Skand Narang

Euro-area Growth Concerns ECBspeak last week continued to underscore adverse growth concerns, with Rehn saying “rate cuts would not hurt the eurozone's fragile growth and subdued investments which I am concerned about” (source: Bloomberg). The theme of adverse growth concerns will continue with activity surveys likely to show persistent weakness in Germany. Note that we are below consensus for the August German ZEW. Any weakness will push the euro area’s business cycle clock further into recession territory, amplifying concerns that central banks have left policy too restrictive for too long, and underscoring the ECB's shift to adverse growth concerns and away from sticky services inflation. Final estimates for July inflation from France and Spain should further confirm the ECB’s shift away from sticky services inflation. German data last week showed core services inflation has slowed to its weakest pace since December 2023. Moreover, note that fixings have HICPxt below 2% for seven of the next 11 months, illustrating that inflation is increasingly becoming a secondary concern in the euro area.

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By subsidising #UK banks through interest payments on their reserves, the Bank of England incurs a £23bn annual loss. In the case of the European Central Bank, its reserves subsidies to #EuroZone #banks have been estimated at a preposterous clip of... €146bn by professor Paul De Grauwe from The London School of Economics and Political Science (LSE), an amount that should rather be redirected towards funding the much needed public purpose #energytransition than enabling #sharebuybacks and #dividend payments by banks. #finance #money #banking #economics #monetarypolicy #future - Finance Watch - IEFP - La finance pour tous - BETTER FINANCE - European Federation of Investors and Financial Services Users

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A big week across equities, credit and rates with pre-soundings for new IPOs, books 64x covered for Spinneys equity offering, and Asda's new senior 6NC2 8.125% bond offering hitting the right note with investors. Oh and my fund declared its quarterly distribution, with a not too shabby: F Income GBP: 1.8613 pence per unit F Acc GBP: 2.4431 pence per unit An implied distribution yield of circa 7.40% *Capital at Risk* https://lnkd.in/dV8bcMsp

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🇩🇪🇫🇷🇪🇸 What’s going on with European Credit Spreads? Disclaimer: By credit spreads we refer specifically to the difference between the 10-year bond yield of the respective country and the 10-year bond yield of Germany. In the eurozone, the Bund yield is used as the benchmark bond yield because it is the safest asset in the eurozone and is widely regarded as a proxy for the risk-free rate in the area (sort of like the T-bill's cousin that spent a year abroad in college). Consequently, the spread of a particular eurozone country over Germany is seen as the additional risk of holding that country's debt. Since President Macron called for snap elections in June, the France-Germany credit spread has risen by around 46%. This is partly due to the fact that an unexpected election and the resultant new cabinet, including a new finance minister, creates uncertainty in an already fiscally distressed country. Investors doubt that the new French prime minister will be able to stick to EU budget cuts, which include reducing the public deficit to below 3% (it is currently 5.5%). Meanwhile, Spain continues to show stronger growth and greater stability than its northern neighbor, which has prompted investors to shift from French to Spanish bonds. The France-Germany yield spread is now slightly higher than the Spain-Germany spread, a situation not seen since the 2007 financial crisis, and one that is likely to impact bond markets as risk perceptions shift across the eurozone. Sources: - https://lnkd.in/eDdZB2rj - https://lnkd.in/eE5JtbPf - https://lnkd.in/etb7QRGk - https://lnkd.in/e8aBEUm8 -https://lnkd.in/eGW_JXhx

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The Bank of England has decided to maintain its key interest rate at 5%, aligning with financial market expectations. - by Frederic Eger/EBN - This decision comes after UK inflation remained steady at 2.2%, slightly above the Bank's target of 2%. Governor Andrew Bailey indicated that rates are gradually on the path down, suggesting potential cuts in the future, possibly as soon as November. The Bank's decision reflects ongoing concerns about inflationary pressures, particularly in the services sector, which is crucial to the UK economy. Despite a recent cut in rates last month, the Bank is cautious about making further reductions without more favorable economic data. Economists predict that rates will remain at 5% for now, with a strong possibility of cuts in November due to a softening labor market and sluggish growth. This decision reflects a careful balancing act between supporting economic growth and managing inflation, with future adjustments likely dependent on evolving economic conditions.

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Technical Analysis - Does it Actually Work? Many traders remain skeptical of technical analysis (TA). However, there are some TA frameworks, such as the "Relative Strength Index" (#RSI), that appear to add informational value. The attached chart shows the distribution of S&P 500 3-month returns over the past 10 years, both: 1) Outright 2) Conditioned on an elevated starting RSI (70+) As you can see, an elevated starting RSI appears to result in a "fatter left tail" for future equity returns. Some food for thought. Feel free to reach out with specific questions! (posts ≠ advice) | (reposts ≠ endorsements)

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FX LEHMAN MANUAL. Another chance to get this. It doesn't matter how experienced you are as a trader I really recommend you read this. Just for the Forwards calculation alone (which changed my game) I recommend all traders go through the whole manual. Back pre GFC some say Lehman was THE other Alpha bank (GS being the rival) I never worked there BUT I have mentored ex-traders who did. They are the finest traders I have ever met. Take outs for me: 1. The FWDS formula to work out a quick and dirty spot price based on rates today. 2. Crosses - say no more but if you want to know how I look at crosses DM me. 3. Swaps and Options - a nice brief outline of these. Please LIKE and make a comment for a PDF Copy. You can also join our institutional insights list The Adamis Gold to never miss out on all the future Manuals and interviews with FX legends. Click in the comments as the link is there too.

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Cable remains constructive despite weak UK GDP numbers, all eyes of US CPI / Fed Cable ticked higher in European trading on Wednesday, showing no significant reaction on overall negative UK economic data (GDP was flat in April / construction and manufacturing output fell sharply) as traders await release of US CPI data and signals from Fed at the end of two day policy meeting. US inflation is expected to ease while the central bank is widely expected to keep the policy unchanged again, with focus on Fed’s projections, which would provide fresh signals about the timing and pace of rate cuts. Traders also focus on BoE’s next week policy meeting, with the central bank likely to keep interest rate unchanged for the seventh consecutive time. Improving daily studies (rising momentum / Ma’s mainly in bullish configuration) underpin near-term action, with long shadows on last two daily candles, pointing to strong bids. However, sustained break above 1.2753 pivot (Fibo 76.4% of 1.2893/1.2299 / 10DMA) is needed to confirm signal. Bullish near term bias expected as long as the price stays above rising 20DMA (1.2736), while return below1.2680 higher base will be bearish. Res: 1.2768; 1.2786; 1.2803; 1.2817 Sup: 1.2736; 1.2680; 1.2666; 1.2638 #gbpusd #cable #ukgdp #uscpi #fomc #forex #technicalanalysis

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The Bond Trader report 15/10/2024 Treasury market The ECB and the BoE are now expected to cut more aggressively than the FED: Bund and Gilt bonds recover from recent fall, while the USTs remains muted, after a holiday yest.   Bund: EU Business Activity, French and Spain CPIs and German Wholesale Prices unexpectedly contracted in Sept, days ahead of the next ECB meeting, supporting hopes of a rate cut. The Bud yield dropped heavily from 2.27% to 2.23% at opening today, reversing its recent bullish trend. Prices found support at 130%, from 136% at the beginning of the month, and went to 133.70%. Will check the next ECB action, as I don’t discard a shocking -0.50% cut, and then the bonds will rally.   UST: expectations of further modest rate cuts in the US, supported by a resilient economy plus rising inflation, although slightly, compared to a more dynamic ECB and BoE, benefits the USD, which remains hovering around its 2-month high, breaking the EUR 1.09 support to 1.089. Traders give a 90% chance of a -0.25% cut in Nov, ahead of the -0.50% considered some weeks ago. The UST market was closed yest on Columbus Day and seems to be headed for a quiet day today. Gilt: August Unemployment falls from 4.1% to 4%, reopening the path for a further cut in rates from the BoE as soon as at the next month’s meeting. The Gilt pared losses at the important 96% support, 4.25% in yield terms, a level touched two times this year, and never broken. To be followed. Corporates LVMH (Louis Vuitton Moet Hennessy) will report earnings later today between expectations of strong benefits from China stimulus, given the importance of this market for the company: bonds well bid, with the 3.5% 2033 rising to 104%. Boeing’s saga continues, with the company preparing layoff notices for 17k jobs and taking USD 5 billion in charges due the unclosed strike, which are followed by 33k workers, who seek for a 40% wage increase. Investors are pleased with can be the light at the end of the tunnel and bonds rebound with the 6.125% 2023 coming from 101.30% yest to 103.60% today. Allianz proposed to buy a majority stake in Singapore’s Income Insurance for USD 1.7 billion, which will be blocked by the government, but open to be reviewed. The 3.2% perp trades stable at 86%, yield of 8%. Commerzbank’s takeover by Unicredit will likely receive approval from regulators as considered a cross-border consolidation and will enhance bank profitability in Europe. Indeed, the German government, which holds 12% of Commerz, opposes the takeover but accepts limited ability to intervene. Commerz bonds stable with the 4.25% perp at 94%, yield of 6.5%. Sino-Ocean (Chinese developer) expects to generate close to USD 3 billion in cash over the next decade to repay restructuring notes, amounting over USD 5.6 billion. Bonds trade at deeply distressed prices of 10%. Good luck

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Collapsing #vol, a retail investors story? The currently very low VIX levels indicate a scenario where realised volatility is collapsing. However, currently, this decline in implied volatilities is excessive compared to history, and this can be observed in the divergence between the #shortvolatility trade versus an equivalent long #equity index position, as displayed on the figure below: - from 2006 to 2021, the short volatility trade achieved a Sharpe ratio of 0.55, while the long equity position (S&P 500) registered a 0.46 Sharpe ratio, indicating nearly identical risk/return profiles. - More recently, however, from 2022 to 2024, this performance comparison has diverged dramatically, with short volatility achieving a towering 1.1 Sharpe ratio compared to a mere 0.13 for long equities. Where does this performance originate? At least partially, it can be attributed to ETF flows, which probably reflect a broader market trend and demand for other products chasing the same return stream, as shown in the right-hand chart below. This shows that since 2022, there has been approximately a USD 5 billion increase in assets under management (AuM) for an investment vehicle specifically targeting retail investors. The attractiveness for retail investors is understandable but was part of what caused the VIX complex collapse of 2018. With Aurèle Storno and Arnaud Gernath, we try to decipher what this means for our positioning and strategies in a piece on Lombard Odier Investment Managers' website: https://lnkd.in/e2JXsZ6c #macro #investment #multiasset #convertiblebonds

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⏰ Key times to consider for the French 1st round legislative vote: Voting closes Sunday 8pm local time (7 pm UK / - Monday 4am AEST) – polls out shortly after Interbank FX opens in Wellington – 8 pm UK / 5 am AEST Retail FX opens – 10 pm UK / 7 am AEST S&P500 futures open – 11 pm UK / 8 am AEST DAX & EU Stoxx 50 futures open – 01:10 UK / 10:10 AEST CAC40 futures & French OAT cash bonds open – 7 am UK / 4 pm AEST CAC40 cash equity opens – 8am UK / 5 pm AEST France v Belgium - Tuesday 5pm UK / 2 AM AEST The participation rate could be a key consideration in the number of candidates who go through - some talk it could be above 65%, and even 70%, which would mean a 3rd candidate would need over 20% of registered votes to go through. Good luck to all. Pepperstone #trading #markets

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We are frequently asked why Cypriot Banks offer some of the lowest deposit rates in Europe. Here’s a brief explanation of the three main reasons. 1) 𝗘𝘅𝗰𝗲𝘀𝘀 𝗟𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆: Cypriot Banks have a lot of excess liquidity, with some of the highest liquidity coverage ratios in Europe. This means they have little need to attract additional deposits, so they keep deposit rates low, even if it means risking some deposits outflows. 2) 𝗟𝗼𝘄 𝗰𝗼𝗺𝗽𝗲𝘁𝗶𝘁𝗶𝗼𝗻: In economics, low competition often results in higher prices, or in this case, lower deposit rates. The banking sector in Cyprus has relatively low competition, which allows banks to offer less attractive deposit rates without fearing significant customer loss to competitors.  3) "𝗦𝘁𝗶𝗰𝗸𝘆" 𝗥𝗲𝘁𝗮𝗶𝗹 𝗗𝗲𝗽𝗼𝘀𝗶𝘁𝘀: A large portion of deposits in Cyprus comes from retail customers. Retail deposits are typically considered "sticky" because they are less likely to be moved to other banks or financial products. In Cyprus, this “stickiness” is even more pronounced due to lower financial literacy, meaning that many depositors are unaware of alternative investment opportunities. As a result, despite the low deposit rates offered by Cypriot banks, Cypriots still keep a large portion of their wealth in deposits.  #cyprus #banks #deposits #depositrates #competition #financialliteracy #alternatives #investments 

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