“News from the ECB and the FED…..”

News from the ECB and the FED

European Central Bank President Mario Draghi has opened up about the bank’s aggressive stimulus policy and fueled expectations that the ECB will announce a reduction of stimulus later this year. The plan for a 2.3 trillion asset purchase will run until the end of the year and the ECB will have to decide in the third quarter whether to extend or wind down the purchases taking into account a growth acceleration and weak inflation.

The head of the Federal Reserve Janet Yellen said on Tuesday that the US central Bank will continue to raise interest rates only gradually. She also said that the stock of bonds to help the US economy during the financial crisis will be reduced “gradually and predictably”.

The Bank of England plans to increase the capital requirements for UK lenders to tackle the risks arising from the recent rapid growth in consumer credit and prepare for the uncertainty brought about by Brexit talks. Regarding Brexit Governor Mark Carney said that, “there are risks around that process, so contingency planning needs to be not only put in place but also activated”.

Italy’s commitment to the banking sector

In 2016 two banks Popolare di Vicenza SpA and Veneto Banca SpA were forced to seek government aid after failing to raise capital from investors. According to the ECB after reviewing the book in April, 6.4 billion euros of new capital was needed. Italy started winding up the two failed Veneto region banks on Sunday in a deal that could cost EUR 17 billion to taxpayers.  This move will however end a long running crisis. State support will be given to Intesa SanPaolo to acquire the good assets for a token amount.  The shares of Intesa which is Italy’s largest retail bank increased 3.2 percent while the euro zone bank index rose 1.3 percent. Under the deal Italy will pay more than 5 billion euros to Intesa Sanpaolo its top retail bank to take the assets of the two banks with up to 12 billion euros of guarantees to shield Intesa from losses. Lawmakers criticized the deal as it involves the state rather than investors bearing most of the cost.  It was a principle agreed by European leaders and included in European law that investors rather than the state should shoulder the costs of bank failures.

Greece

Greece 10 year yields fell to their lowest since 2009 after Moody upgraded its credit rating on Friday.

Germany

Business confidence in Germany increased to its highest level this month since 1991 as the economy is set to continue with its upswing growth. Earlier this month, Germany’s central bank raised its economic outlook stating that increasing employment, consumer spending and construction would ensure an “ongoing solid underlying pace” of expansion.  The Munich based Ifo institute’s business climate index rose to 115.1 in June from 114.6 in May.  Furthermore, strength in manufacturing was also reflected in the Purchasing Managers’ Indexes.

China

Concerns over China grew after Moody’s Investors Service downgraded its credit rating last month as it expected growth to slow and debt to continue to rise in the coming years. The Chinese statistics bureau stated that economic performance between January to May period laid a solid foundation to achieve the full-year growth target of about 6.5 percent.  The strong growth in China prompted the International Monetary Fund this month to raise the growth forecast for 2017 to 6.7 percent from 6.6 percent.  The profits at China’s industrial companies increased by 16.7 percent in May from a year earlier despite there were expectations of a slowdown arising from a rise in borrowing costs and the property market cooling down.

Oil

On Tuesday oil prices rose for a fourth consecutive session as investors covered their short positions. However, worries over a global glut are still present.  The Organization for Petroleum Exporting Countries (OPEC) and its partners have in a joint effort tried to reduce this global glut by cutting production.  OPEC nations and 11 other exporters have agreed in May to extend the cuts by 1.8 million barrels per day until March 2018.  Despite the cuts which started in January, the supply has remained due to rising output elsewhere.  OPEC members Nigeria and Libya are exempt from the cuts and production has increased over there.  Iran was also allowed a small increase to recover the market share which was lost under Western sanctions over its nuclear program.

Healthcare in the US

The plan to repeal the Obamacare does not seem to be achieving the support needed after at least three Republican senators said they will vote to block the current version of their health care bill.  US President Donald Trump summoned all the Republican Senators (52 in total) to the White House after eight rebels vowed to oppose the overhaul in healthcare.  The vote has been delayed until after the 4 July.  This is a setback to Trump’s plans to replace the Obamacare which was Trump’s pledge mainly due to its cost.  Moderate Republicans are criticizing its replacement for removing protections for the poor and the elderly.  The delay is making investors worried about President Donald Trump’s ability to deliver his promises of tax reform and deregulation.

Second Cyber attack in two months

A major cyber attack that started on Tuesday has disrupted computers in different companies around the globe such as a Russian oil company, Ukranian banks and multinationals firms with a virus which is similar to the ransomware that infected over 300,000 computers last month. India’s largest container port was unable to load or unload cargo after A.P. Moller-Maersk was impacted.   The ransomware virus includes a code known as “Eternal Blue” was also used in last month’s ransomware attack named “WannaCry”.  The virus effected computers that run Microsoft Corp’s MSFT.O Windows by encrypting hard drives and overwriting files and then demanded $300 in bitcoin payments to restore access.  As a result of the ransomware attack, every stock in the Stoxx Europe 600 technology are Price Index (.SX8P) was in the red, with the Price Index falling 1.2% to a two-week low.

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