Το θέμα των συντάξεων και το αίτημα της Ελλάδας να μην περικοπούν βρέθηκε ασφαλώς στην κορυφή της ατζέντας και από το ΥΠΟΙΚ υπογραμμίζεται ιδιαίτερα πως το ΔΝΤ θεωρεί ότι το μέγεθος του δημοσιονομικού χώρου είναι πρωτίστως ζήτημα μεταξύ Ελλάδας και Ευρωπαίων. Θα κριθεί δηλαδή στις συζητήσεις με την Κομισιόν για τον προϋπολογισμό.
Υπάρχει λοιπόν η ερμηνεία πως το ΔΝΤ δεν θα βάλει εμπόδια, σε περίπτωση που Ελλάδα και ΕΕ αποφασίσουν να μην εφαρμοστεί η περικοπή στις συντάξεις. Άλλωστε, πηγές του υπουργείου Οικονομικών αναφέρουν ακόμη πως το Ταμείο συμφωνεί με την άποψη της κυβέρνησης πως ο δημοσιονομικός χώρος πρέπει να ξοδευτεί προς όφελος της κοινωνίας και της ανάπτυξης.
Λαγκάρντ και Τόμσεν τόνισαν βέβαια στον Ευκλείδη Τσακαλώτο πως πρέπει να τηρηθούν οι δεσμεύσεις. Το Ταμείο θα παρακολουθεί την Ελλάδα, αλλά μοιάζει αυτή την ώρα να κάνει πίσω και να μην εμπλέκεται στη συζήτηση για τις συντάξεις, η οποία φαίνεται πως θα κριθεί στις συζητήσεις με την Κομισιόν για τον Προϋπολογισμό, αλλά και σε υψηλότερο επίπεδο, ανάμεσα στην Άνγκελα Μέρκελ και τον Αλέξη Τσίπρα.
(Bloomberg Economics) —The budget deficit unveiled by Italy’s populist government is far from disastrous for the country’s public finances. But it sets the coalition on a collision course with Brussels. That has unnerved investors and they could continue to put upward pressure on sovereign yields when additional details are released later today.
Italy set next year’s budget deficit at 2.4% of GDP. That would be unchanged from the shortfall registered for 2017, though it exceeds most of the figures leaked to the media.
Additional deficit projections for 2020 and 2021 should be released later today along with the GDP forecasts that underpin the estimates. All of those will be important to watch.
The figure announced last night in itself won’t wreak havoc on the country’s huge stock of debt. With a shortfall of 2.4% of GDP, the debt-to-GDP ratio should still fall slightly in 2018 to about 130.4% from 131.2%, according to our calculations.
Budget Deficit Fails to Narrow
The real problem for the Italian government is Brussels. An EU official told Bloomberg News that the headline deficit should have been around 1.6% to ensure a marginal improvement in the structural balance — that’s the cyclically adjusted balance excluding one-time items, such as bank bailouts. The IMF previously estimated the structural deficit would be about 1.3% for 2018.
It was only in negative territory because of the huge burden created by debt servicing costs. The primary balance, which excludes interest payments on government debt, should stand at about 1.9% at the end of this year. With the economy growing and inflation perking up, that’s still high enough to chip away at Italy’s huge stock of debt. However, the European Commission would like Italy to pay off the debt at a faster pace next year.
The next step for Italy will be to present the budget to the EC by Oct. 15. EU officials already have grounds to start an excessive deficit procedure. Under EC rules, if the debt-to-GDP ratio surpasses 60%, the overshoot must be reduced by 5% annually. (For example, if the ratio stands at 80%, it must fall by 1 percentage point each year.)
But launching an EDP is far from automatic. The EC examines each country’s fiscal situation and reports to the European Council on whether an EDP should be opened. The Council makes the final decision. Leniency can be shown for a whole slew of reasons.
As the EU official alluded to, the EC is unlikely to be overly lenient in the absence of any improvement in the structural balance. As part of the “preventive arm” of the EC’s fiscal rules, the structural budget deficit may not surpass a medium-term objective of no more than 0.5% of GDP if the debt-to-GDP ratio is above 60%. A compromise between Brussels and Rome will have to be found.
In the meantime, financial markets may do some of the EC’s work for it by applying pressure on Italian government bonds. The 10-year sovereign yield has risen 30 basis points today to 3.18%. Because the average maturity of Italy’s debt is seven years, the seven-year yield provides the best read on the damage that will eventually be done to the country’s finances. It now stands at 2.77%. A sustained rise of that figure above 3% would make the stock of debt too expensive to finance.
Seven-Year Yield Jumps
The coalition government has yet to release all the details of its budget projections – more bad news may lie ahead. It’s not just next year’s deficit that matters. The figures for 2020 and 2021 will also be in sharp focus. If the deficit exceeds 3% in either of these years, which may well be the case if the government’s spending plans are phased in over time, Italy’s sovereign yields would probably rise significantly — it would also cause major ructions with the EC.
Looking at the GDP projections used to calculate the deficits will be important as well. We forecast GDP growth of 1.1% in 2019 and 2020, slowing to 1% in 2021. The IMF expects 1.1%, 0.9% and 0.8%, respectively. The EC forecasts 1.1% in 2019. Any projections from the Italian government significantly above those rates would cast doubt on the credibility of the budget forecasts.
(Bloomberg) — The Italian-German yield spread shot up by nearly 40 bps to 275 bps, the biggest one-day move since May when the populist government was formed. While investors are probably right to be nervous, the pessimism might arguably be overblown. This is something to be expected given the elections pledges. A few months ago, some were even talking about deficits as big as 6%-7% and risk of a euro exit. Neither of those have materialized.
But in the near-term, it will be hard to stand in the way of this outgoing high-speed train. Most investors are understandably worried. The compromise demolished Finance Minister Tria’s credibility, according to Christoph Rieger at Commerzbank (he closed long BTP from Aug. 30 last night).
“Having a lame duck finance minister in this situation will require a higher premium,” he said.
The current BTP-bund spread is just 15 bps away from a five-year high reached last month. Fidelity International said it sees the proposed budget as tantamount to throwing down a gauntlet to the EU and that’s not going to bode well for sentiment. Now, the spotlight has shifted to how the EU will respond.
Οι τράπεζες Barclays, J.P. Morgan, Morgan Stanley και Societe Generale ορίστηκαν ως ανάδοχοι για πιθανή έκδοση, στο εγγύς μέλλον, Ευρωπαϊκού Μεσοπρόθεσμου Ομολόγου (ΕΜΤΝ), 10ετούς διάρκειας σε ευρώ (Reg S benchmark, με Ρήτρες Συλλογικής Δράσης) ανάλογα με τις συνθήκες στην αγορά, όπως ανακοίνωσε σήμερα το Γραφείο Διαχείρισης Δημοσίου Χρέους της Κυπριακής Δημοκρατίας.
Στην ανακοίνωση σημειώνεται ότι η Κυπριακή Δημοκρατία έχει βαθμό πιστοληπτικής ικανότητας Ba2 (σταθερή)/ BBB- (σταθερή)/ BB+ (θετική)/ BB (θετική) από τους οίκους Moody’s / S&P / Fitch / DBRS.
Το Ευρωπαϊκό Μεσοπρόθεσμο Ομόλογο (ΕΜΤΝ), 10ετούς διάρκειας, που αναμένεται να εκδώσει η Κυπριακή Δημοκρατία, θα είναι στο 1 δισεκατομμύριο ευρώ.
Για την επικείμενη έκδοση του ομολόγου και τη σύνδεσή του με την πώληση της Συνεργατικής Κυπριακής Τράπεζας, μίλησε ο υπουργός Οικονομικών, Χάρης Γεωργιάδης, στο ΡΙΚ.
“Είμαστε κατά κάποιο τρόπο στο ακουστικό να επιβεβαιώσουμε μέσω των επενδυτικών τραπεζών, με τις οποίες συνεργαζόμαστε, αν είναι πράγματι η κατάλληλη στιγμή. Φαίνεται πως είναι” ανέφερε ο κ. Γεωργιάδης και πρόσθεσε: “Σκοπός δεν είναι να καλύψουμε κάποια ελλείμματα, τρύπες. Ο στόχος πρέπει να είναι, βάσει και των δεδομένων των διεθνών αγορών, κάθε πράξη καινούριου δανεισμού να εξασφαλίζεται με καλύτερους όρους, με χαμηλότερο επιτόκιο από το υφιστάμενο χρέος. Αν το πετύχουμε και αυτό, θα υπάρχει ένα άλλο όφελος για τα δημόσια οικονομικά. Βεβαίως, το πολύ πιο σημαντικό όφελος από μία αναβάθμιση και κυρίως από την επάνοδο στην επενδυτική βαθμίδα είναι το έμμεσο αλλά καθοριστικής σημασίας θετικό μήνυμα που αποστέλλεται στη διεθνή επενδυτική κοινότητα, αλλά και στο εσωτερικό που ενθαρρύνει και άλλες επενδύσεις, ενθαρρύνει την επενδυτική και οικονομική δραστηριότητα”.
FRANKFURT (Reuters) – The debt relief granted by euro zone governments to Greece will increase the country’s ability to repay its dues “in the medium term”, the president of the European Central Bank, Mario Draghi, said in a letter published on Friday.
“We welcome the agreement reached by the Eurogroup on 22 June, which we believe will improve debt sustainability in the medium term,” he said in a letter to a member of the European Parliament.
“We also welcome the Eurogroup’s readiness to consider further debt measures in the long term in case adverse economic developments were to materialize.”
(Bloomberg) —The covered bonds team at Nordea is betting on Greece.
“At the moment we see good value in Greek covered bonds, which we’ve been invested in since October last year,” Henrik Stille, portfolio manager, said in an interview on Monday. “We still see some value there.”
Greece turned a page on the sovereign debt crisis that exploded eight years ago, exiting a bailout on Aug. 20. Earlier in the month, Fitch Ratings upgraded the country one step to BB- citing improved “general government debt sustainability” and noting that confidence in the banking sector is rising.
Nordea’s Danish fixed income and European covered bond team manages about 39 billion euros ($45 billion). Its European Covered Bond fund has returned 4.3 percent a year on average over the past five years, beating 90 percent of its peers, according to data compiled by Bloomberg.
It holds about 100 bonds including debt issued by National Bank Greece SA. Stille says it’s also still possible to find some “attractive opportunities” in Denmark and Sweden, as the Scandinavian markets aren’t trading as tight as their European counterparts.
“From time to time, we also see value in Denmark and Sweden,” he said. “But it’s not the overall market that is attractive. It’s more specific segments of these markets we like.”
Active Strategy
The fund doesn’t take any duration bets but has an active strategy based on relative value.
“The relative value between the markets can vary quite a lot in a year,” he said. “Especially between the markets in euro and the markets in the domestic Scandinavian currencies. It’s important to be active and move the exposure around.”
Tapering by the European Central Bank won’t have a big impact on covered bond spreads as the bank will keep reinvesting, Stille said.
“Many of the core European countries — like Germany, France, Netherlands and Scandinavia — there we think covered bonds are rather attractive versus government for example,” he said. “Even though spreads are a bit tight in absolute terms we don’t think that they are too expensive.”
Nordea’s low duration European covered bond strategy, which has a duration of one year compared with five years for the European Covered Bond fund, has experienced big inflows, passing 1 billion euros in assets after being launched in October last year.
“Investors don’t think that they’re getting compensated enough for taking risk in the financial markets at the moment,” he said. “It’s better to buy covered bonds that are the safest bonds you can invest in, because then you get an investment that is much safer if we run into financial turmoil.”
ECB Said to Lower Euro-Area Growth Outlook on Global Demand
Economic forecasts starting 2018 to be revised down slightly
Projections will be unveiled by President Draghi on Thursday
By Jana Randow and Alessandro Speciale
(Bloomberg) —
The European Central Bank is set to tweak its forecasts lower for euro-area economic growth as global trade tensions damp external demand, according to officials familiar with the latest projections.
The predictions for output have been cut slightly starting this year, the people said, asking not to be named because the assessment is still confidential. The U.K. and Turkey are among nations dragging on demand, though the U.S. outlook is still positive, the officials said.
The darker outlook comes at an awkward time for the Governing Council as it prepares to wind back stimulus, though the adjustments probably aren’t big enough to derail those plans yet. The path of inflation, the primary consideration for monetary policy, is largely unchanged, the officials said.
The euro slipped after the report and traded at $1.1589 at 12:22 p.m. Frankfurt time.
The ECB committee that oversees the compilation of the forecasts now sees the risks to economic growth as tilted to the downside, according to the people. While that’s a change from policy makers’ latest view that the risks are “broadly balanced,” the Governing Council could choose to disagree with that assessment and keep its existing language at its meeting on Thursday.
An ECB spokesman declined to comment.
“We’ve thought for months that it was a little strange to say risks are balanced, when every single one mentioned was on the downside,” said Nick Kounis, an economist at ABN Amro Bank NV in Amsterdam. “Given the ECB hasn’t said risks are tilted to the downside until now, it would be surprising if they changed their outlook now, even though it would be justified.”
President Mario Draghi, who will unveil the final projections after the Governing Council meeting, has acknowledged the damage to confidence from protectionist threats and global uncertainties in recent months. Since then, Turkey and Argentina have slid deeper into crisis, triggering turmoil across the emerging-markets world, and the U.K. is still at risk of breaking away from the European Union without a trade agreement.
Economists surveyed by Bloomberg last week said they expect officials to confirm that monthly bond buying will be reduced to 15 billion euros ($17 billion) from 30 billion euros starting next month, before ending in December. Interest rates are seen rising in late 2019.
In June, the ECB predicted economic growth would slow from 2.1 percent this year to 1.7 percent in 2020, with inflation averaging 1.7 percent in all three years covered in the forecast.
IMF Looking For ‘Improved Communication’ From Argentina: Lagarde
By Patrick Gillespie
(Bloomberg) —
International Monetary Fund Director Christine Lagarde told the Financial Times in an interview her institution is looking for Argentina’s central bank to have “clarity, transparency, proper and due information to market operations and improved communication.”
Argentina’s new austerity measures are key determinant of the fiscal policy, Lagarde said
IMF still considering Argentina’s request for a rephasing of payments from $50 billion credit line
Improved monetary policy communication would have a significant impact on Argentines’ confidence, Lagarde said
Lagarde is focused on protecting Argentina’s most vulnerable citizens from austerity measures
Argentina has about 0.2% of GDP available, if needed, to protect vulnerable citizens
“If President Macri includes serious reforms in his plan then we will look at it, we will assess the impact on the macroeconomic situation in Argentina, determine the debt sustainability and work with them”
More Than Half of Argentines Wouldn’t Vote Macri in 2019: Poll
By Patrick Gillespie
(Bloomberg) —
52.9% of Argentines wouldn’t vote for President Mauricio Macri if he chose to seek re-election in 2019, according to a poll by consulting firm Raul Aragon & Associates.
30.8% of Argentines said they would vote for Macri
16.3% say they are unsure whether they would vote for Macri
Poll did not ask who Argentines would vote for if they didn’t vote for Macri
58.7% of Argentines say they don’t believe the government’s new measures will tame inflation
20% say the measures will control inflation; 21.3% uncertain
Poll question does not specify which measures
74.9% of Argentines say their personal economic situation has deteriorated somewhat, a lot or very much in the last 30 days
22% say personal economic situation has not deteriorated or only worsened a little in last 30 days; 3.2% uncertain
Poll conducted between September 5-8, after government unveiled new austerity measures and central bank hiked interest rates in late August
Aragon’s firm polled 600 people; margin of error +/-3.9%
FDA Threatens to Pull E-Cigarettes to Fight Rise of Youth Vaping
Agency asks five makers for plans to stop use by children
Commissioner Gottlieb cites an ‘epidemic’ of youth vaping
By Anna Edney
(Bloomberg) —
The Food and Drug Administration is threatening to pull flavored electronic cigarettes like Juul off the market if the tobacco industry doesn’t do more to combat growing use of the products by children and teens.
FDA Commissioner Scott Gottlieb said the agency will soon release data that show a “substantial increase” in youth vaping this year compared with 2017.
“I have grown increasingly concerned around what we see as rising youth use in these products, and I’m disappointed in the actions the companies have taken to try to address this,” Gottlieb said in an interview.
The FDA told five major e-cigarette manufacturers Wednesday to come up with ways to address youth use in 60 days or the agency could require them to stop selling flavored products that appeal to children. The products being targeted are: Juul, Altria Group Inc.’s MarkTen, Fontem Ventures BV’s blu, British American Tobacco Plc’s Vuse and Logic.
To gain clearance to return to the market, the companies would have to prove that the benefits to adults who use e-cigarettes to stop smoking outweigh the risks associated with youth vaping.
“I certainly am in possession of evidence that warrants that,” Gottlieb said, adding that the problem has reached “epidemic proportion.” He declined to disclose the evidence.
Juul’s Popularity
Of the 3.6 million middle- and high-school students who said in 2017 they are current tobacco-product users, 2.1 million used e-cigarettes, according to the Centers for Disease Control and Prevention.
“There is no question that a lot of the youth use is being driven by Juul,” Gottlieb said.
Produced by San Francisco-based Juul Labs Inc., Juul devices resemble a USB thumb drive and have become popular among students. The company has more than two-thirds of the U.S. e-cigarette market, according to Nielsen data. The FDA is currently developing a survey to determine what percentage of youth vapers are using Juul products, Gottlieb said.
A nationwide sting operation from June through August resulted in more than 1,300 warning letters and fines to retailers who sold Juul products and other e-cigarettes to kids. It was “the largest coordinated enforcement effort in the FDA’s history,” according to the agency.
Read more: E-cigarette sting operation prompts warnings to retailers
Gottlieb recently began to ask whether the use of Juul and other similar products by kids is overshadowing any benefit to adult smokers using the devices to help them quit cigarettes. He said in June tobacco companies “better step up and step up soon” but he didn’t divulge what consequences the industry could face — until now.
In July 2017, the FDA said it was considering lowering nicotine levels in traditional cigarettes. In addition, the agency pushed back until 2022 a deadline for electronic-cigarette companies to submit applications to the FDA. Gottlieb said at the time he was trying to ease the regulatory pathway for products that are potentially less harmful sources of nicotine than smoking. Critics of pushing back the deadline raised concern that more kids would take up vaping.
Congress gave the FDA the authority to regulate tobacco products in 2009. The agency extended that reach to other tobacco products, including e-cigarettes, in August 2016 and allowed those products that were already on the market to continue sales while preparing an application for FDA clearance. The FDA is investigating whether some products on the market were introduced after the 2016 date and may need to halt sales, though didn’t name which ones may be violating the law.
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