garnered too much attention in financial markets in part due to the evidence from the financial account that shows very strong foreign direct and portfolio investment inflows to the UK by foreign investors.

Key Quotes:

“The total 2015 current account deficit of GBP 96.3bn was more than financed by the combined FDI portfolio inflow from abroad of GBP 292.2bn – with FDI inflows of GBP 37.7bn and portfolio inflows of GBP 254.5 (predominantly debt securities). So certainly no problems there.”

“Indeed that financing was reinforced on a net basis with UK investors repatriating from abroad both on direct investments and portfolio investments. In Q4, the FDI inflow from abroad did dry up (early signs of ‘Brexit’ uncertainty?) but equity and debt securities inflows picked up and totalled GBP 77.7bn. So there is still evidence of the UK’s large deficits being financed with ease.”

Analysts at Bank of Tokyo Mitsubishi explained that the current account deficit has not garnered too much attention in financial markets in part due to the evidence from the financial account that shows very strong foreign direct and portfolio investment inflows to the UK by foreign investors.

(Market News Provided by FXstreet)

Mexico: Moody’s changes outlook to negative, affirms rating

The rating agency Moody’s kept Mexico’s A3 rating unchanged but lowered the outlook from stable to negative, on fiscal and economic challenges to achieving consolidation objectives and stabilize debt ratios.

Key Quotes from Moodys:

“Moody’s Investors Service has today affirmed Mexico’s A3 issuer and government bond ratings and changed the outlook to negative from stable. The government’s senior secured and senior unsecured government bond ratings were affirmed at A3, as were the senior unsecured MTN and senior unsecured shelf program ratings at (P)A3.”

The principal driver of Moody’s decision to change the outlook to negative from stable is the rising fiscal and economic challenges that the authorities face in achieving further fiscal consolidation. At the time that the structural reforms were adopted, Moody’s expected that fiscal consolidation, coupled with much stronger real GDP growth (above 3%), would lead to a stabilization in the debt burden.”

“However, a combination of the oil price shock and the slower than expected growth have undermined the economic outlook. Moody’s forecasts only moderate growth of around 2.5% for 2016 and 2017, which will challenge the government’s fiscal consolidation efforts.”

“Lower growth and a low oil price environment will reduce fiscal revenues. While fiscal reform has improved the structure of fiscal revenues, heightening resilience to oil price shocks by strengthening tax collection, Moody’s forecasts that overall federal government revenues will decrease to 18.5% of GDP in 2016 from 19.3% in 2015 (…) Moody’s forecasts a federal government deficit of 2.5% of GDP for 2016 and a gradual decline through 2018 when the deficit is likely to narrow to 2% of GDP.”

The negative outlook reflects the risk, which Moody’s believes is balanced to the downside, that lower growth and revenues and heightened pressures on expenditures cause the debt burden to continue to rise beyond that horizon.

“The second driver of the outlook change is the risk that contingent liabilities crystallize on the government’s balance sheet in the form of government support to PEMEX, further undermining fiscal consolidation efforts.”

“Financial challenges at PEMEX from lower oil prices have increased the likelihood that government liquidity support will be needed (…) However, the adjustment measures face significant challenges. In the meantime, PEMEX’s deficit stemming from operating and capital expenditures and debt service needs is likely to persist through 2018.”

“Over the coming one to two years, Moody’s will evaluate the progress achieved on fiscal consolidation and the implementation of expenditure cuts at PEMEX to confront liquidity pressures.”

“Moody’s would stabilize Mexico’s A3 rating were it to conclude that the measures needed to contain government expenditures and PEMEX-related contingent liabilities, even in a low growth environment, will be taken so as to allow fiscal consolidation to proceed as planned.”

“Upward pressure on Mexico’s rating could result from higher than expected growth driven by continuing structural reform efforts, which would result in the creation of fiscal buffers by the government, and a faster than expected reversal of the upward trend in government debt metrics.”

The rating agency Moody’s kept Mexico’s A3 rating unchanged but lowered the outlook from stable to negative, on fiscal and economic challenges to achieving consolidation objectives and stabilize debt ratios.

(Market News Provided by FXstreet)

European stocks close: stocks closed lower on a fall in telecom and banking stocks

Stock indices closed lower on a drop in telecom and banking stocks. Market participants are also awaiting the release of the U.S. labour market tomorrow.

Market participants also eyed the economic data from the Eurozone. Eurostat released its consumer price inflation data for the Eurozone on Thursday. The preliminary consumer price inflation in the Eurozone rose to -0.1% year-on-year in March from -0.2% in February, in line with expectations.

The preliminary consumer price inflation excluding food, energy, alcohol, and tobacco climbed to an annual rate of 1.0% in March from 0.8% in February. Analysts had expected the index to increase to 0.9%.

Food, alcohol and tobacco prices were up 0.7% in March, non-energy industrial goods prices gained 0.5%, and services prices climbed 1.3%, while energy prices dropped 8.7%.

The Federal Labour Agency released its unemployment figures for Germany on Thursday. The number of unemployed people in Germany was flat in March, missing expectations for a 7,000 decline, after a 9,000 decrease in February. February’s figure was revised down from a 10,000 fall.

The unemployment rate remained unchanged at 6.2% in March, in line with expectations.

Destatis released its retail sales for Germany on Thursday. German adjusted retail sales fell 0.4% in February, missing forecasts of a 0.3% gain, after a 0.1% decrease in January. January’s figure was revised down from a 0.7% increase.

On a yearly basis, German unadjusted retail sales climbed 5.4% in February, beating expectations for a 2.2% gain, after a 1.2% drop in January. January’s figure was revised down from a 0.8% decline.

Sales of non-food products increased at an annual rate of 3.9% in February, while sales of food, beverages and tobacco products rose by 7.1%.

The Office for National Statistics (ONS) released its final gross domestic product (GDP) data on Thursday. The final U.K. GDP expanded at 0.6% in the fourth quarter, up from the February estimate of 0.5%, after a 0.4% rise in the third quarter.

On a yearly basis, the revised U.K. GDP rose 2.1% in the fourth quarter, up from the February estimate of 1.9%, after a 2.1% gain in the third quarter.

The upward revision was driven by revisions in services, industrial output and construction.

In 2015 as whole, GDP expanded 2.3%, up from the previous estimate of 2.2%.

The U.K.’s National Statistics Office (ONS) released its current account data for the U.K. on Thursday. The U.K. current account deficit widened to £37.2 billion in the fourth quarter from £20.1 billion in the third quarter. The third quarter’s figure was revised down from a deficit of £17.5 billion.

Analysts had expected the current account deficit to increase to £21.1 billion.

The fourth quarter’s current account deficit amounted to 7.0% of GDP, the highest share since 1955.

Declines in the current account deficit were driven by a drop in the deficit on primary and secondary income, and total trade.

In 2015 as a whole, the current account deficit was £96.2 billion or 5.2% of GDP. It was the biggest deficit since 1948.

Indexes on the close:

Name Price Change Change %

FTSE 100 6,174.9 -28.27 -0.46 %

DAX 9,965.51 -81.10 -0.81 %

CAC 40 4,385.06 -59.36 -1.34 %

Chinese construction sector: A positive game changer? – Danske

According to analysts from Danske Bank, the spill over to the rest of the world from the hard landing in Chinese construction has been significant and now it should benefit from higher activity.

Key Quotes:

“The hard landing in Chinese construction looks set to be ending. We look for a gradual recovery of the construction sector over the next year.”

“The sharp slowdown in construction has been a heavy drain on China’s economy and global commodity markets over the past two years. A recovery of this sector could prove an important game changer for industries, countries and markets exposed to Chinese construction.”

“It would thus give support to Chinese equities and global risk sentiment, as it reduces the risk of an overall hard landing in China.”

“A rise in commodity demand would in turn give relief to commodity-exporting emerging market countries such as Brazil and Chile and benefit Australia’s exports of iron ore. It would also dampen deflationary pressure in China – and globally. Easing deflation fears will underpin higher bond yields during 2016.”

“To conclude, a recovery in the Chinese construction sector could prove a game changer. The hard landing in this sector has had consequences not only for Chinese growth but also for global risk sentiment, base metals commodities and emerging markets commodity exporters.”

According to analysts from Danske Bank, the spill over to the rest of the world from the hard landing in Chinese construction has been significant and now it should benefit from higher activity.

(Market News Provided by FXstreet)