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Кристиан Нуайе
10 марта 2016, 10:02

Game Over for Central Banks?

"Fortunately, there is nothing predestined about what will come after the exhaustion of the new normal. The road out of the upcoming "T junction" can still be influenced in a consequential manner by the choices we make, as households, companies, and governments. But to make better choices, we need to understand the forces at play and their likely evolution. There is no better way of doing so than through an examination of the world's central banks...past, present, and future." -- Mohamed A El-Erian, "The Only Game in Town" Monetary economics is gasping for breath. The usual links between the money supply, inflation and GDP seem tenuous after the Great Financial Crisis. The world's central banks -- whose job it is to orchestrate the first two links in order to maintain growth and economic stability -- have slowed to a crawl and in some cases are walking backwards. They might be "The Only Game in Town" the title of a new book by Mohamed El-Erian, but the rules are changing. Irving Fisher, the father of monetarism, earned Yale's first PhD in economics. A mathematician, his academic advisors were a physicist and a sociologist. Despite his many contributions to economics, he became discredited after predicting that the stock market would remain at its "high plateau" days before the 1929 Crash. Eclipsed during his lifetime by John Maynard Keynes, and having lost his personal fortune as well as his reputation, Fisher tried to explain the cause of the Depression in terms of debt deflation. Building on Fisher's theory, Ben Bernanke, the former Federal Reserve Chairman, utilized his knowledge of this era to rapidly expand liquidity in order to help avoid a full-on Depression on his watch. 2008 is already eight years ago, and despite massive unprecedented intervention by central banks, worldwide growth is still sluggish and has not recovered to its pre-crisis levels. Beyond theory, there is practice, and the real economy. As Yogi Berra once opined, "In theory there is no difference between practice and theory. In practice, there is." That is why is so refreshing to read a book about economic theory written by a knowledgeable practitioner. El-Erian is the former CEO and co-chief investment officer of PIMCO, who dealt first hand (and very successfully) with financial markets as an investor. El-Erian also coined the phrase that has come to describe the situation we find ourselves in-- "the New Normal". Given recent market jitters, the question on most investors' minds is, is this going to last? Or are we still living in a prolonged free fall that began in 2007, but because of the coordination and intervention by central banks, we just haven't hit bottom yet? El-Erian quotes Larry Summers "The world has largely exhausted the scope for central bank improvisation as a growth strategy." What he envisions is a new new normal- of instability and sustained bimodal decision making. El-Erian's belief is that although a highly negative outcome could be ahead of us, nothing is foreordained. Much could depend on good policy choices by Janet Yellen, Haruyuki Kuroda, Zhou Xiaochuan and other central bankers, trying to get their arms around a new world order, as well as politicians brave enough to create fiscal stimulus in spite of demands for austerity. What makes El-Erian's book stand apart is that he knows the policymakers, and in fact is himself an active participant and respected voice in the ongoing debate. When he writes about the governor of the Banque de France Christian Noyer's central banking conference in 2014, which sparked discussion of the new role of central banks, the liveliness of El-Erian's description is based on the fact that he was there. His insider status infuses the narrative. One of the book's chapter's focuses on communications, and the opacity of the central banking decision making process. This has been a popular topic in the media recently, and has been used to level criticism against many central banks, from the Federal Reserve to the People's Bank of China. I would like to take El-Erian's discussion to another level. The real issue is not communications, but the fact that the decisions of central banks are made by a very small, elite number of individuals. Communications is the cloak used to cover the real problem: the vagaries of small group decision making. There is an entire literature about the foibles of small group decision making, which must be seen against a backdrop of increasing calls for democratization globally. The central banks represent the old guard to much of the population, and this is reflected in the US Congress. Chairman Janet Yellen's recent testimony was characterized by belligerence and ignorance of basic economic principles on the part of the questioners. But these politicians are simply reflecting their constituency, who post-crisis are not seeing the gains in terms of an increase in wages or standard of living that the big bankers on Wall Street, in spite of their errors, seem to enjoy. The irony of this of course, is Yellen's stalwart support of employment and labor gains, and her lack of concern about what Wall Street thinks about the Fed's actions. The reality is that central banks cannot create growth; they can only create the necessary but insufficient conditions that will enable economic expansion. In an environment of fiscal austerity, even hyper-low interest rates that allow government debt to accumulate nearly cost-free will fail to ignite the economy. In his blogpost, The Strong Case Against Independent Central Banks Simon Wren-Lewis, professor of economic policy at Oxford explains why recently central banks have been hamstrung and ineffective, forced to dig deeper and deeper to find new policy tools: Economists knew that the government could always get the economy out of a demand deficient recession, even if it had a short term concern about debt. The fail safe tool to do this was a money financed fiscal expansion. This fiscal stimulus paid for by the creation of money was why the Great Depression could never happen again. But the existence of ICBs (Independent Central Banks) made money financed fiscal expansions impossible when you had debt obsessed governments, because neither the government nor the central bank could create money for governments to spend or give away. Central banks were happy to create money, but refused to destroy the government debt they bought with it, and so debt obsessed governments embarked on fiscal consolidation in the middle of a huge recession. The slow and painful recovery from the Great Recession was the result. Economists did not get the economics wrong. Money financed fiscal expansion does get you out of a recession with no immediate increase in debt. But by encouraging the creation of ICBs, economists had helped create both the obsession with austerity and an institutional arrangement that made a recession busting policy impossible to enact. So if Congress and other branches of the government refuse to play their fiscal parts to aid in an economic recovery, who are the other players? Back to the big banks, back to Too Big To Fail. The Federal Reserve can make liquidity available but it cannot lend to end users, and in fact, through stress testing and reserve requirements, seems to encourage restraint. Moreover, the Fed cannot ensure that lending decisions are being made to support the best new ideas that will grow the economy. It cannot directly create jobs or businesses or growth-oriented policy reforms. Most economists would agree that the Great Financial Crisis was not really an economic crisis, but a failure of regulation of the banking and investment industry. El-Erian worries that reforms have been slow and inadequate, that risk is now shifting to the non-banking sector. Just as happened previously, the regulators will not be able to outpace financial innovators. Now, the Federal Reserve itself has begun to discuss a break up of the big banks to spur reform. Simon Johnson, the former chief economist at the IMF and now at MIT, says the foundation of the financial system is changing: After nearly a decade of crisis, bailout, and reform in the United States and the European Union, the financial system - both in those countries and globally - is remarkably similar to the one we had in 2006. Many financial reforms have been attempted since 2010, but the overall effects have been limited. Some big banks have struggled, but others have risen to take their place. Both before the 2008 global financial crisis and today, just over a dozen big banks dominate the world's financial landscape. And yet the ground is shifting beneath the financial sector, and big banks could soon become a thing of the past. Few officials privately express satisfaction with the progress of financial reform. In public, most of them are more polite, but the president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, struck a chord recently when he called for a reevaluation of how much progress has been made on addressing the problem of financial institutions that are "too big to fail" (TBTF). El-Erian brings up innovations such as crowdfunding, in the context of regulatory risks. But what about disruptive technology and negative externalities that could change everything? These are multiplying. Backroom technologies could disrupt banking as we know it. According to Mile Gault, the founder and CEO of Guardtime: The financial world has finally started to move beyond the bitcoin hype, as some of the world's biggest banks begin to research blockchain applications. The country of Estonia, which secures much of its banking infrastructure with a blockchain, boasts the lowest rate of credit card fraud in the euro zone. And startups like Bitreserve are enabling completely free online-money transactions, without the volatility and risk associated with bitcoin. July 5, 2015 El-Erian engagingly discusses P2P (Peer to Peer) lending, in which he is an investor, but again, he worries about lagging regulation if the banks are disintermediated. There might be no solution to this issue. Regulation has always lagged behind innovation, or regulators would themselves be innovators. He presents ten issues that concern him most, beginning with an absence of effective growth models in the advanced economies and widespread political dysfunction. These are in reality one and the same and are caused by a lack of leadership. And naturally, political issues and economic growth are both confounded by increasing income inequality. This book was completed in early 2015, and at least two of the ten issues he lists seem quite prescient, and have now in fact arrived: extreme stock market volatility ending the new normal, and low energy prices. Both have arrived with a vengeance for the precisely the reasons he has put forward. Unemployment misses the mark, at least in the US. One issue in particular however, was concerning but has not yet come to pass. El-Erian predicts "Post market paradigm shift liquidity problems are to be expected based on current diminished broker dealer structural capacity." He says that broker dealer capacity to handle rapid shifts in portfolios is actually smaller than pre-2008, and could lead to a massive liquidity bottleneck. A range of proposals and initiatives are presented to solve these issues, the most compelling of which involves orderly debt and debt service reduction or DDSR. Influenced by his time at the IMF during the Latin American debt crisis, El-Erian is quite convincing as an advocate for debt forgiveness as a way to spur growth, rather than maintenance of unsustainable debt overhangs in the name of austerity. Returning to his thesis on the effectiveness of central banks, El-Erian is quite sober: No one should doubt if they remain 'the only game in town,' there is a real chance that they will go from being part of the solution to being part of the problem...There isn't much central banks can do to improve countries' growth engines. These institutions have neither the expertise nor the mandate to pursue reforms in education and labor markets. They are not in a position to lead national and regional infrastructure drives. They simply do not have the power to influence fiscal reforms, let alone impose them. "The Only Game in Town" presents the woof and warp of the post-crisis global financial system in its full complexity, as only someone with El-Erian's range of experience as a theorist, public servant, and private investor possibly could. He seems in no danger of making Irving Fisher's mistake of forecasting a continuation of a "high plateau" but neither does he think that a negative outcome is inevitable. -- This feed and its contents are the property of The Huffington Post, and use is subject to our terms. It may be used for personal consumption, but may not be distributed on a website.

10 февраля 2016, 01:13

Will Italy Prompt a Global Financial Crisis?

The current situation is definitely not pretty. In the turmoil that affects equity markets, banks seem to be taking center stage. Among them, Italian banks have become the center of attention. European banks are not in good health The recent assessment of the International Monetary Fund that European Banks have not provided for 900 billion dollars of bad loans is not particularly reassuring. As early as this week, former Governor of the Banque de France Christian Noyer was bold enough to state that "Eurozone banks are going very well. It is solid". It is precisely that official speech that is the first source of worry. Is it denial or public relations? None of those are part of a Central Bank Governors' job description. The reality should be sobering. In the last five days Deutsche Bank shares lost 15% of their value. But nowhere has the situation been worse than in Italy where the bad loans amounted at the end of December 2015 to $234 billion. They represent on average 17% of the loan portfolios against 7% for the Eurozone. Monte dei Paschi di Siena: the bad bad bank On the verge of bankruptcy, the oldest European bank, Monte dei Paschi di Siena, was rescued by the Italian Government. The European Central Bank (managed by an Italian) even created a new category of support by governments to allow this to happen. The collapse was the consequence of frauds in derivatives and the purchase of another bank at an outrageously high price. Mismanagement and fraud under the eyes of the Banca d'Italia. That would however not be a disaster since MPS is the third largest bank in Italy. Of course, the Italian Government is in denial. Yet the stock price fell in a few months from 2.5 euros to 0.50 euros. There are talks about a rescue by the other Italian banks...who themselves, with the exception of Istituto San Paolo di Torino, are in trouble. Unicredit loses 45% of its value The largest bank of Italy was caught by a series of bad news that its meager profit could not correct. It lost 46% of its value since the beginning of the year. Two years ago it had to be recapitalized at half the value of its existing shares. A collapse of Unicredit would be impossible. It is a systemic Italian bank and it would make Italy's situation even worse. Italian sovereign bond yields jump Anticipation of an intervention for the Italian banks led to an increase of the yield of Italian 10-year bonds from 1.41 to 1.68% in a little over one week. It is the result of the persistence of the Italian indebtedness, second only to Greece with a 132%ratio of debt to GDP. That in turn will reduce the value of the bonds of the Italian Tesoro held in the balance sheets of Italian banks. Even if the accounting rules do not force them to account for the change, the fact is that their bad loans turn into sovereign weakness that turns into further losses fo Italian banks. The perfect vicious circle. Since Italian soveriegn bonds represent more than 120% of the equity of banks, the decrease in value weakens the equity position of banks. With no growth, the mere effect of the interest rates is to increase the debt to GDP ratio. The 2.5 trillion dollar question See from the US it looks as the same as Greece. There is however, a major difference: Italy's public debt amounts to 2,470 billion dollars. The European Central Bank or the European institutions do not have the means to rescue Italy as they did for Greece that amounted to 350 billion. that means that it would be, at least a major banking and economic crisis in Europe. I do not believe it will limited to Europe. This Italian and European banking crisis will represent a multiple of the 2008 crisis. Is there a pilot in the plane? -- This feed and its contents are the property of The Huffington Post, and use is subject to our terms. It may be used for personal consumption, but may not be distributed on a website.

12 января 2016, 20:20

Villeroy de Galhau and Fischer express caution over inflation target change

Central Banking French governor and predecessor see dangers in raising inflation targets There could be costs to changing inflation targets in response to persistent low inflation, say François Villeroy de Galhau, Christian Noyer and Stanley Fischer

12 января 2016, 03:53

Tuesday: Job Openings

Tuesday:• At 5:30 AM ET, Panel Discussion with Vice Chairman Stanley Fischer, Monetary Policy, Financial Stability, and the Zero Lower Bound, At the Banque de France and Bank for International Settlements Farewell Symposium for Christian Noyer, Paris, France• At 9:00 AM, NFIB Small Business Optimism Index for November.• At 10:00 AM, Job Openings and Labor Turnover Survey for November from the BLS. Job openings decreased in October to 5.383 million from 5.534 million in September. The number of job openings were up 11% year-over-year, and Quits were up slightly year-over-year.Some interesting information from Jody Kahn and Devyn Bachman at John Burns Real Estate Consulting 23,263 New Home Sales Last Year at Top 50 Masterplans, a 14% Increase over 2014In 2015, the top 50 masterplans listed in the table below sold nearly 23,300 homes, representing:• A 14% increase over 2014• Roughly 4.7% of all new home sales nationally• The highest sales volume in the 6 years we have been compiling our list...Texas continues to lead the country. The state boasts 17 of the top 50 best-selling master-planned communities, including 9 in Houston, the most of any metro area, 6 in Dallas, and one each in Austin and San Antonio. California contributed 11 top sellers, Florida had 7 communities, Las Vegas contributed 4, and Denver had 3. After getting shut out in 2014, 3 Phoenix communities joined the list ...emphasis addedI expect sales in Houston to slow in 2016 (see: Lawler: "Yes, Houston will have a problem next year" , and Houston has been a major contributor to New Home sales - this is a reason I'm less optimistic than most housing analysts on new home sales this year.

09 января 2016, 16:09

Schedule for Week of January 11, 2016

The key economic report this week is December retail sales on Friday.For manufacturing, December Industrial Production, and the January NY Fed manufacturing survey will be released on Friday.----- Monday, January 11th -----10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI). ----- Tuesday, January 12th -----5:30 AM ET: Panel Discussion with Vice Chairman Stanley Fischer, Monetary Policy, Financial Stability, and the Zero Lower Bound, At the Banque de France and Bank for International Settlements Farewell Symposium for Christian Noyer, Paris, France9:00 AM ET: NFIB Small Business Optimism Index for November. 10:00 AM: Job Openings and Labor Turnover Survey for November from the BLS. This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. Job openings decreased in October to 5.383 million from 5.534 million in September.The number of job openings (yellow) were up 11% year-over-year, and Quits were up slightly year-over-year.----- Wednesday, January 13th -----7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.2:00 PM: the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.2:00 PM: The Monthly Treasury Budget Statement for December.----- Thursday, January 14th -----8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 275 thousand initial claims, down from 277 thousand the previous week.----- Friday, January 15th -----8:30 AM: The Producer Price Index for December from the BLS. The consensus is for a 0.2% decrease in prices, and a 0.1% increase in core PPI.8:30 AM ET: Retail sales for December will be released.  The consensus is for retail sales to be unchanged in December,This graph shows retail sales since 1992 through November 2015. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). On a monthly basis, retail sales were up 0.2% from October to November (seasonally adjusted), and sales were up 1.4% from November 2014.8:30 AM: NY Fed Empire State Manufacturing Survey for January. The consensus is for a reading of -4.0, up from -4.6.9:15 AM: The Fed will release Industrial Production and Capacity Utilization for December.This graph shows industrial production since 1967.The consensus is for a 0.2% decrease in Industrial Production, and for Capacity Utilization to decrease to 76.8%.10:00 AM: University of Michigan's Consumer sentiment index (preliminary for January). The consensus is for a reading of 92.0, up from 91.3 in November.10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for November.  The consensus is for a 0.1% increase in inventories.

30 ноября 2014, 18:57

Страны Европы хотят забрать своё золото из США

Финансовый кризис в Европе вынуждает некоторые страны вернуть свои золотовалютные резервы в местные хранилища. Так, Нидерланды перевезли из Нью-Йорка 122 тонны золота стоимостью 5 млрд. долларов. Подобные меры приобретают всё больше сторонников во Франции, Швейцарии и Германии. Беспрецедентные темпы печатания денег со стороны крупнейших Центральных банков вызвали беспокойство в европейских странах: они всерьёз озабочены безопасностью своих золотых запасов за рубежом, пишет англоязычный сайт Russia Today. Так, Банк Нидерландов объявил, что перевёз пятую часть своего золотого запаса из Нью-Йорка в Амстердам. Как объясняет руководство банка, это было сделано для того, чтобы более сбалансированно распределить золотой запас и повысить доверие у населения. Золотой запас Нидерландов на данный момент составляют 612,5 тонн, об этом свидетельствуют данные Всемирного совета по золоту. «Эту меру Банк Нидерландов принял вслед за другими банками, которые хранят большую часть золотого запаса в своей стране. Это способствует не только более уравновешенному распределению золотого запаса, но и росту доверия граждан», – говорится в официальном сообщении организации. На сегодняшний день 31% золотого запаса Нидерландов находится в Амстердаме, 31% – в Нью-Йорке, 20% – в Оттаве, 18% – в Лондоне. Если во время референдума по золоту в Швейцарии будет принято положительное решение, Национальному банку страны придётся конвертировать пятую часть своих активов в золото и вернуть свои резервы из Великобритании и Канады. «Швейцарская инициатива – это лишь часть нарастающей тенденции глобальной борьбы за золото и отход от бесконечного печатания денег. Прямо сейчас происходят перемещения огромных денежных сумм», – пояснил Коос Янсен, аналитик сингапурской компании Bullion Star. Во Франции вернуть на родину золотой резерв призывает лидер Национального фронта Марин Ле Пен. Вместе с этим, в открытом письме управляющему Банка Франции Кристиану Нуайе Ле Пен попросила провести аудит золотого запаса страны, который насчитывает 2345 тонн. В начале 2013 года вернуть золото на свою территорию из Франции и США намеревалась Германия, однако впоследствии страна отказалась от этой идеи. На родине находится лишь треть немецкого золотого запаса, она хранится в Центральном банке (Бундесбанке) во Франкфурте. Стоит также напомнить случай с Венесуэлой, которая во время правления Уго Чавеса смогла вернуть в 2012 году на территорию страны почти всё золото, которое хранилось за рубежом. Также как и Венесуэла, Нидерланды тоже смогли показать другим странам, что при желании и политической воле репатриацию золота через Атлантику можно успешно провести за несколько месяцев.

29 ноября 2014, 20:55

Франция вслед за Германией и Нидерландами потребовала у США вернуть свое золото

Лидер французской фракции «Национальный фронт» Марин Ле Пен потребовала вернуть все золото Франции, хранящееся в других странах, а также провести полный аудит резервов Центробанка С этим вопросом Марин Ле Пен обратилась к главе Банка Франции Кристиану Нуайе. Она напомнила в открытом письме, что в 1939 и 1940 годах золото Франции было вывезено из США. Сейчас, по ее мнению, необходимо провести такую же операцию. Марин Ле Пен также отметила необходимость проверить операции по продаже золота, прошедшие в период с 2004 по 2012 годы. Тогда, по указу Николя Саркози, было реализовано 614,6 тонны металла.  Напомним, Центробанк Нидерландов уже вернул 20% запасов золота, хранящихся в Нью-Йорке. Ранее Германия и Швейцария тоже изъявляли желание перевезти свое золото на родину. По официальной версии, Германии сообщили, что в хранилище Федерального Резерва США оно будет в большей сохранности, чем на родине. По неофициальной — вывезти его из Америки уже не представляется возможным. 

28 ноября 2014, 20:14

Европейские страны вывозят золотовалютные резервы из США

Финансовый кризис в Европе вынуждает некоторые страны вернуть свои золотовалютные резервы в местные хранилища. Так, Нидерланды перевезли из Нью-Йорка 122 тонны золота стоимостью $5 млрд. Подобные меры приобретают всё больше сторонников во Франции, Швейцарии и Германии. Беспрецедентные темпы печатания денег рядом крупнейших центральных банков вызвали беспокойство в европейских странах: они всерьёз озабочены безопасностью своих золотых запасов за рубежом, пишет англоязычный сайт RT. Так, Банк Нидерландов объявил, что перевёз пятую часть своего 612-тонного золотого запаса из Нью-Йорка в Амстердам. Как объясняет руководство банка, это было сделано для того, чтобы более сбалансированно распределить золотой запас и повысить доверие у населения. "Эту меру Банк Нидерландов принял вслед за другими банками, которые хранят большую часть золотого запаса в своей стране. Это способствует не только более уравновешенному распределению золотого запаса, но и росту доверия граждан", - говорится в официальном сообщении организации. На сегодняшний день 31% золотого запаса Нидерландов находится в Амстердаме, 31% - в Нью-Йорке, 20% - в Оттаве, 18% - в Лондоне. В Швейцарии послезавтра пройдёт референдум "Спасите наше золото". Если будет принято положительное решение, Национальному банку придётся конвертировать пятую часть своих активов в золото и вернуть свои резервы из Великобритании и Канады. "Швейцарская инициатива - это лишь часть нарастающей тенденции глобальной борьбы за золото и отход от бесконечного печатания денег. Прямо сейчас происходят перемещения огромных денежных сумм", - пояснил Коос Янсен, аналитик сингапурской компании Bullion Star. Во Франции вернуть на родину золотой резерв призывает лидер Национального фронта Марин Ле Пен. Вместе с этим, в открытом письме управляющему Банка Франции Кристиану Нуайе Ле Пен попросила провести аудит 2345-тонного золотого запаса. В начале 2013 года вернуть золото на свою территорию из Франции и США намеревалась Германия, однако впоследствии страна отказалась от этой идеи. На родине находится лишь треть немецкого золотого запаса, она хранится в Народном банке во Франкфурте. (http://russian.rt.com/art...)

28 ноября 2014, 19:09

Текст: Марин Ле Пен официально потребовала репатриации французского золота: полный текст ( Марин Ле Пен )

Источник Г-ну Кристиану Нуайе Управляющему Банка Франции 31 rue Croix des Petits-Champs 75049 PARIS cedex 01 Нантер, 24 ноября 2014 года Открытое письмо г-ну Кристиану Нуайе (Christian Noyer) о золотых резервах Франции Господин Управляющий, Пишу вам от имени французов и в качестве главного лидера оппозиции, так как считаю своим долгом в интересах нашего народа представить петицию о золотых резервах Франции. Ещё до начала кризиса 2008 года Национальный фронт предвидел грядущее ухудшение макроэкономической и геополитической обстановки и информ...

14 ноября 2014, 14:54

Italy Remains In Recession As Germany Avoids Triple-Dip By Smallest Possible Margin

The key event overnight was the release of European Q3 GDP data, which saw Germany averting a recession by the narrowest of margins when following a -0.2% drop in Q2 economic growth, Germany grew by the smallest amount possible in Q3, or 0.1%, in line with expectations, thus averting two consecutive quarters of decline, the technical definition of a recession. As Goldman notes, Germany's statistical office did not release at this point any detailed figures but hinted in its press statement that private consumption was a main contributor to growth as private households increased their spending "strongly". Net trade was also a positive factor as exports rose stronger than imports. However, machinery investment was down "significantly" and inventories also contributed negatively. Although we don’t have the detailed figures yet, the breakdown of GDP demand components seems to be consistent with a "confidence shock" that hit the German economy during Q2 - reflecting the tensions in the Ukrainian/Russian conflict - and that led to a decline in investment spending (the most volatile and most sensitive part of the economy). But this also suggests that the economy should resume its growth momentum as the negative confidence shock fades out. Of course, if the recent re-flaring of the Ukraine situation persists, look for German Q4 GDP to once again contract, with a handy "scapegoat" once again readily available. In fact this increasingly appears probable, especially when moments ago this hit: GERMANY WEIGHS BACKING FURTHER RUSSIA SANCTIONS: WIRTZ The French economy likewise posted a modest increase in Q3, although one wonders how aggressively the data had to be fudged for a country whose PMIs all indicate a -1% or greater contraction. Italy however was less creative with its use of "hookers and blow", and continued its recession with a 3rd negative print, contracting at -0.1% as expected, while Portugal also missed third quarter growth estimates. In any event, European markets have played little attention to the slew of Eurozone GDP releases which revealed a beat on expectations for the core (France & German) while showing that weakness still remains in the periphery as Italy slipped back into recession and Portugal fell short of expectations, as equities trade in relatively mixed territory with volumes particularly thin thus far. Furthermore,  On a sector specific basis for equities, energy names continue to underperform as WTI prices head for their longest weekly decline since 1986. Elsewhere, the utilities sector continues to feel the squeeze, with RWE under further selling pressure (-2.8%) with participants speculating over whether the Co. will cut their dividend. Fixed income products reside in positive territory with no fundamental news being attributed to the move, it is also worth noting that volumes in the Bund are particularly thin with just over 100k contracts having gone through at the time of writing. All eyes continue to be on WTI and Brent, which were trading just above $74 and $78 respectively. Another bout of liquidations may take the West Texas contract to a $60 handle soon enough and with it raise the specter of widespread HY defaults, which would break the relative 6 year calm the space has experienced thanks to ZIRP. In more relevant for HFT algos overnight developments, price action centred mostly on USD strength which sent USD/JPY to its best levels since 18th Oct’07. The move higher was attributed to Japanese corporate seller positions taken out by Asia-based hedge funds and European names buying to trigger stop-losses above 116.10. However, during the European session USD has traded in a relatively rangebound manner with USD briefly coming off its best levels and thus providing some reprieve for its major counterparts, notably GBP/USD which earlier struck its lowest level since September 2013. Elsewhere, price action for EUR/USD may see some magnetism towards 1.2450 where there is 1.1bln in option expiries due to roll-off at 1500GMT NY cut. In the energy complex WTI Crude futures have seen a bid in recent trades on bargain hunting following selling seen throughout the week, and after WTI finished lower by USD 3 at the NYMEX pit close yesterday. Do note that yesterday crude futures finished at session lows after a technical break below USD 75.00 in WTI and ahead of the Dec Brent December futures expiry. News that Libya's Hariga oil port had reopened also weighed on prices, as well as lacklustre Chinese data on Wednesday night which indicated a slowdown in consumption. In terms of energy newsflow the IEA released their monthly report and said pressure on OPEC to reduce production is building but it appears no clear consensus on a supply cut yet. Elsewhere, precious metals markets have traded in a relatively rangebound manner throughout the European session, with participants looking ahead to the US retail sales and Univ. of Michigan confidence releases. On the US calendar today we have US retail sales, which this time will probably disappoint on a drop in nominal values of car and gas transactions even if the control group is expected to remain steady (although based on disappointing commentary by retail chains in this earnings season, the US consumer is seriously hunkering down ahead of the winter), as well as the Univ. of Michigan confidence and any comments from Fed’s Bullard and Fischer. Bulletin Headline Summary from RanSquawk and Bloomberg European equities trade in relatively mixed territory with participants not reading too much into the latest GDP releases. Eurozone GDP releases revealed a beat for the core (France & German) while showing that weakness still remains in the periphery as Italy slipped back into recession and Portugal fell short of expectations. Looking ahead, attention turns towards the release of US retail sales & Univ. of Michigan confidence and any comments from Fed’s Bullard and Fischer. Treasuries head for weekly decline after U.S. sold $66b of 3Y/10Y/30Y debt in quarterly refunding auctions; PPI, CPI reports due next week. Euro-area economy grew 0.2% in 3Q vs 0.1% median estimate in Bloomberg survey; Germany +0.1%, in line with forecasts, from revised -0.1% in 2Q;  France +0.3% vs 0.1% est., revised -0.1% in 2Q ECB Governing Council member Christian Noyer told French daily Les Echos in an interview that the ECB could buy state or company debt if it decided that its policies weren’t having any effect PBOC’s targeted liquidity injections haven’t been enough to spur a pickup in lending as aggregate financing in October was 662.7b yuan ($108 billion), down from 1.05t yuan in September U.K. house-price growth accelerated in October as the number of properties changing hands rose to match a seven-year high, according to Acadata and LSL Property Services Japan’s Abe moving toward delay of sales tax increase, perhaps for 18 months from original plan of next October, according to Nikkei newspaper Japan’s Government Pension Investment Fund posted notice on its website soliciting transition managers for Japanese and foreign stocks as well as foreign bonds Russia is preparing for a “catastrophic” slump in oil prices, which it can weather thanks to a cushion of more than $400 billion in reserves, President Vladimir Putin said The U,.S. House of Representatives is poised to vote again to allow the Keystone XL pipeline -- this time with the promise of a Senate vote next week as Republicans and Democrats seek advantage in a runoff for the last undecided U.S. Senate seat Obama’s top military adviser said more U.S. troops may be needed in Iraq for a “long and difficult” fight against Islamic State, as military planners assess the shortcomings of Iraqi forces Sovereign yields decline. Nikkei +0.6%, Shanghai -0.3%.  European stocks mixed, U.S. equity-index futures higher. Brent crude +0.7% after falling below $78/bbl yday; gold and copper lower US Event Calendar 8:30am: Retail Sales, Oct., est. 0.2% (prior -0.3%); Retail Sales Ex Auto m/m, Oct., est. 0.2% (prior -0.2%) Retail Sales Ex Auto and Gasoline, Oct., est. 0.4% (prior -0.1%) Retail Sales Control Group, Oct., est. 0.4% (prior -0.2%) 8:30am: Import Price Index, Oct., est. -1.5% (prior -0.5%) Import Price Index y/y, Oct., est. -1.6% (prior -0.9%) 9:55am: University of Michigan Consumer Sentiment Index, Nov. preliminary, est. 87.5 (prior 86.9) 10:00am: Business Inventories, Sept., est. 0.2% (prior 0.2%) 10:00am: Mortgage Delinquencies, 3Q (prior 6.04%); MBA Mortgage Foreclosures, 3Q (prior 2.49%) 9:10am: Fed’s Bullard speaks in St. Louis 4:00pm: Fed’s Fischer, Powell speak in Washington   * * * DB's Jim Reid completes the overnight recap A theme that has built up in US markets over the last few sessions has been the battle between supportive macro data and declining energy stocks. This battle for the moment seems to be doing a good job at keeping markets in check. Yesterday the S&P closed +0.05% as the energy sector continued to drag on the rest of the index, declining 1.34%. In terms of data, the JOLTS headline figure of 4.7m job openings in September was slightly softer compared to the August reading (4.8m) however the encouraging signs came from a rise in the ‘hiring rate’ to 3.6% (from 3.4%) as well as a rising ‘quit’ rate to 2.0% from 1.8% which represents the highest level since April 2008. As we mentioned yesterday this data is on the Fed Chair Yellen’s dashboard of economic indicators and the numbers will certainly lend further support to the strengthening labour market thesis. Offsetting this however was a further fall in the oil price. Brent declined 3.1% to $77.92 in trading last night whilst WTI was 3.9% lower to $74.21, both at the lowest levels since September 2010. The negative sentiment continues to be focused over the global supply glut and worries that OPEC won’t cut production at the meeting on the 27th of this month. Interestingly a report in the FT mentioned that Mexico has spent nearly $800m to insure against a further fall in oil prices next year, with the finance minister mentioning the need to protect public finances given the commodity funds around one-third of federal revenue. Whilst on the subject of oil, we’ve re-attached our link from yesterday to Oleg’s piece on the tipping point of the oil price in relation to the HY market, apologies for those we were unable to access it yesterday. Whilst we’re on the topic of HY, the latest weekly HY fund flow data shows another week of differing fortunes for US and European funds. US funds saw a 4th consecutive week of inflows ($930mn) which means they have now added just over $8.5bn in this time (3% of NAV). In Europe however we saw another week of moderate outflows ($32mn). We have now seen just 1 week of inflows in the past 7 weeks (since late September). That said we have still seen net inflows YTD of $3.5bn (9.9% of NAV) in Europe. Despite the recent inflows in the US we have still seen net outflows YTD of $6.4bn (2.1% of NAV). In my discussions with numerous HY fund managers in recent weeks, most think HY is now cheap but until there is consistency of inflows there is little incentive or ability to be too aggressive expressing that view. Just going back to wrap up the US data yesterday, jobless claims rose 12k to 290k which was a touch higher than expectations of 280k. This has pushed the 4 week average up to 285k although we note that this still remains at historically low levels. Treasuries meanwhile were stronger, with the 10yr 4bps tighter over the day whilst credit markets largely reflected equity moves and closed flat. Closer to home the Stoxx 600 closed +0.2% at the end of play, although traded as high as +0.6% and as low as -0.4% over the session as market sentiment fluctuated over tumbling oil prices and selected solid corporate earnings prints. The various CPI readings in the region did little to excite the market and continue to paint a subdued inflationary environment. Germany printed in line with expectations (-0.3% mom, +0.8% yoy) along with Spain (+0.5% mom, -0.1% yoy) whilst France was the marginal positive with the country reporting flat mom reading (vs. -0.1% expected) and a better than expected +0.5% yoy (vs. +0.4% expected). More importantly perhaps was the ECB’s Coeure who touched on the topic of inflation and was quoted as saying that ‘what we see is a subdued outlook for inflation and a weakening of the growth momentum and a continuously sluggish momentum in credit dynamics, which all confirm the need for a very accommodative monetary stance for an extended period of time’. If that wasn’t enough Reuters also published a report noting that 61 professional forecasters surveyed by the ECB expect eurozone inflation of 1% next year and 1.4% in 2016 (down from 1.2% and 1.5%). Today we have the second part of the European data double header with the regional Q3 GDP prints including Germany, France and Italy as well as the wider Eurozone estimate. Just wrapping up the news in and around Europe yesterday, Russia posted a +0.7% yoy GDP figure, above expectations of +0.3% although down on the previous reading (+0.8%). This comes after the Bank of Russia has forecasted growth of +0.3% this year before stagnating in 2015 with concerns over both geo-political tension with Ukraine and lower oil prices. The MICEX closed down 1.42% yesterday whilst the ruble extended declines, losing 2.1% versus the Dollar. Before we take a look at the rest of the day ahead, late last night we had some headlines out of Asia with the Asian Review reporting that Japan Prime Minister Abe is moving a step closer to postponing the consumption tax. The article quotes a senior government official who was reported as saying that Abe is ‘basically moving toward putting off’ raising the tax from 8% to 10%, with a decision to be made as early as next week. It will certainly be interesting to keep an eye on proceedings next week in Japan, with preliminary Q3 GDP due late on Sunday (London time) as well as Abe hosting further meetings with mayors and business leaders early in the week. With the potential for a decision around dissolving the lower house to be made next week too, it could certainly be an eventful week for the region and one we will be keeping a keen eye on. As we type the Nikkei is -0.2% on the day whilst JPY is 0.2% weaker versus the Dollar to 115.98 on the back of the comments. Elsewhere other Asian markets are generally mixed with bourses in Hong Kong, China and Korea +0.1%, -0.2% and -0.9% respectively. In terms of the rest of the day ahead and away from the GDP prints in Europe, we’ve also got the HICP print for the region which we don’t expect to be too far away from the market consensus of 0.4% yoy for the headline figure after yesterday’s regional prints. As well as this we’ve got ECB members Lautenschlaeger and Coeure scheduled to speak at stages during the day and closer to home we’re expecting UK construction output. Later in the day and across the pond, we’ve got a relatively packed data docket which kicks off with retail sales. DB’s Joe LaVorgna mentions that the print will be especially important to gauge the current state of consumption in the region. Joe highlights that although retail sales only account for around one-quarter of total consumer spending, the data are highly correlated with overall consumption and in point of fact, the quarterly annualized change in retail control has a nearly 0.80 correlation coefficient to overall inflation-adjusted spending. Our colleagues have a +0.4% forecast for the ex. auto and gas print which is notably firmer than the headline and ex. autos figure which they’re expecting to be flat. Post this reading we will also be awaiting the import price index print followed by Michigan confidence and business inventories shortly after. If that wasn’t enough we will also have the usual Fedspeak with Bullard (speaking on the US economic and monetary policy outlook), Fischer and Powell due today.     

Выбор редакции
07 ноября 2014, 13:47

ECB Noyer Warns Low Rates Could Discourage Reforms

European Central Bank board member Christian Noyer said Friday there is a risk that low interest rates in the euro zone are discouraging governments from taking action to repair their economies.

07 ноября 2014, 12:57

European shares rise ahead of key US jobs data business live

Rolling coverage and reaction, as European central bankers gather in Paris. Hopes are high that the US recovery matches the Feds optimism, with non-farm payrolls expected to show a 231,000 rise.  9.57am GMTEuropean central bankers and economists have gathered in Paris for a symposium at the Banque de France. Central banks should be prepared to buy government bonds if yields surge, or to ward off the threat of deflation, said Christian Noyer, governor of the Banque de France and a member of the ECBs governing council.In extreme circumstances a central bank should mitigate the effects of confidence shocks on sovereign yields by purchasing government bonds.Such an action may be vindicated if there are risks to macroeconomic or financial stability or even if self-fulfilling runs on public debt may be a threat to market access, or lastly to avoid the deflationary consequences of a public debt event. 9.39am GMTBank of England governor Mark Carney is speaking this morning in Paris. He will be on a panel at the International Symposium of the Banque de France, at 10.15am GMT. Webcast at banque-france.fr/en/home.html 9.38am GMTUK trade figures out just now show that Britains trade in goods deficit widened more than expected in September as exports to the EU were sluggish, and oil imports jumped.The Office for National Statistics said the trade gap ballooned to £9.8bn from £8.95bn in August. Oil imports surged nearly 28%. 9.33am GMTThe ECB will suspend crisis loan repayments over the Christmas/New Year period. It said this morning it would not conduct early repayments of its long-term refinancing operations between 24 December and mid-January. The last repayment of 2014 will be settled on 23 December. Repayments will resume on 14 January. Like last year, the ECB decided to suspend repayments of the three-year LTROs during the year-end period, in view of the expected low interest and the concentration of other operations owing to public holidays. 9.22am GMTOver in Germany, industrial production bounced back 1.1% in September, after a 3.1% drop in August. The rebound was mainly driven by manufacturing, up 1.7%, capital goods (up 4.5%) and energy (up 2.4%). Too little, too late? asks Carsten Brzeski, economist at ING. He says this mornings data from Germany show that not all is gloom-and-doom in the eurozones biggest economy. However, the rebound of industrial production was probably not enough to get rid of all recession fears.Over the last weeks and months, the German economy has been a mystery. The slowdown story which was told by partly terrifying data, particularly from industrial activity, has not always matched gut feeling, anecdotal evidence and undebatable solid economic fundamentals. Nevertheless, it would be naïve to simply deny clearly disappointing data. At the current juncture, however, and from an analytical point of view, it is still too early to come up with an all-encompassing explanation for what is happening right now in the German economy. Is the slowdown mainly the result of an abnormal volatility caused by weather effects, vacation days and the timing of school summer holidays? Or is the current slowdown the result of several weaknesses in many trading partners and, even more important, the gradual end of the positive reform-growth cycle the economy has been in for the last decade? In our view, it is a combination of the two. 9.17am GMTThe dollar is hovering close to a 4 1/2 year high against a basket of currencies, buoyed by recent strong data for the US economy. The dollar index touched a high of 88.174, its highest level since June 2010. The non-farm payrolls numbers at lunchtime could give the greenback a further lift if they point to a solid recovery in the jobs market. Most economists think some 231,000 new jobs were created in October, compared with Septembers strong reading of 248,000. We are expecting a reading of 240,000 and anything about that, in the region of 250,000 could send the dollar higher.  9.08am GMTAmong todays stock market losers, car insurer Admiral, which owns price comparison site Confused.com, stands out. Shares fell as much as 3.7% after the company posted a drop in turnover amid fierce competition. Rival RSA fell 2.7%.Admiral boss Henry Engelhardt said:We anticipate that future earnings will be impacted by the decline in premiums experienced across the market in recent years, coupled with a return to higher claims inflation.  9.01am GMTThe FTSE 100 continues to march higher and is now trading 0.7% higher, or 45 points, at 6597.08. Royal Mail is one of the biggest risers, up as much as 3.3%, after a positive broker note. Goldman Sachs decided to resume its coverage of the company with a buy rating.The FTSE hit a peak of 6904.86 in early September, its highest level since the start of 2000. In October, weak European economic data dragged down stock markets, including the London market, which slumped to 15-month lows. But it has clawed back ground since then. 8.46am GMTIn other corporate news, the company that controls Londons Canary Wharf, Songbird Estates, has rejected a joint takeover bid worth £2.2bn from the Qatar Investment Authority and a US commercial property firm.National Grid has seen first-half profits climb 16% to £1.1bn. The electrical and gas utility firm has formed a joint venture with property developer the Berkeley Group, to build homes and mixed-use developments across London and the south east. National Grid owns a big portfolio of surplus brownfield land which it wants to release for development.  8.18am GMTAll the main European stock markets are up. The FTSE 100 index has opened more than 25 points higher at 6576.68, a 0.4% rise. The Dax in Frankfurt is also 0.4% higher while the CAC in Paris has edged up 0.2%. The FTSE MiB in Milan is flat and Spains Ibex is 0.4% ahead. Upbeat corporate results from major European companies including steel titan ArcelorMittal have lifted markets. The worlds largest steelmaker, which makes 6% of the worlds steel, beat analysts expectations with third-quarter profits.  8.15am GMTGood morning, and welcome to our rolling coverage of the financial markets, the world economy, the eurozone and business.Wall Street and the dollar surged yesterday fuelled by optimism about the US economy, with the Dow Jones and S&P 500 closing at new records. Continue reading...    

29 октября 2014, 22:42

Life Lessons To Derive From QE And Stress Tests

Submitted by Raul Ilargi Meijer via The Automatic Earth,  Arthur Rothstein Texas Panhandle Dust Bowl Mar 1936 I already proposed a few days ago that the recent ECB stress test exercise was such a shambles, it may well have been designed to fail on purpose. In order for Mario Draghi and his Goldman made men to be freed from that pesky German resistance against full blown QE, i.e. large scale purchases of government bonds from the 18 countries that make up the eurozone. And perhaps the other 10 that are part of the EU without using the common currency. The sky’s the limit. Just how bad that would be is hinted by Tracy Alloway for the FT as she describes how QE tempts investors into asset classes with far more risk than they should have on their hands, simply because they feel the Fed – or some other central bank – has their back. Sounds like the perfect way to separate a whole lot of people from their money. Which is why Draghi is so tempted to try it on. QE destroys societies, economies and financial systems, it doesn’t heal them. So maybe it’s a touch of genius that the great powers of global finance have first pushed Keynes into the academic world and then academics like Bernanke and Yellen into positions such as head of the Fed, making everyone blind to the fact that what they think is beneficial, including many who think they’re real smart, actually hurts them most. When you looked at it in that light, you would be forgiven for thinking Draghi had better hurry, because higher rates and a higher dollar will give away much of that game. And not just in America. But Stupor Mario has one great excuse left: his hands are tied. Not for long anymore, perhaps, since the ECB is set to become the sole EU banking supervisor, but that is not the same as having a full banking union, the prize the real big banking boys have their eyes on. Control over all EU banks from one central point, with the power to shut them down, squeeze them dry, and make them beg for mercy. Athens, Greece based economics professor Yanis Varoufakis has some words on how Mario’s hands are tied: The ECB’s Stress Tests And Our Banking Dis-Union: A Case Of Gross Institutional Failure What gives the Fed-FDIC power over banks is the common knowledge that, when it assesses that a bank is insolvent, it has no serious qualms saying so. The reason, of course, is that it not only has powers of supervision (i.e. access to their books) but, crucially, powers of resolution and, if it so judges, the power to force mergers or to recapitalise the failing bank.   Suppose that, instead, the Fed-FDIC had, as the ECB does, only the power to scrutinise the banks’ books. Imagine now that, with only this power, the Fed-FDIC were to discover that some bank in Nevada or Missouri is in trouble. If the Fed-FDIC’s charter precluded it from doing anything else other than to announce the bank’s insolvency, its supervisory power would mean little.   For if it were common knowledge that the fiscally stressed State of Nevada or Missouri would have to borrow from money-markets to pay for the depositors’ guaranteed deposits, as well as for any new capital the banks needed to be salvaged, the rest of the state’s banks would face a run, the states would see their borrowing costs skyrocket and, soon, a combined banking and fiscal crisis could be rummaging throughout the ‘dollar zone’.   To put this crudely, the good people at the Fed would have no alternative than to keep their mouths shut, to conceal the bad news, to cover up for the bank’s problems and try to find some hush-hush way of bolstering its capitalisation.   This is precisely the sad state our so-called Banking Union has pushed the ECB’s supervisors into. As long as the ECB is not the sole authority on bank resolution, and as long as funds for dealing with insolvent banks are to come (in the final analysis) from the fiscally stressed states, the death embrace between weak states and fragile banks will continue. If the ECB guys have too narrow a mandate for their own taste, or they don’t like their salaries or perks, they should speak out about that. Not behind closed doors, but in public. And not only in general terms, but in specifics, if it leads to situations like this where an entire year and millions of euros are spent on an audit that they know beforehand will be way less than truthful, let alone useful. These people receive generous salaries provided by European taxpayers, and the least they should do is be honest. I know, who am I kidding, right? So what’s the solution for Europe, handing over the whole shebang to Draghi and his ilk? No, it isn’t, but they’re getting real close to achieving just that. And once the banking union is a fact, it will be that much harder – and expensive – for Greece and Italy and Cyprus and Spain and Portugal to wrestle themselves out of the straightjacket the EU has become. It’s no coincidence that it was Greek and Italian banks who got hit hardest by the tests, flawed and fake as these were. The EU has become a power game more than anything, a ploy to induce so much fear into the financially weakest they’ll lose the belief that they can stand their own legs. And then they can be subordinated slaves forever. As I said Sunday in Europe Redefines ‘Stress’, the stress tests were little more than a joke. They were designed that way. In that article, I referred to Bloomberg’s Mark Whitehouse writing about a different, more or less parallel stress test, performed by the Center for Risk Management in Lausanne, inTesting Europe’s Stress Tests. My comment then: The ECB’s Comprehensive Assessment says $203 billion was raised since 2013, leaving ‘only’ €25 billion yet to be gathered. The Swiss report says €487 billion is needed just for 37 of the 130 banks the ECB stress-tested. Of the banks the Swiss identify as having the greatest capital shortfalls, most passed the EU tests. Judging from the graph, the 7 banks in need of most capital have an aggregate shortfall of some €300 billion alone.   Among them the 3 main, and TBTF, French banks, who all passed with flying colors and got complimented for it by French central bank governor Christian Noyer today, but according to the Center for Risk Management are about €200 billion short between them. Which means France as a nation has a stressed capital shortfall of over 10% of its GDP, more than twice as much as the next patient. Turns out, the Swiss were not the only ones doing an alternative stress test. Sachsa Steffen at the European School of Management (ESMT) in Berlin, and Viral Acharya at the Stern School of Business in New York did one as well. And the similarities between the two alternative ones, as well as the differences between both their results and the ‘official test’ are so big it’s ludicrous. Tom Braithwaite in an excellent piece for FT: Alternative Stress Tests Find French Banks Are Weakest In Europe On Sunday, Christian Noyer, governor of the Banque de France, was crowing about the “excellent” performance of French banks on the European stress tests Many of their Italian and Greek counterparts might have flunked but France could be proud of its banking sector. “The French banks are in the best positions in the eurozone,” said Mr Noyer.   Not so fast.   Two days earlier, a different test found that the French financial sector was the weakest in Europe. The team with the temerity to deliver this bucket of cold water to Paris works at the wonderfully named Volatility Institute at New York University’s Stern school and presented its findings from a safe distance – a financial conference at the University of Michigan. The chief architect, Viral Acharya, has worked on systemic risk ever since the last crisis, attempting to design a bank safety test that can be run all the time – not at the whim of regulators.   Using his methodology, which he calls SRISK, Mr Acharya found that in a crisis French financial institutions would have a capital shortfall of almost $400bn, worse than the US and UK despite their much bigger financial sectors. Looking just at the French banks tested in the ECB stress tests, which found zero capital shortfall, SRISK came up with €189bn. Mr Acharya did not have access to the 6,000 officials who scoured balance sheets across Europe to gauge the health of the continent’s banks. But his results, which have implications for other countries, including China, should not be ignored. How big is the crisis hole?  Take Société Générale. France’s second-biggest bank by market value did fine on the ECB’s stress test. But on Mr Acharya’s measure, the bank has a large capital shortfall in a crisis. There are a couple of big reasons for the difference. First, SRISK takes into account the banks’ total balance sheet without regard for risk: unlike the ECB, it does not attempt to distinguish between €1m of German Bunds and a €1m loan to a dipsomaniac farmer with a rusty tractor. Second, it does not care what banks’ book value of equity is; it uses what the stock market says it is. Under the ECB’s methodology, SocGen has €36.6bn of equity today and, in a crisis, would have €30.7bn of equity against €377bn of risk-weighted assets. That equates to a passable 8.1% capital ratio even in a deep recession. According to Mr Acharya’s methodology, the bank has only €30bn of market equity today against €1,322bn of assets for a much weaker capital ratio of 2.3%. In a crisis, when market values would plunge further, SocGen would be left with a shortfall of more than €60bn.   Using the stock market to compute a bank’s equity makes SRISK vulnerable to irrational optimism or irrational pessimism of investors. But Mr Acharya finds three good reasons to use it. “Markets told us that subprime MBS [mortgage-backed securities] had become poor in quality and liquidity; book values and regulatory risk weights did not ..”   Market values are also harder to manipulate by management through understatement of losses or provisions. Finally, banking crises are caused by drying up of credit by financiers. Financiers are not interested in book values or regulatory capital per se, but whether the firm can raise capital if needed to repay them. This is best captured by market value.”   It is not just France’s regulators and banks that might be well-advised to stop patting themselves on the back and consider other measures of systemic risk. Europe’s aggregate SRISK has fallen since 2011, with the deleveraging of balance sheets following the eurozone crisis. Systemic risk in the US has also fallen by half since 2008. But risk in China has picked up significantly and now surpasses the US. If anything, Mr Acharya notes, the problem is likely to be understated because of the amounts of off-balance sheet debt in China.   In the US, JPMorgan Chase’s leverage might be much better than its French counterparts, but its SRISK is bigger: a $98.4bn shortfall in a crisis. MetLife, which is considering suing the US government over its designation as a systemically important company, is found to pose a bigger systemic risk than Goldman Sachs.   If you believe that financial companies always appropriately value their assets and never try to massage the value of their equity and if you believe that officials are always diligent in examining banks’ accounting then SRISK is a waste of time. But if you believe this you haven’t been paying attention for the last decade. I’m tempted to say someone should save the Greeks and Italians from the power game that’s being played with them, but in reality they should save themselves. That French banks come out of the ECB test with flying colors, while in two separate other tests they look absolutely abysmal, should tell us all enough about what the game is here. There are two major countries in the eurozone, and they have all the political power there is to go around. As they are sinking, the poorer nations will be forced to make up the difference. Just like the Romans squeezed their peripheral territories so much they caused the end of their empire, and were conquered and flattened by the peoples living there. I know I’ve said it many times already, but I’m not going to give up: the EU should be broken up, and its delusional leadership structure torn to bits, as soon as possible, or Europe is once going to be a theater of war. The very thing the EU was supposed to prevent, it will be the source of. In exactly the same way that QE tears apart economies and societies. Presented as the sole solution to the debt crisis, but in reality the driving force behind increased inequality, ever lower wages and ever fewer benefits, and perhaps most of all the nigh complete suffocation of the younger generations, so the older – and therefore richer – can enjoy their so-called well-deserved retirement. This whole thing is so broken and perverted it’s getting hard to understand why anybody would want to continue clinging on to it. But then, what does anybody know? 95%+ of people have been reduced to pawns in someone else’s game, and they have no idea whatsoever. And maybe that’s genius. If you see people’s ignorance as a sufficient reason to prey upon them, that is, as many of our ‘leaders’ do. It’s what gives them power, exploiting other people’s weaknesses. And that is then seen as everyone ‘obeying’ some sort of natural law. That’s what QE and stress tests tell me. That Greeks and Italians are no longer just being preyed upon by their own people, but by others too, with different cultures and languages and entirely different goals and ideals. And that cannot end well. You might as well put them all to work in a chaingang right this moment.     

29 октября 2014, 12:22

Без заголовка

Председатель Финансового управления Специального административного района Сянган /САРС/ Чэнь Дэлинь и председатель Центрального банка Франции Кристиан Нуайе во вторник подписали в Париже меморандум по сотрудничеству в развитии оффшорных операций с китайским юанем.

28 октября 2014, 20:12

Banque de France and HKMA ink renminbi deal

Central Banking Central banks agree closer ties to boost business Central banks seek closer ties to help develop renminbi business in Hong Kong and Paris; Christian Noyer hails the two cities as ‘among the most important’ for offshore renminbi trade

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28 октября 2014, 19:21

Market debt fears main risk to euro governments: ECB's Noyer

PARIS (Reuters) - The main risk to European governments is if markets were to decide their debt burdens had become unmanageable, ECB governing council member Christian Noyer said Tuesday, adding...

26 октября 2014, 16:54

ECB Announces Stress Test Results: Here Are The 25 Banks That Failed

As was leaked on Friday, when the market surged on news that some 25 banks would fail the ECB's third stress test (because in the New Normal more bank failures means more bailouts, means the richer get richest, means more wealth inequality), so moments ago the ECB reported that, indeed, some 25 banks failed the European Central Bank's third attempt at collective confidence building and redrawing of a reality in which there is about €1 trillion in European NPLs, also known as the stress test. The ECB's results as summarized by the central bank: Capital shortfall of €25 billion detected at 25 participant banks Banks’ asset values need to be adjusted by €48 billion, €37 billion of which did not generate capital shortfall Shortfall of €25 billion and asset value adjustment of €37 billion implies overall impact of €62 billion on banks Additional €136 billion found in non-performing exposures Adverse stress scenario would deplete banks’ capital by €263 billion, reducing median CET1 ratio by 4 percentage points from 12.4% to 8.3% The central bank's punchline: "[the] Exercise delivers high level of transparency, consistency and equal treatment. Rigorous exercise is milestone for the Single Supervisory Mechanism starting in November." And this is what it's all about from Vítor Constâncio, Vice-President of the ECB. "This unprecedented in-depth review of the largest banks’ positions will boost public confidence in the banking sector. By identifying problems and risks, it will help repair balance sheets and make the banks more resilient and robust. This should facilitate more lending in Europe, which will help economic growth." Or, as Bloomberg called it, "The ECB has staked its reputation on Monday's stress test results"... what reputation? As for the 25 bank failures in question, they are shown below, with failures concentrated among Italian banks, with nine banks unable to "pass", and Greek and Cypriot banks, with three apiece. Among the largest is Banca Monte dei Paschi di Siena, Italy’s third-largest lender, which faces an outstanding capital hole of about €2.1 billion. While the ECB would have loved to have Monte Paschi pass, the bank has been far too many times near death to credibly squeak by on whatever "reality-bending" terms. Amusingly, some 18 months after the entire Cypriot financial system collapsed and the country's banks had to be bailed in, the Bank of Cyprus which failed the test as per the above, said it passes ECB stress test assessment following its EU1b share capital increase. "The positive result of the Comprehensive Assessment reaffirms the solid capital position of the Bank, even under the most extreme, severe theoretical stress conditions. It also reflects the pro-activeness of the Group in raising adequate capital in advance of the Comprehensive Assessment”: Dr Christis Hassapis, BOC Chairman says in statement. Remember: confidence... confidence.... confidence... Some quick observations: not a single major bank failed the stress test and the cumulative capital shortfall among the 25 failures is precisely €25 billion, less than the €27 billion shortfall reported during the 2011 stress test when 20 banks failed, and when Banco Espirito Santo, Dexia and Bankia all passed with flying colors. Oh, and just in case it was lost the first time, the Bank of Cyprus supposedly passed. According to the WSJ, the number of failures, and the depth of the cumulative capital shortfall, was slightly larger than what analysts and investors expected European regulators to identify during their “stress tests” of 150 of the continent’s leading banks. The ECB said the banks that failed have taken steps this year to substantially boost their capital buffers. Twelve of the 25 failing banks already have covered their capital shortfalls, raising a collective €15 billion this year. That leaves another €9.5 billion that banks still need to come up with.   Banks that received failing marks, and which haven’t already filled their capital holes, now have two weeks to explain to regulators how they plan to overcome the deficits.   As part of the exercise, the ECB also reviewed the quality of bank assets to determine whether they were accurately valued. That process resulted in banks being forced to reduce the value of their assets by a total of €48 billion, the ECB said. The central bank also identified a total of €136 billion of troubled assets, known as non-performing exposures, sitting on the balance sheets of the eurozone banks. More amusing, among the banks that failed, one after another are already lining up to comment that they already are "fixed." Some examples: BCP Says No Need to Plan Capital Increase, Forced Asset Sales. The board is confident that measures already decided in 2014 fully cover the capital shortfall resulting from the adverse scenario of ECB’s stress test, Banco Comercial Portugues says in regulatory filing. So nothing more has to be done. Muenchener Hyp has aggregated capital shortfall for the Comprehensive Assessment of 229 million euros. Muenchener Hyp raised 351 million euros of capital instruments eligible as CET1 capital in the year to Sept. 30. So nothing more has to be done. Caisse De Refinancement De L’Habitat had adjusted common equity Tier 1 ratio of 5.74% in the ECB’s asset quality review, versus a pass mark of 8%, the Bank of France says. CRH has already raised sufficient capital to make up the shortfall, Bank of France says.  CRH is case of “shortfall but cured,” Bank of France Governor Christian Noyer says. So nothing more has to be done. Polish lender Getin Noble says has already filled capital gap after tests. Getin Noble says needs no capital increase after AQR tests as it has already filled capital deficit shown in asset review tests, Chief Executive Officer Krzysztof Rosinski speaks with reporters by phone today. So nothing more has to be done. HSH Nordbank, the world’s largest maritime lender with EU20b shipping portfolio, has CET1 ratio of 6.1% in adverse scenario of ECB’s stress test vs pass mark of 5.5%. HSH says results boosted by guarantee provided by owners, states of Hamburg and Schleswig-Holstein, which was raised to EU10b from EU7b in 2013. So nothing more has to be done. Axa Bank has aggregated capital shortfall for the Comprehensive Assessment of EU200.2m, ECB says. Axa Bank raised EU135m of capital instruments eligible as CET1 Capital in the year to Sept. 30, ECB says. Axa Bank also issued EU90m contingent convertible notes to parent Axa, for total capital increase of EU225m, Axa says in separate e-mailed statement. So nothing more has to be done. And the punchline: while the three Greek banks failed, they all passed... on a dynamic basis. In other words, if one excludes reality, and replaces it with this curious state known as dynamism, all is well. So nothing more has to be done. So if none of the major banks were impacted, and if the vast majority of failures don't have to do a thing, what was the point of the stress test? Here is WSJ's take: European officials say this year’s tests are the strictest yet. They were preceded by ECB officials combing through the balance sheets of 130 banks, trying to gauge whether they accurately valued loans and other investments and forcing some banks to write down problematic assets such as overdue mortgages and corporate loans.   European Union officials and economists hope the publication of the test results, as well as the release of more than 1 million financial data points about the banks, will improve confidence in the industry. That, in turn, should make it easier for banks to issue affordable loans to household and business customers, spurring much-needed economic growth. Wait, the complete collapse in demand for bank loans in Europe (at least those loans that won't soon be purchased by the ECB), is a function of banks not having confidence in each other? So all that was preventing Europe's record unemployed consumers from levering up had everything to do with fear that their lender would go insolvent tomorrow and nothing with the youth having no employment prospects, and negligible income for everyone else? Got it. And now with bank confidence all restored and stuff, watch as this chart of European loan creation goes vertical, right?     

26 октября 2014, 16:54

ECB Announces Stress Test Results: Here Are The 25 Banks That Failed

As was leaked on Friday, when the market surged on news that some 25 banks would fail the ECB's third stress test (because in the New Normal more bank failures means more bailouts, means the richer get richest, means more wealth inequality), so moments ago the ECB reported that, indeed, some 25 banks failed the European Central Bank's third attempt at collective confidence building and redrawing of a reality in which there is about €1 trillion in European NPLs, also known as the stress test. The ECB's results as summarized by the central bank: Capital shortfall of €25 billion detected at 25 participant banks Banks’ asset values need to be adjusted by €48 billion, €37 billion of which did not generate capital shortfall Shortfall of €25 billion and asset value adjustment of €37 billion implies overall impact of €62 billion on banks Additional €136 billion found in non-performing exposures Adverse stress scenario would deplete banks’ capital by €263 billion, reducing median CET1 ratio by 4 percentage points from 12.4% to 8.3% Goldman's quick take: AQR: 16 banks fail (87% pass rate); €5 bn shortfall identified (€36 mn post mitigations). Test: 24 banks fail (80% pass rate); €25 bn shortfall identified(€9 bn post mitigations). Not all banks failing the AQR/Test overlap: Cumulatively, therefore, the two exercises yield a capital shortfall of €25 bn needing to be addressed by 25 banks. Mitigating actions result in the figures falling to €9 bn and 13 banks. Pass rate lower, shortfall below expectation:  The number of failing banks exceeds investors’ expectations as gauged by our market survey (“Survey”); the capital shortfall looks lower. Failing banks: 25 vs. 8 (middle point of the expectation), for an 81% pass rate. Capital shortfall: €25 bn pre- and €9 bn post mitigations vs. €38-51 bn expected range. The important part being that not even Goldman is buying the reported negligible capital shortfall. The central bank's punchline: "[the] Exercise delivers high level of transparency, consistency and equal treatment. Rigorous exercise is milestone for the Single Supervisory Mechanism starting in November." And this is what it's all about from Vítor Constâncio, Vice-President of the ECB. "This unprecedented in-depth review of the largest banks’ positions will boost public confidence in the banking sector. By identifying problems and risks, it will help repair balance sheets and make the banks more resilient and robust. This should facilitate more lending in Europe, which will help economic growth." Or, as Bloomberg called it, "The ECB has staked its reputation on Monday's stress test results"... what reputation? As for the 25 bank failures in question, they are shown below, with failures concentrated among Italian banks, with nine banks unable to "pass", and Greek and Cypriot banks, with three apiece. Among the largest is Banca Monte dei Paschi di Siena, Italy’s third-largest lender, which faces an outstanding capital hole of about €2.1 billion. While the ECB would have loved to have Monte Paschi pass, the bank has been far too many times near death to credibly squeak by on whatever "reality-bending" terms. Amusingly, some 18 months after the entire Cypriot financial system collapsed and the country's banks had to be bailed in, the Bank of Cyprus which failed the test as per the above, said it passes ECB stress test assessment following its EU1b share capital increase. "The positive result of the Comprehensive Assessment reaffirms the solid capital position of the Bank, even under the most extreme, severe theoretical stress conditions. It also reflects the pro-activeness of the Group in raising adequate capital in advance of the Comprehensive Assessment”: Dr Christis Hassapis, BOC Chairman says in statement. Remember: confidence... confidence.... confidence... Some quick observations: not a single major bank failed the stress test and the cumulative capital shortfall among the 25 failures is precisely €25 billion, less than the €27 billion shortfall reported during the 2011 stress test when 20 banks failed, and when Banco Espirito Santo, Dexia and Bankia all passed with flying colors. Oh, and just in case it was lost the first time, the Bank of Cyprus supposedly passed. According to the WSJ, the number of failures, and the depth of the cumulative capital shortfall, was slightly larger than what analysts and investors expected European regulators to identify during their “stress tests” of 150 of the continent’s leading banks. The ECB said the banks that failed have taken steps this year to substantially boost their capital buffers. Twelve of the 25 failing banks already have covered their capital shortfalls, raising a collective €15 billion this year. That leaves another €9.5 billion that banks still need to come up with.   Banks that received failing marks, and which haven’t already filled their capital holes, now have two weeks to explain to regulators how they plan to overcome the deficits.   As part of the exercise, the ECB also reviewed the quality of bank assets to determine whether they were accurately valued. That process resulted in banks being forced to reduce the value of their assets by a total of €48 billion, the ECB said. The central bank also identified a total of €136 billion of troubled assets, known as non-performing exposures, sitting on the balance sheets of the eurozone banks. More amusing, among the banks that failed, one after another are already lining up to comment that they already are "fixed." Some examples: BCP Says No Need to Plan Capital Increase, Forced Asset Sales. The board is confident that measures already decided in 2014 fully cover the capital shortfall resulting from the adverse scenario of ECB’s stress test, Banco Comercial Portugues says in regulatory filing. So nothing more has to be done. Muenchener Hyp has aggregated capital shortfall for the Comprehensive Assessment of 229 million euros. Muenchener Hyp raised 351 million euros of capital instruments eligible as CET1 capital in the year to Sept. 30. So nothing more has to be done. Caisse De Refinancement De L’Habitat had adjusted common equity Tier 1 ratio of 5.74% in the ECB’s asset quality review, versus a pass mark of 8%, the Bank of France says. CRH has already raised sufficient capital to make up the shortfall, Bank of France says.  CRH is case of “shortfall but cured,” Bank of France Governor Christian Noyer says. So nothing more has to be done. Polish lender Getin Noble says has already filled capital gap after tests. Getin Noble says needs no capital increase after AQR tests as it has already filled capital deficit shown in asset review tests, Chief Executive Officer Krzysztof Rosinski speaks with reporters by phone today. So nothing more has to be done. HSH Nordbank, the world’s largest maritime lender with EU20b shipping portfolio, has CET1 ratio of 6.1% in adverse scenario of ECB’s stress test vs pass mark of 5.5%. HSH says results boosted by guarantee provided by owners, states of Hamburg and Schleswig-Holstein, which was raised to EU10b from EU7b in 2013. So nothing more has to be done. Axa Bank has aggregated capital shortfall for the Comprehensive Assessment of EU200.2m, ECB says. Axa Bank raised EU135m of capital instruments eligible as CET1 Capital in the year to Sept. 30, ECB says. Axa Bank also issued EU90m contingent convertible notes to parent Axa, for total capital increase of EU225m, Axa says in separate e-mailed statement. So nothing more has to be done. And the punchline: while the three Greek banks failed, they all passed... on a dynamic basis. In other words, if one excludes reality, and replaces it with this curious state known as dynamism, all is well. So nothing more has to be done. So if none of the major banks were impacted, and if the vast majority of failures don't have to do a thing, what was the point of the stress test? Here is WSJ's take: European officials say this year’s tests are the strictest yet. They were preceded by ECB officials combing through the balance sheets of 130 banks, trying to gauge whether they accurately valued loans and other investments and forcing some banks to write down problematic assets such as overdue mortgages and corporate loans.   European Union officials and economists hope the publication of the test results, as well as the release of more than 1 million financial data points about the banks, will improve confidence in the industry. That, in turn, should make it easier for banks to issue affordable loans to household and business customers, spurring much-needed economic growth. Wait, the complete collapse in demand for bank loans in Europe (at least those loans that won't soon be purchased by the ECB), is a function of banks not having confidence in each other? So all that was preventing Europe's record unemployed consumers from levering up had everything to do with fear that their lender would go insolvent tomorrow and nothing with the youth having no employment prospects, and negligible income for everyone else? Got it. And now with bank confidence all restored and stuff, watch as this chart of European loan creation goes vertical, right?     

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24 октября 2014, 10:10

Bank stress tests to restore faith in sector: French central bank chief

PARIS (Reuters) - The results of an extensive review of euro zone banks' finances due to be published at the weekend will restore credibility in the sector, Bank of France governor Christian Noyer...