Browsing all articles tagged with euro zone
Jun
1

Banks In The Dark Over $15 Billion of Promised Rosneft M&A business

Banks that assist Russian oil company Rosneft finance its $55 billion buyout of rival have been left waiting for their payback a share in $15 billion in asset sales projected to follow the deal.

State oil company Rosneft’s takeover of this year aimed to generate a major oil group producing more oil than however it also tightened the Russian government’s grip on the country’s energy sector.

The asset sales promised by Rosneft Chief Executive Igor Sechin would offload less-profitable businesses to turn the company into the major oil player the CEO has stated he wants it to be. The delay demonstrate Rosneft has a lot on its plate integrating and that the sales are on the back burner.

Rosneft had dangled the juicy divestment mandates at the banks in exchange for a $29.8 billion loan the largest in Russia’s history on good terms, all the lending banks are waiting. We thought asset sales and refinancing bonds would kick start straight following the closing.

Rosneft’s slow motion is annoying the banks as they would earn fat fees from advising the oil giant on the asset sales this year, which would assist boost M&A revenues in an otherwise arid deal making landscape.

M&A activity across all sectors is losing 7 percent in Europe, Africa and Middle East since January partly due to the impact of the euro zone crisis on business confidence.

Banks that uphold big balance sheets throughout the financial crisis have been hoping to use this muscle to win lucrative M&A advisory business from competitor which had to shrink partly to meet tough European capital rules.

Banks frequently use their balance sheets to offer cheap loans to corporate clients to secure higher margin business such as share or bond issues or M&A work.

Big balance sheets helped Deutsche Bank and Barclays to achieve number 2 and 3 rankings in M&A league tables previous year, challenging US rival Goldman Sachs which had the top slot.

Jun
1

Record Unemployment Low Inflation Highlight Europe’s Pain

Unemployment has reached a new high in the euro zone and inflation remains well beneath the European Central Bank’s target, pacing pressure on EU leaders and the ECB for action to stimulate the bloc’s sickly economy.

Joblessness in the 17 nation currency area climbed to 12.2 percent in April, EU statistics office Eurostat stated on Friday spoting a new record since the data series began in 1995.

With the euro zone in its greatest recession since its creation in 1999, consumer price inflation was far lower the ECB’s target of just below 2 percent, coming in at 1.4 percent in May slightly higher then April’s 1.2 percent rate.

That augment may quieten concerns regarding deflation, however the deepening unemployment crisis is a threat to the social fabric of the euro zone. Almost two-thirds of young Greeks are not capable to find work exemplifying southern Europe’s lost generation.

Policymakers and economists including Germany’s finance minister Wolfgang Schaeuble have stated the greatest menace to the unity of the euro zone is now social collapse from the crisis, rather than market-driven factors.

In France, Europe’s second biggest economy, the number of jobless rose to a record in April while in Italy the unemployment rate hit its highest level in at least 36 years, with 40 percent of young people out of work.

Thousands of demonstrators from the anti-capitalist Blockupy movement cut off access to the ECB in Frankfurt on Friday to protest against policymakers handling of Europe’s debt crisis.

Some economists suppose the ECB, which meets on June 6 will have to go beyond an additional interest rate cut and consider a US style money printing program to breathe life into the economy.

Nick Matthews, a senior economist at Nomura International in London said we do not expect a strong recovery in the euro zone. It puts pressure on the ECB to deliver even more conventional and non conventional measures.

May
25

German Economy to Pick up Although Fall Short of Traditional Pace

Germany’s economy will recuperate from a bout of winter weakness however fall well short of the dynamic growth rates of previous years as euro zone recession and global slowdown stunt investment and exports.

There are homegrown problems too. What hue of government will result from September elections is injecting doubts and foreign investors cite worries regarding over-regulation and Germany’s future energy mix after Chancellor Angela Merkel turned her back on nuclear power.

Europe’s paymaster was long flexible to the euro debt crisis but contracted at the end of previous year and only eked out meager growth in the first quarter.

The Bundesbank stated this week a solid second quarter recovery was in prospect. Construction is expected to bounce back following a harsh winter and private consumption will grow thanks to low unemployment inflation-busting wage boost and low interest rates.

Although even the government forecasts just 0.5 percent growth in 2013 and economists doubt German companies will start investing heavily in the short term.

Christoph Schmidt, head of the German Council of Economic Experts, nobody expects strong growth for this year now particularly as the first quarter was so sobering, advisors to the government known as the wise men.

The economy grew just 0.1 percent in the first quarter following shrinking 0.7 percent in the previous three months of 2012.

Schmidt said trade will not contribute much, it could even drag on growth so that leaves domestic demand, private consumption is comparatively stable however investments are restrained and the key question will be when and how much they pick up.

May
18

French President Urges Euro Zone Government

Francois Hollande, French President called on Thursday for an economic government for the euro zone with its own budget the right to borrow a harmonized tax system and a full time president.

At a 150 minute news discussion marking his first year in office a day following economic statistics showed France had fall into recession, the Socialist leader defended his record on economic reform and budget regulation and informed the French people they would have to work a bit longer for a complete pension in future.

Rebutting criticism that France has lost its leadership role in Europe as of its dwindling economic competitiveness, Hollande thought he wanted to create a fully-fledged political European Union within two years.

Hollande said it is my responsibility as the leader of a founder member of the European Union to pull Europe out of this torpor that has gripped it and to reduce people’s disappointment with it.

He accepted that he could face resistance from Germany, Europe’s dominant power, which opposes mutualising debt between member states. Berlin is also reluctant to give the euro zone its own secretariat for fear of deepening division in the EU, among the 17 members of the single currency and the 10 others.

Non-euro Britain’s government previously faces growing domestic pressure to hold a referendum on leaving the bloc.

Hollande stated he wanted Britain to stay in the EU but added, he can understand that others don’t want to join the single currency, however they cannot stop the euro zone from advancing.

Hollande said a future euro zone economic government would debate the main economic and political decisions to be taken by member states, harmonize welfare policies and national fiscal and launch a battle against tax fraud.

He proposed bringing forward planned EU spending to combat record youth unemployment, pushing for an EU-wide transition to renewable energy sources and envisaged a budget capacity that would be decided to the euro zone along with the gradual likelihood of raising debt.

May
11

ECB Says Has Tools Left to Act if Required

ECB policymakers said that European Central Bank still has room to plan should the euro zone economy persistent to worsen following it cut interest rates to a new record low previous week. The ECB cut its main rate to 0.5 percent previous Thursday.

Yves Mersch, a member of the ECB’s six-man Executive Board stated the bank still had tools at its disposal, however added that it could only spur lending to small euro zone companies in combination with other European institutions.

Joerg Asmussen stated the ECB had an open mind about what it could do to renew lending to small and medium-sized enterprises known as SMEs a growing concern for the central bank, principally in the crisis-stricken periphery countries.

Mersch said in a panel discussion in the northern German city of Aachen that we still have tools in our toolbox we are not a toothless tiger.

The ECB stated previous week it had set up a task force with the European Investment Bank known as EIB to assess ways to unblock lending to SMEs, for example by supporting a market for asset-backed securities known as ABS based on SME loans. ABS would permit banks to pass some credit risk on to other investors, enabling them up to lend more.

The move to promote ABS is controversial mainly in Germany, because during the financial crisis such securities became toxic due to the default of housing loans that underpinned them.

We have an open mind to seem at all things that we can do within our mandate and this relates to how can the market for asset backed securities, particularly backed by SME loans, be revitalized in Europe.

Asmussen was responding to a question regarding a Wednesday article in German newspaper Die Welt, which cited a central bank source as saying a majority of ECB Governing Council members seemed to be in support of the central bank buying ABSs itself.

May
4

ECB Cuts Interest Rates, Open to Further Action

The European Central Bank cut interest rates for the first time in 10 months on Thursday and held out the likelihood of further policy action to hold up the recession hit euro zone economy.

Responding to a fall in euro zone inflation well below its target level and growing unemployment, the ECB lowered its main rate by a quarter percentage point to a record low 0.50 percent.

Mario Draghi, ECB President promising to provide as much liquidity as euro zone banks require well into coming year and to help smaller companies get access to credit, also indicated that some policymakers had pushed for a bigger cut.

He told a news conference after the ECB’s Governing Council met in Bratislava, there was a very, very strong existing consensus towards an interest rate cut. Within that, there was a prevailing consensus for a cut of only 25 basis points.

The ECB was also technically prepared to cut its deposit rate from the current zero percent into negative territory, meaning it would begin charging banks for holding their money overnight.

Such a move could encourage the banks to lend out money rather than hold it at the ECB, although it would also almost certainly have a big impact on banks own operations and major implications for funding and bond markets.

Draghi said the ECB could cope with these, a departure from his prior statements.

There are several unintentional consequences that may stem from this measure, we will address and cope with these consequences if we make a decision to act. And we will again look at this with an open mind and we placed ready to act if needed.

Acknowledging that, the ECB stated it would prime banks with as much liquidity as they need until at least July 2014 and look at ways to enhance lending to smaller companies, which are the lifeblood of Europe’s economies however have been starved of credit in many countries.

Apr
29

Precious Gold Rises 1 percent, Holds near One Week High

Yellow metal rose more than 1 percent on Monday and held near its highest level in more than a week as a bounce back in prices from multi-year lows failed to control investor appetite for the gold’s, leading to a shortage in physical supply.

Current bleak US growth statistics that raised expectations the Federal Reserve will keep its current pace of bond buying at $85 billion a month also supported precious metal that is typically seen as a hedge against inflation.

However investors are still roiled by the very recent event of the tumble. The question is how supportable is this physical buying as at the same time, we are still seeing funds flowing out of yellow metal. Retail investors won’t be buying bullion in hundreds of millions of dollars like the funds.

Both cash gold and futures dropped to around $1,321 on April 16, their weakest in over two years, subsequently drop below $1,500 sparked a sell-off that encouraged investors to slash their holdings on exchange traded funds. They touched an 11 day high above $1,484 on Friday.

I don’t consider gold is out of the woods yet, however there’s room for upward correction. One of the reasons why precious metal has plunged so much was the strong signs of US economic recovery.

US gold futures which often give trading cues to cash metal, hit a high of $1,472.20 per ounce. By 0226 GMT, prices stood at $1,469.60 climbed $16.00. Spot gold gain $7.51 per ounce to $1,470.01.

Premiums for gold bars have jumped to multi-year highs in Asia as of strong demand from the physical market, which has led to a shortage in gold coins, bars, nuggets and other products.

In other markets, shares in Asia crept ahead on Monday however the US dollar lost ground to the yen as markets braced for a busy week for economic statistics and central bank policy meetings in the United States and euro zone.

Holdings on the biggest gold-backed exchange-traded-fund ETF, New York’s SPDR Gold Trust continue to drop, which was a sign investors have yet to reinstate their confidence in gold. The holdings are currently at their lowest since September 2009.

The current string of underwhelming statistics will strengthen the hand of the doves at the Fed and temper any talk of tapering back the bond buying programme. The policy setting Federal Open Market Committee will announce its decision at 1815 GMT on Wednesday.

Report by the Commodity Futures Trading Commission showed on Friday that yellow metal rallied to an 11-month high in October previous year after the Fed announced its third round of aggressive economic stimulus, raising fears the central bank’s money printing to buy assets would stoke inflation, money managers and Hedge funds trimmed their net longs in gold futures and options in the week to April 23 as investors reduced optimistic bets.

 

Apr
25

IMF, ECB Square off in Europe Severity Debate

An intense debate about Europe’s austerity drive flared back into life on Thursday with leading IMF and European Central Bank officials harshly at odds and Angela Merkel declaring that Germany required superior interest rates.

With the threat of the currency bloc’s break-up retreating; some euro zone officials are saying currently is the time to throttle back on debt cutting drives as calmer financial markets will not react badly.

The International Monetary Fund is also pushing that prescription for both the Britain and euro zone however Germany and the ECB are opposed.

IMF First Deputy Managing Director David Lipton told a conference in London that there is a risk that Europe could drop into stagnation, which would have very serious implications for households, banks, companies and other bedrock institutions.

He further said that to decisively avoid that dangerous downside, policymakers must act now to strengthen the prospects for growth.

However at the same conference, the Economist’s Bellwether Europe Summit, ECB Executive Board associate Joerg Asmussen urged governments to push on with budget consolidation and reforms.

Asmussen said delaying fiscal consolidation is not a simple way out. If it were, we would have taken it; holdup fiscal consolidation is no free lunch. It means superior debt levels and this has real costs in the euro area where public debts are already very high.

The ECB is expected to cut interest rates coming week, even though a quarter-point reduction is unlikely to lift the euro zone economy out of recession.

Lipton said it will perhaps require additional unconventional measures from the ECB, as Asmussen said monetary policy was not an all purpose weapon.

The ECB is in a difficult position, for Germany it would really have to lift rates slightly at the moment, however for other countries it would have to do even more for more liquidity to be made available, she said at a banking conference, in a strangely outspoken comment on central bank policy.

Apr
24

ECB poised to cut rates to help recession-hit euro zone

The European Central Bank is closer to inferior interest rates than at any time since it previous cut them in July 2012 and is likely to shave a quarter point off at its policy meeting coming week.

Senior sources involved in the negotiations say momentum is building for action to assist a euro zone economy which has fall back into recession, a move that some policymakers wanted to take earlier this year.

Inflation descending well below target gives the bank scope to act and a senior ECB official stated even Bundesbank chief Jens Weidmann, the most hawkish member of the 23 man Governing Council had an open mind.

Following the bank’s previous monetary policy meeting on April 4, ECB President Mario Draghi signaled that a cut could come soon when he stated that the bank stood ready to act to enhance the recession hit euro zone economy.

The ECB’s Governing Council meets in Bratislava coming Thursday one of two annual policy conferences outside Frankfurt. The 23 man body infrequently moves rates when it meets off base; however the bleak economic picture strengthens the case for action.

Any decision on whether to act in May will depend on the economic statistics. Benoit Coeure, a dovish member of the ECB’s core group of policymakers said on Monday the bank had not seen statistics pick up since its last rate decision.

The ECB expects a steady recovery in the euro zone in the second half of this year, subject to downside risks. Facts indicating the economy’s performance will be weaker than that scenario would strengthen the case for a rate cut.

Policymakers think a rate cut would have limited impact on the economy however would at slightest show they are supporting it. A decision to cut could well not be generally supported.

That marked the fourth time the German Composite PMI has dropped below 50, into contractionary territory since September 2008. On the preceding three occasions, an ECB rate cut has followed immediately following publication of the final data or the month after.

Apr
23

Euro zone Slump Moderates However German Uncertainties Appear

A sharp fall in German business activity overshadowed an easing slump in France in April, surveys showed on Tuesday, and lifting concerns over a further economic contraction in the euro zone.

Markit’s flash euro zone services PMI, an early gauge of business activity each month climbed to 46.6 in April from 46.4 in March, below the 50 line that divides growth from contraction however matching the predicted of economists.

Survey compiler Markit cautioned against taking the increased as a clear sign the region’s recession has bottomed out, pointing to a surprise turn down in German companies that form the backbone of the euro zone economy.

Chris Williamson, chief economist at Markit said that formerly we’ve seen Germany expand while other countries have contracted – notably Spain, France and Italy.

Currently it seems those contractions are being accompanied by a recession in the largest economy, Germany, and that will no uncertainty act as a drag on growth.

Williamson stated officials at the European Central Bank, which meets coming week to decide monetary policy, may be relieved to see the euro zone PMIs at least did not signal a promote deterioration this month.

The forward looking indicators suggest there are risks to the weakness for the contraction to gather pace. The euro zone economy contracted 0.6 percent quarter on quarter in the previous three months of 2012.

Comments by European Central Bank policymakers on Monday stressing declining inflation and poor growth prospects in the euro zone suggest the ECB may be leaning towards an additional cut in its main interest rate.

Confidence in services companies concerning the coming year slipped to the lowest level this year, with the business expectations index fall to 55.7 from 56.2 in March.

Consumer morale in the euro zone improved in April, the European Commission stated on Monday, however remained well below the currency area’s long-term average.