U.S. stocks and bonds are in economic tug-of-war 7 Jun 2017 Bullish equity investors have pushed the S&P 500 to new highs despite soft data and fading hopes for business friendly policies. With yields tumbling even as a new rate hike looms, fixed income is more attuned to a possible downturn. When the stories converge, it won't be pretty.
Europe is a fertile petri dish for GDP-linked debt 6 Jun 2017 Linking national debt payments to economic performance could help countries cope with downturns. There are many obstacles. Bad governments might fiddle statistics; good ones may be reluctant to pay a premium for flexibility. Even so, the euro zone is a good place to test the idea.
China’s growth obsession fosters collateral fraud 1 Jun 2017 A Reuters report lays bare how loans are often backed by fake holdings of land or metals. It’s not surprising: the system deliberately enables corner-cutting to boost economic activity. But a lack of trust in asset values could prove traumatic if prices start to fall.
Euro zone “safe” bonds would be anything but 31 May 2017 The European Commission has suggested creating low-risk securities by pooling sovereign bonds. The idea is to reduce banks’ exposure to governments. But risks would still be interconnected. Without a common tax base and joint liability, no pan-euro zone debt can be truly secure.
Goldman steps in avoidable $2.8 bln Venezuela mess 30 May 2017 Money managers at the firm bought oil giant PDVSA’s debt at a big discount, indirectly handing the central bank needed dollars. Investments aren’t necessarily moral choices, but can hit reputations. After trouble in Greece and Malaysia, Goldman ought to have a better nose for it.
Italian early election is least bad option 30 May 2017 Growing political backing for a voting law makes a 2017 election more likely. The new system may produce a weak coalition that would struggle to reform. But it would allow elections to be held before a tough budget stirs up anti-EU sentiment or ECB policy tightening hits growth.
Viewsroom: Trump budgets his way to la-la land 25 May 2017 Basic economics - and decency - fall by the wayside in the administration’s pitch that it can create $2 trln of revenue by cutting $3.6 trln of costs. OPEC and U.S. fields battle for oil supremacy. Zimbabwe invents the zollar. And Bill Ford escapes his CEO’s crash unscathed.
Hadas: Puerto Rico, Greece and bad-faith debt 17 May 2017 Both the U.S. territory and the euro zone laggard have fine beaches, irresponsible governments and a debt crisis. The most just and helpful response to such debacles is to force reckless lenders to write off loans. That’s a hard sell. Thankfully, few sovereigns are so careless.
Euro zone bonds are taboo worth breaking 17 May 2017 Spain wants the bloc’s 19 governments to pool their debt. That idea is likely to be shunned by Germany. Yet mutualisation is happening anyway through bailouts and central bank largesse, and countries are less profligate than they were. Common bonds needn’t mean wayward spending.
German bonds are caught between Mario and Macron 12 May 2017 Euro zone yields have risen in anticipation of tighter policy from ECB President Mario Draghi. But the euro zone’s fragility puts a cap on long-term rates. Changing that would require the kind of common fiscal policy imagined by new French President Emmanuel Macron.
Puerto Rico restructuring will be no day at beach 3 May 2017 Congress gave the U.S. territory access to a form of bankruptcy. Now the board overseeing its finances, encompassing $70 bln of debt, has pressed the button. Creditors will get their day in court, and tidy plans in spreadsheets could end up as warped as in Detroit – or worse.
Theresa May has a way out of UK pension pickle 28 Apr 2017 The prime minister is dithering over whether to keep guaranteeing above-inflation hikes to pensioners. The triple-lock is nonsensical, inequitable and unfit for an era of Brexit and stagnant wages. May has the political capital to adopt a fairer single-lock, tied to earnings.
UK proves itself a so-so green energy investor 20 Apr 2017 The government has sold its Green Investment Bank to Macquarie for 2.3 bln pounds. A 5 pct annual return over five years gives taxpayers some benefit. But as with other recent public sales, the risk is private capital reaps benefits that could have stayed with the public purse.
South Africa’s slow burn cuts chances of quick fix 6 Apr 2017 President Jacob Zuma seems to be doing his best to get foreign investors to dump domestic assets. That may not lead to a sudden stop: only a small minority face being forced sellers. The bad news is that this could slow the process to replace him with a more responsible leader.
Markets snooze their way to Le Pen showdown 5 Apr 2017 French government bond prices suggest a lower probability of far-right Marine Le Pen winning the presidential election than bookies do. Markets may be too calm about the disruptive potential of voter apathy, or a left-wing alliance. That limits their ability to reassure.
Latin America needs leaders who can say “adios” 4 Apr 2017 A reluctance to cede power is a common failing in a region known for strongmen and weak institutions. Protesters who torched Paraguay’s Congress over the issue last week had the right idea, if wrong method. Rulers’ refusal to let go clouds prospects in Ecuador and Venezuela too.
Britain sells mortgages, buys small Brexit hedge 31 Mar 2017 Selling 11.8 billion pounds of former Bradford & Bingley mortgages to Blackstone and Prudential will cut the UK’s national debt without leaving a loss. The buyers are showing confidence in the UK economy. The seller is shoring itself up in case such confidence proves misplaced.
South Africa’s real problem: credibility downgrade 28 Mar 2017 President Jacob Zuma's abrupt recalling of his respected finance minister hit domestic assets. The latest spat could speed a downgrade of the state's sovereign debt, although much of that appears priced in. The greater damage would be to South Africa’s institutional solidity.
Market angst about France infects whole of EU 17 Mar 2017 Far-right leader Marine Le Pen has promised to reshape French ties with the European Union if elected president. That would be an existential test for the whole bloc. Currency options prices show investors have rarely been so anxious about the EU-wide impact of a single event.
Do-nothing UK budget belies big risks ahead 8 Mar 2017 Finance Minister Philip Hammond revealed minimal changes to tax and spending. His prudent message makes sense, but contrasts with the large and unpredictable economic consequences of leaving the European Union. It won’t take much for these to knock deficit reduction off course.