The blog.

17
May

Take the Money Before Things Get Worse, Junk Bond Salesmen Say

(Bloomberg) — 
If there’s one lesson from the great financial crisis that applies to the current market turmoil, Todd Rothman argues, it’s this: take the money when it’s there.The managing director in JPMorgan & Chase’s high yield and leveraged loan capital markets team in London believes that with the future so uncertain, now is a good time for Europe’s high-yield borrowers to raise cash.

“Can the market get a little bit better from here?” he said in a phone interview. “Sure it can, but the risk is asymmetric right now in terms of things turning and getting much wider quickly.”

Some clearly agree. Appetite for refinancing the debt from European diagnostics firm Synlab Bondco Plc was so strong this week that the company doubled its bond issue.

Meanwhile demand for American IT firm BMC Software Inc.’s euro notes also exceeded the amount it planned to raise, according to people familiar with the matter.

Even theme park operator Merlin Entertainments, which has shut most of its 130 attractions, increased its offering and priced it at the lower end of initial guidance.

As countries around the world slowly reopen their economies and as support from central banks ramps up, Europe’s high-yield bond market has begun to function again after shutting in February.

By waiting for better conditions, companies run the risk that a deluge of weak second-quarter results or a resurgence of infections could depress investors’ appetite again.

In a change from just a few weeks ago when arrangers were only advising companies with urgent financing needs to tap the market, investors have seen major cash inflows. On the back of this companies are raising funds for liquidity, to refinance existing debt, and also for acquisitions as in the case of BMC.

“The market is open,” said Diarmuid Toomey, co-head of EMEA leveraged capital markets syndicate at Deutsche Bank. “There have been encouraging developments, with recent issues well subscribed and the buyside are telling us they are keen to put money to work.”

Buyer Beware

Investors are, however, still focused on quality and want to see more lender-friendly terms that not all borrowers may agree to. Fallen angels and investment grade bonds trading at depressed levels are also offering buyers alternatives.

Tatjana Greil Castro, a portfolio manager at Muzinich & Co. Ltd., sympathizes with the argument that conditions could easily deteriorate in future. But, she cautions, buyers may still prove picky.

“Do we really need to jump into the market now? Investors won’t buy whatever lands in front of them. They have a lot of choice,” she said.

Paper producer Sappi Ltd offers a cautionary tale. The company scrapped plansto issue 250 million euros ($271 million) of senior notes on Friday, citing unsatisfactory pricing.

Still, if demand remains healthy for now, arrangers may get the chance to sell down some of the M&A financings worth more than $13 billion that are waiting to come to market. Those deals include the private equity buyout of Thyssenkrupp AG’s elevator unit, Europe’s largest in a decade.

5
May

Markets Worry Ruling May Lead to Doubts About Other ECB Programs

(Bloomberg) — 
The wrist slap given to the European Central Bank by the German constitutional court over its quantitative easing program had strategists pondering what this means for the market.

The euro slid, as did German and Italian bonds, on the prospect that the ECB may soon be prevented from exercising the full might of its asset-purchase program.

Germany’s top judges gave the ECB three months to fix its 2.7 trillion-euro ($2.95 trillion) asset purchase program after a seven-to-one ruling stating that some parts of the quantitative-easing program aren’t backed by European Union treaties.

“It’s my understanding that it doesn’t apply to PEPP, but if this proves a serious challenge to PSPP, the same argument could be made in courts against PEPP,” said Antoine Bouvet, a senior rates strategist at ING Groep NV. “This is not the sort of doubt you want to instill in the market.”

It prompted traders to add to bets the euro may fall further. The Pandemic Emergency Purchase Programme (PEPP) is a 750 billion euro scheme that runs out at the end of the year. The ECB started the public sector purchase programme in 2015, which buys assets on the secondary market.

“It looks like the euro-zone is shooting itself in the foot,” said Lee Hardman, a currency analyst at MUFG who sees the euro falling through March lows if this isn’t resolved in a market-friendly manner. “The risk of another euro-zonedebt crisis would be significantly higher without ongoing support from the ECB. Those are the risks the market is weighing up in light of today’s decision.”

The currency fell as much as 0.7% to $1.0826. The yield on Italy’s 10-year bonds climbed as much as 11 basis points, widening its spread over bunds, a gauge of risk, to 241.

Here’s what strategists said:

Nomura International (Potentially big)

  • “What matters in FX is that it causes uncertainty and with it we’ll likely see this move in EUR continue,” says Jordan Rochester, a Group-of-10 FX strategist
  • “The Bundesbank is in a rough place. If in three-months’ time the court is not convinced, clearly PSPP could enter a transitional period and they buy less bunds”
  • Market is selling off “due to what this ‘could’ mean for PEPP – not today, but down the line (months/more likely years) – to comply with the German monetary prohibition, issuer limits and capital keys are essential to the courts view”
  • In FX, “we remain short and look for 1.06 in the month to come,” referring to euro-dollar

Danske Bank (GCC barks, not bites)

  • “In practice, this means the purchase programmes can continue – both APP and PEPP, but ECB needs to ensure that this is temporary,” says strategist Piet Christiansen
  • He adds that “‘PEPP is not up for trial – hence no impact on markets”
    • “I don’t think we should read too much” into the three-month deadline, he added, noting other central banks would still be able to buy bonds

Commerzbank (Edge taken out of ‘whatever it takes’)

  • “The ECB now has to do some due diligence on ‘proportionality’ over next three months together with the Bundesbank and the Bundestag — but this should pose no problem,” says head of rates strategy Michael Leister
    • “The GCC is taking the edge out of “‘whatever it takes’”
  • “Even for bunds it’s not positive to have the ECB potentially constrained”
  • “It increases pressure on politicians to provide a common backstop if the ECB is (potentially) constrained”

ING (Not the sort of doubt you want)

  • “The knee-jerk market reaction should be a sell off in both core (e.g. bund) and peripheral (e.g. BTP) assets,” says Bouvet
  • “But should this prove a more serious challenge to the ECB’s ability to carry out QE, then portfolio reallocation flow away from risk assets should keep German yields low, and widen spreads to other issuers”

Credit Agricole (It’s all bad for the euro)

  • “While we doubt that the decision will stop the ECB from easing further, the monetary policy process could become more cumbersome,” says Valentin Marinov, head of G-10 FX research
  • “It underscores the difficulty faced by the euro zone governments in their fight against Covid-19”
    • “This much warrants cautiousness on the EUR outlook from here”
  • “As the news keeps coming, it’s all bad for the euro I am afraid”

 

8
Apr

Covid-19 hits Greece even harder than the rest of the euro zone

At the start of this year it seemed as if Greece might have turned a corner. After a downturn that lasted longer than America’s Great Depression, its economy was growing again. Market capitalisation at the Athens Stock Exchange rose by 47% in 2019, the sharpest increase in the world. Tourism was booming, consumers were spending and Greek banks were reducing their burden of non-performing loans.

Business confidence at the start of this year was at an all-time high, bolstered by the election last July of a pro-business conservative prime minister, Kyriakos Mitsotakis, who promised to sweep away obstacles to business. The Harvard-trained former banker started well. He cut Greece’s labyrinthine red tape to make it easier to start a new business. He reformed labour laws, reducing the cost of firing an employee. He lowered taxes on corporations from 28% to 24%. Last September he fully lifted capital controls for individuals and companies. In November he signed off on a €600m ($650m) investment by China Ocean Shipping Company in Piraeus, Greece’s largest port.

That cheery mood seems like ancient history. Greece faces some of the severest disruption of any euro-zone economy, says Jakob Suwalski of Scope, a credit-rating agency, who predicts a fall of anything from 7% to 18% in gdp this year. No country in the euro zone other than Cyprus depends more than Greece on tourism, which has practically ceased to exist. The sector accounted for half of economic growth in 2018, more than 20% of gdp (90% in some parts of the southern Aegean) and a quarter of the country’s jobs. Now the tourists have stopped coming. On March 19th the government ordered hotels across Greece to close from March 23rd until April 30th, a date that will surely be extended. The Hellenic Chamber of Hotels estimates that the loss of profits thanks to cancellations has already exceeded half a billion euros.

In mid-March the Greek government restricted public gatherings to ten people. It also banned arrivals of non-European Union residents and travel to and from Albania, Italy, North Macedonia and Spain. And it ordered the closure of all retail businesses other than supermarkets, pharmacies, petrol stations, pet shops, food-delivery companies, groceries, bakeries, kiosks and banks. Greece is a nation of small businesses, most of which have scant resources to weather hard times. On March 23rd the government further tightened restrictions by imposing a national lockdown.

On top of an emergency boost of €10bn, Mr Mitsotakis insists that the country has “more weapons” to protect the economy, after around €12bn of its paper was declared eligible for inclusion in a €750bn bond-purchasing programme that has been launched by the European Central Bank. That should help to hold down the risk premium on Greek government debt. It is also, perhaps, a signal that the eu is prepared to believe in Greece’s recovery—once the virus is tamed.

 

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21
Mar

Germany to raise €356bn in new borrowing to fight coronavirus impact

Germany is set to abandon six years of fiscal restraint with a blowout budget designed to save its economy from the brutal effects of the coronavirus pandemic and protect thousands of businesses from imminent ruin.

Angela Merkel’s cabinet is meeting on Monday to approve new borrowing of €356bn — equivalent to nearly 10 per cent of Germany’s gross domestic product — marking a new era in fiscal policy and a radical departure from Berlin’s long-held aversion to debt.

It reflects growing alarm in government circles at the profound impact the epidemic is having on the eurozone’s largest economy as big industrial companies shut down production, the service sector is disabled and economic activity melts away.

Ministers will consider plans for a €156bn supplementary budget for 2020, including a €50bn hardship fund to help small businesses and freelancers whose revenues are collapsing as the virus spreads.

They will also approve a €100bn economic stabilisation fund that will be used to take stakes in companies crippled by the fallout from the pandemic, according to a person familiar with the plans, paving the way for a radical state intervention in the workings of the market economy.

The blueprint also envisages a €100bn loan from the new stabilisation fund to the KfW, Germany’s state development bank, which is providing unlimited loans to firms facing a cash crunch under a programme announced by the finance minister Olaf Scholz earlier this month.

The stabilisation fund will also be equipped with €400bn in guarantees to underwrite the debts of companies affected by the turmoil.

The fund is a reactivation of Soffin, a government-backed vehicle set up in 2009 to bail out troubled banks. It will not only underwrite debts but also be able to inject fresh capital into stricken companies, effectively paving the way for a wave of partial state takeovers.

Just as the state helped the banks after the financial crisis, “we are now prepared to provide equity for the real economy,” Mr Scholz told German radio on Friday. The state had to help companies “that employ an incredible number of men and women and which all of a sudden have no business”.

The moves represent an extraordinary intervention by the state in the private sector. “We will not allow a bargain sale of German economic and industrial interests,” said economy Peter Altmaier. “There should be no taboos. Temporary state aid for a limited period, up to and including shareholdings and takeovers, must be possible.”

The huge increase in spending marks a radical break from the “schwarze Null” or black zero, the policy of balanced budgets and no new borrowing that has been part of German economic orthodoxy for years and has helped to deliver six consecutive annual surpluses.

The policy has become increasingly controversial in recent months, with leading economists both at home and abroad urging the government to take advantage of low interest rates to assume new debt and invest in Germany’s crumbling infrastructure.

But the black zero is now a thing of the past. Angela Merkel, chancellor, made it clear at the start of the coronavirus crisis that she was prepared to set it aside in order to ensure the survival of the German economy.

“We’re doing whatever is necessary,” she said on March 11. “And we won’t be asking every day what it means for our deficit.”

The new fiscal policy came as a number of German regions imposed a lockdown on their citizens and closed all restaurants, bars and beer-gardens. Bavaria said people would only be allowed to leave their homes to go to work, buy food or visit the doctor: they could exercise in the open air but only alone or with close family members. The German foreign ministry has also advised against any tourist travel abroad until the end of April.

As well as passing the supplementary budget and reactivating Soffin, ministers will also be asked to loosen one of the country’s most important fiscal rules — the constitutional debt brake. Introduced in 2009 it limits any new government borrowing to just 0.35 per cent of GDP, adjusted for the economic cycle.

But exceptions are allowed. Germany’s constitution says the Bundestag can relax the debt brake when Germany is hit by emergencies such as natural catastrophes that “significantly impact the government’s fiscal position”. Coronavirus is a clear example of such an eventuality. A Bundestag vote is expected in the next few days.

“This essentially paves the way for unlimited borrowing,” said the person familiar with Mr Scholz’s plans. He said it fitted in with the European Central Bank’s announcement last week that it would buy an extra €750bn of bonds in a bid to calm markets thrown into turmoil by the pandemic. “The ECB’s message to the EU member states was clear,” he said. “Fill your boots with debt.”

Though the proposals being put before the cabinet on Monday mark an extraordinary volte-face in policy terms, officials stress that Germany was only able to adopt such expansionary measures thanks to the budgetary restraint of the past few years.

“Even a few weeks ago people were saying we’d gone too far, that we were too focused on husbanding our resources,” Mr Scholz said on Friday. “Now you can see we acted correctly.”

Germany’s “economising” over the past few years had brought its debt-to-GDP ratio to below 60 per cent, he said. The equivalent figure in France is 98.9 per cent and 134.8 per cent in Italy.

Meanwhile, the public finances have rarely been in such robust health. There are reserves of €55bn in the federal budget, of €26bn in the federal labour office, which dispenses unemployment benefit, of €103in the social security system, and of nearly €20bn in the health service — the statutory “Krankenkassen”.

Jens Weidmann, head of the Bundesbank and a member of the ECB’s governing council, said that until recently there had been “passionate debate” in Germany about the wisdom of sound public finances. “Now we can see very clearly: it was exactly right that Germany consolidated its budget when the economy was doing well,” he told Die Welt on Saturday. “Now we have the latitude to deal with this crisis. Our starting position is advantageous.”

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19
Mar

ECB Announces 750 Billion Euro Pandemic Bond-Buying Program

ECB Announces 750 Billion Euro Pandemic Bond-Buying Program

Thursday, March 19, 2020 01:16 AM
  • Decision taken in emergency meeting Wednesday evening
  • Policy makers will consider raising self-imposed QE limits

The European Central Bank launched an extra emergency bond-buying program worth 750 billion euros ($820 billion) to calm a worsening financial crisis and protect the economy through the coronavirus epidemic.

The decision in an unscheduled meeting on Wednesday evening came less than a week after a policy session in which officials agreed to pump more liquidity into the financial system. Despite that step and stronger measures by other central banks, markets are in freefall, prompting a new set of measures.

  • A temporary asset purchase program to buy public and private-sector securities, worth 750 billion euros and running until at least the end of 2020
  • Program will cover all assets eligible under current quantitative-easing program, and will be extended to commercial papers of sufficient credit quality
  • Greek government debt will be included in the program under a waiver from current rules
  • Collateral standards will be eased by adjusting some risk parameters
  • Program will continue until ECB judges the crisis phase of the pandemic to be over, but not before the end of this year
  • The ECB will consider raising its self-imposed limits on QE holdings, and stands ready to increase the size of its asset purchase programs

The euro and U.S. equity futures rose after the stimulus measures. S&P 500 futures reversed losses and the single currency edged higher to trade around $1.0950.

Investors are pushing up bond yields as they fret about the cost of the massive fiscal response to the pandemic. Italy, which already has the euro zone’s second-biggest debt burden after Greece and is the worst-affected by the disease, is especially hard hit.

ECB President Christine Lagarde inadvertently worsened the problem last week when she said the central bank’s job is not to close the spreads between safer and riskier government debt yields.

In its statement, the central bank said it “will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area.”

Christine Lagarde

@Lagarde

Extraordinary times require extraordinary action. There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate.
European Central Bank

@ecb

Press release: ECB announces €750 billion Pandemic Emergency Purchase Programme (PEPP) ecb.europa.eu/press/pr/date/…
7
Mar

What You Need to Know About the Spreading Coronavirus: QuickTake

Friday, March 6, 2020 07:11 PM

By Jason Gale and John Lauerman

(Bloomberg) —

The newly identified virus that emerged late last year in the central Chinese city of Wuhan has quickly spread worldwide, with the number of infections topping 100,000. The contagiousness of the so-called coronavirus, which causes a lung illness dubbed Covid-19, has health experts worried it could become a pandemic to rival some of the most devastating in recent decades. Meanwhile, the outbreak is causing turmoil in the global economy and financial markets.

(This story updates with new infection toll and fresh details on what authorities are doing in section 10 and economic impact in section 12.)

1. What makes this virus so worrying?

It has been described as “insidious” because many infected people are well enough to go about their daily business, unwittingly spreading it to others. As of March 3, the fatality rate was about 3.4% based on globally reported cases, the World Health Organization said. Such numbers are unreliable in the early stages of an outbreak, however. Some disease-modeling experts project as many as hundreds of thousands of people are actually infected, most of whom don’t even know they have it. One study published Feb. 10 estimated a mortality rate of 1% once all cases, including those with no or only mild symptoms, are counted.

2. How does this compare with other outbreaks?

A related coronavirus killed 9.5% of patients in the 2002-2003 epidemic of severe acute respiratory syndrome, or SARS, and another known as MERS-CoV has led to death in 34% of the 2,499 cases recorded since 2012. In those outbreaks, however, the viruses didn’t transmit from one person to another as efficiently as this new one appears to do. Certainly, they didn’t spread as widely as fast. In the worst pandemic in recent history, an estimated 50 million people died in the 1918 influenza pandemic that had a case-fatality ratio of about 2% but infected as much as a third of the world’s population.

3. What does the virus do?

Symptoms begin to appear on average five to six days after infection. Infections appear to cause a mild illness lasting about two weeks in children, adolescents and younger adults in most cases, and potentially more severe disease lasting three to six weeks in older people. Frequently reported early signs are fever, dry cough, tiredness and sputum production. In severe cases, studies suggest the virus invades cells in the lower respiratory tract, causing difficulty breathing and the inflammation and congestion associated with pneumonia. In an early study, more than a quarter of hospitalized patients developed a complication known as acute respiratory distress syndrome.

4. Who’s most at risk for complications?

It appears to be the elderly and those with other serious health issues. Many of the fatalities have been in patients with underlying illnesses such as cardiovascular disease. A Chinese study of 72,000 cases found most deaths occurred in patients over 60 years old. Of all confirmed cases, 81% were mild, 14% were severe and 4.7% critical. The last pandemic, an outbreak of a new strain of H1N1 flu in 2009, infected an estimated 61 million people in the U.S. alone and may have killed as many as 575,000 people worldwide in the first year it circulated — with about 80% of them younger than 65, according to the U.S. Centers for Disease Control and Prevention

5. How do people contract it?

By coming into contact with virus-containing droplets that are emitted when an infected person coughs or sneezes, according to the WHO’s first comprehensive report on Covid-19. These droplets can be transferred directly to someone else in close proximity or via hands and surfaces. How long it survives on surfaces is still not known, but preliminary studies suggest coronaviruses may remain infectious from a few hours to a few days. Simple disinfectants kill it. There’s a theoretical risk the virus can spread through feces or fartherthrough the air in tiny particles known as aerosols. People who are still incubating the virus and show no symptoms may spread it. Health authorities are concerned about what’s known as community spread, where the virus begins circulating freely among people outside of known contacts with other patients.

6. How contagious is it?

Epidemiologists try to gauge contagiousness by estimating the number of additional people a person who is infected is likely to infect. That measurement, called a basic reproduction number or r0 (pronounced “r naught”), is one indicator of how difficult an epidemic is to control. A study of an outbreak aboard a cruise ship estimated that the r0 for Covid-19 was 2.28 during the early stages. That would make it more infectious than seasonal flu, which has an r0 of about 1.3 and killed an estimated 61,000 people in the U.S. in the 2017-18 season.

6. Could warming weather help combat it?

The viruses responsible for influenza spread more easily during cold weather because they survive longer in cold, dry air. But there’s no evidence to suggest the Covid-19 virus would be affected by weather.

7. What’s a coronavirus?

Coronaviruses are named for their crown-like shape. There’s a large family of them, responsible for diseases that range in severity from the common cold to MERS. Some transmit easily from person to person, while others do not. The WHO says that new strains emerge periodically around the globe, and several known versions are circulating in animals and haven’t infected humans.

From the black death to the coronavirus, this is what we need to think about in order to tackle pandemics. (

8. Where did it come from?

The virus emerged in early December in Wuhan, an industrial city of 11 million and capital of Hubei province. Early attention focused on a seafood market where live animals were also sold, but about a third of the first 41 cases were found to have no link to it. The viral genome is closely related to several coronaviruses found in bats. Diseases transmissible from animals to humans, sometimes referred to as zoonoses, comprise a large percentage of all newly identified infectious diseases.

9. How alarming is a new virus?

There is always concern when a new human pathogen emerges because people typically lack immunity to it and there usually aren’t specific treatments or vaccines available. Novel coronaviruses — those unseen in humans before — represent a particular concern because they have been known to spark complicated outbreaks that have sickened thousands of people, as SARS did as it swept across the globe from southern China.

10. What are authorities doing?

China’s government imposed a quarantine on Wuhan and more than a dozen other cities in the region that’s keeping some 60 million people sealed off. New hospitals were built from the ground up in days, and the production of medical equipment was ramped up. (Some makeshift centers in stadiums, hotels and office buildings have started to fold up as patients have recovered.) The WHO declared a global health emergency, a designation that can help mobilize international responses. The World Bank has allocated $12 billion in virus aid for developing economies. Many countries are denying or restrictingentry for non-citizens arriving from China and other especially affected areas. With Covid-19 showing up in more places, officials began to switch their goal from stopping its spread to preparing for it amid shortages of testing kits, face masks and other equipment. U.S. President Donald Trump appointedVice President Mike Pence to lead the federal response as local governments stepped up readiness efforts. Globally, governments are using a mix of cash handouts, tax breaks and transfers to counter the virus’s impact.

11. How are they faring?

Early praise for China’s response has ebbed. The country did not immediately release genetic information about the virus and has struggled to explain changes in the way it counts new cases. In a nation where the internet is heavily censored, there was a rare outpouring of social media fury over the death from the virus of a Chinese doctor who had waved an early red flag about the outbreak but was silenced by police. The top officials in Wuhan and Hubei were later removed from their posts. But China’s strict quarantine likely bought the rest of the world two to three weeks to prepare for the virus and averted many infections, according to the WHO.

12. What about the economy?

Reductions in travel, work-from-home orders and disruptions in supply chains have slowed economic activity, especially in China and among its many trading partners. The Organization for Economic Cooperation and Development warned that the Covid-19 crisis posed the “greatest danger” to the world economy since the financial crisis more than a decade ago. Global stock markets have been volatileand the U.S. Federal Reserve cut interest rates in its first emergency move since the 2008 financial crisis. Group of Seven finance chiefs pledged to use “all appropriate policy tools” to safeguard economic growth.

The Reference Shelf

  • Related QuickTakes on efforts to contain the virus, how it spreads, the effectiveness of travel bans, efforts to develop treatments and a vaccine, the meaning of a “pandemic,” and the reallocation of capital into haven assets.
  • The WHO’s first comprehensive report on the crisis.
  • Doubts persist about whether China’s statisticson the outbreak show the full picture.
  • The Centers for Disease Control and Prevention has a coronavirus web page, and the Journal of the American Medical Association offers advicefor clinicians.
  • Bill Gates offers proposals for combating Covid-19 in the New England Journal of Medicine.
  • A top airline doctor says forget face masks, wash your hands.
26
Feb

World’s Best Stocks of 2019 Are Already Europe’s Worst This Year

World’s Best Stocks of 2019 Are Already Europe’s Worst This Year
  • Greek stocks wipe out about a third of last year’s advance
  • Concerns grow that coronavirus may hit tourism industry
By Tugce Ozsoy and Filipe Pacheco(Bloomberg) —

Investors who made a killing betting on Greek stocks last year are rushing for the exit amid concern the spread of coronavirus could dent the country’s tourism industry.The exodus from the Athens Stock Exchange has already wiped out about a third of its world-beating advance in 2019 and dragged the index down more than 10% this year. It’s now the worst-performing equity gauge in Europe. On Wednesday, a 38-year old woman was hospitalized in the northern city of Thessaloniki, the first confirmed case of the virus in Greece.

While the trajectory of the epidemic remains uncertain, the knee-jerk reaction for investors who flocked into Greek equities last year has to been to take some risk off the table. Tourism and travel receipts account for a fifth of the Mediterranean country’s economic output, according to latest data from the World Travel and Tourism Council.

The Athens stock index posted a 49% surge in 2019, fueled by one of the most attractive valuations in emerging markets and the promise of tax cuts and pro-business policies by a new government. Greece still faces major challenges, including a weak banking sector, high unemployment and a large stock of public debt, the European Commission warned on Wednesday.

“Given the performance that we had last year, it is pretty easy to lock in some profit taking,” said Dimitri Dardanis, the head of institutional equities at Piraeus Securities in Athens. “You can’t escape what is happening elsewhere. You have to ride the wave and, at the moment, there is not much to do.”

The Athens bourse was the second worst-performing equity index in February among 94 gauges tracked by Bloomberg, outstripped only by Lebanon. The losses this week were led by Piraeus Bank, which retreated 16%, followed by Coca-Cola HBC, Titan Cement International SA and Hellenic Telecommunications Organization SA.

“The fact that this is an unfolding story that people are being surprised by, it is not easy to predict what it is going to do to tourism,” Dardanis said. “Globally there is an issue that people do not want to fly. When that is going to impact us is still unknown.”

 

23
Feb

ECB Officials Pressure Governments to Ready Virus Response

European Central Bank policy makers from two of the euro area’s biggest economies said governments must shoulder most of the burden for rebooting economies if the coronavirus has a deeper impact on growth.

France’s Francois Villeroy de Galhau and Italy’s Ignazio Visco were speaking at the Group of 20 meeting of central bankers and finance ministers in Riyadh, where the threat from the outbreak was front and center.

“If we don’t see a rapid V-shaped effect there must be some decision to act in a coordinated way,” Visco told Bloomberg on the sidelines of the G-20. “We must use fiscal policy because monetary policy is already very very accommodative around the world, and it’s uncertain that we can do more on that.”

Villeroy said delegates at the meeting spoke a lot about daily monitoring and contingency plans, even if the central scenario remains for now a V-shaped recovery.

“There was the feeling that if the policy mix needed to be strengthened in the face of coronavirus, it couldn’t be only monetary policy. There is still monetary space but it is more limited than before,” Villeroy told Bloomberg. “It is even true in the U.S., so therefore questions of fiscal space and structural reforms are back in force.”

Trade has been severely disrupted by factory closures in China’s Hubei province, the epicenter of the outbreak, and companies from Apple Inc. in the U.S. to Europe’s largest tiremaker Michelin have warned that profits could suffer.

The blow is all the more harsh as G-20 delegates otherwise had reason to see the world economy turning a corner. Villeroy noted that “nobody seriously fears a recession,” and the U.S. -China trade tensions that dominated previous meetings have declined.

“If there is one concern about the economy at this G-20, it’s coronavirus,” he said.

Visco said the world economy has two quarters to bounce back from the coronavirus hit before policy makers should unleash coordinated fiscal stimulus. Back-of-the-envelop calculations by finance chiefs at the Riyadh meetings suggest the outbreak could knock by 0.1 percentage point off global growth this year, Visco said.

The hit to the Italian economy could be as high as a quarter of a percent, reflecting the economy’s integration into global value chains and its reliance on tourism.

“I’m already worried now but if we don’t see a material improvement by September, I’d be really worried,” Visco said. “You need two quarters to realize and understand.”

Visco lent weight to his argument by warning there’s a risk of a “mini de-globalization” if pessimism and fears about further supply-chain interruptions leave the economy suffering for a protracted period. “This shouldn’t be ignored.”

Visco said central bankers haven’t discussed joining forces to deliver a coordinated monetary-policy response. The ECB’s deposit rate is already at a record-low -0.5%.

“If there’s a need for liquidity assistance, it can be provided through various measures like swaps — of course,” he said. “If you think about interest rates, it’s much more complicated. There are limits which are not explored.”

On climate, Visco said he saw “reasoned considerations” at the meeting in Riyadh that it’s important to pay attention to the risks global warming can pose for financial stability.

“What looked quite new two years ago is now almost a G-20 consensus, so this is a very significant move,” Villeroy said.

21
Feb

EU Leaders Gear Up for Money Clash to Fill Post-Brexit Hole

(Bloomberg) —

The European Union‘s first high-level meeting since Brexit risks ending in acrimony, with member states at odds over how to cover a gaping budget hole caused by the loss of British contributions.

The extraordinary summit in Brussels to nail down a seven-year spending plan kicks off on Thursday afternoon, but no end time has been set and diplomats fear negotiations could drag on through the weekend. Even then failure remains the likeliest outcome.

The trillion-euro budget is a cornerstone of EU policy that lets farmers compete against imports from the developing world, helps poorer states catch up with the rich ones and underpins projects that bind the union together. But it’s also a lightning rod for the tensions running through the bloc and after three years of uncharacteristic unity during the Brexit negotiations, passions are now running high.

“There is a way forward to find an agreement during this summit,” French President Emmanuel Macronsaid on his way into the meeting, adding that he would spend as much time as needed to get an ambitious agreement. “This pathway can take a few days, a few nights, I am ready.”

The outcome of the battle will signal if Europe is prepared to spend more collectively to further its goals, whether it wants to prioritize innovation over handouts to traditional industries and whether it’s prepared to wield its financial muscle to force member states like Hungary and Poland to respect the rule of law.

Britain’s departure from the EU leaves a hole of at least 60 billion euros ($65 billion) in the budget that needs to be plugged by either cutting spending or making others pay more.

But the EU’s shifting priorities also require more money for issues like climate change and migration and those who gain from the traditional focus on agriculture and regional development are fighting to keep their benefits.

Essentially though, the EU is split into two basic camps: those who want to spend more, and those who can see they’ll get stuck with the bill.

Two Camps

The Netherlands, Austria, Denmark and Sweden have argued for keeping the spending ceiling at 1% of the EU’s gross national income and for a permanent system of rebates to limit their contributions. They want to focus on new priorities and to curb the outlay in traditional areas and have called for tougher conditions on adhering to the rule of law.

“Our countries are firm in our priorities. We cannot accept a drastic increase in our fees. We are willing to continue to pay significantly, but there are limits,” Swedish Prime Minister Stefan Lofventweeted after a meeting with the other three so-called frugal leaders. “It will be a tough negotiation.”

Charles Michel

@eucopresident

I am grateful to the EU leaders for the hard work we’ve done together.

There are many legitimate concerns, but I am convinced that it is possible to make progress.

Everything is on the table in order to decide #EUCO #MFF

15
Feb

Greece’s Investment Grade Still Looks Far Off: Euro Rates Daily

Yield hunters are excited about Greek bonds these days, but the rally in the debt by no means suggests higher probability of a sovereign upgrade to investment grade.While the nation’s economic growth may stay aboveeuro-area average, according to the European Commission, many hurdles still remain to a rating improvement. The debt-to-GDP ratio is the region’s highest, even if it is expected to decline, and the banking sector is still burdened by bad loans, which are to be reduced under the Hercules program.

Moreover, any results of progress made in economic and fiscal policy will only become visible in the longer run. Before any positive change in ratings, credit watchdogs will want to be sure that Greece continues on the reform path and achieves its goals.

After Fitch Ratings raised its credit rating for Greece last month to BB with a positive outlook, the country is still two steps short of investment grade. At other three rating companies, the country is still three notches into junk territory. Even if they were to upgrade the nation by one notch on each review date in the current year, it would still stay sub-investment. In any case, a six-month interval between the reviews is a very short period of time to be able to identify additional structural improvements.

DBRS Fitch Moody’s S&P Global
April 24

October 23

July 24 May 8

November 6

April 24

October 23

Source: DBRS Morningstar, Fitch Ratings, Moody’s Investors Service, S&P Global Ratings

Even if Greece is raised to just one step short of investment grade, it wouldn’t mean that its exit from junk is near. Portugal, which has always had an investment grade at DBRS, had to wait at least two years to win such a rating at S&P Global and as much as six years at Fitch.

Euro Rates Daily is an excerpt from the German language report “Renten am Morgen.” To read the current issue, please click Renten am Morgen: Erhöhte COVID-19-Zahl sorgt für Risk-off

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