Weekly Insight: Hoping for More Support
- Equity markets regain footing, helped by better U.S. data and hopes for Chinese policy stimulus
- Renewed interest in EM assets—but continued differentiation in performance and flows
- China—slower growth, how much more policy support?
- Euro Area manufacturing recovery remained on track in Q1
Weekly Insight: Emerging Market Spring
- Renewed appetite for emerging market assets, high-yield bonds and carry trades
- Greece returns to the markets
- More moderate tone in FOMC minutes
- Normalization in the spotlight—selected Spring Meeting takeaways
- China—exports are not that bad
- Nigeria’s economy overtakes South Africa … if only in dollar terms
April 2014 Capital Markets Monitor and Teleconference
Credit Gaps and the Cheapening of Credit
April 9, 2014 — As we move into the sixth year of recovery in mature market economies, supported mainly by extraordinary monetary accommodation, it is important to ask where we are in the credit cycle. Or more precisely, where is the credit gap? This can help us gauge the potential duration of the economic expansion as well as possible implications for financial stability given plentiful liquidity.
In a related development, plentiful liquidity may have contributed to a “cheapening” of credit—the implications of which are yet to be fully understood. Increasing issuance by lower quality borrowers has added to “fallen angels” to cause a noticeable deterioration of credit quality—as measured by credit ratings—of outstanding sovereign and corporate debt over the past decade.
Weekly Insight: Is QE Coming to Europe?
- Bund-Treasury yield gap continues to widen
- Sharply lower flows to equity ETFs in Q1
- ECB ready to use QE … if needed
- Global PMIs again underscore the divide between mature and emerging markets
- “Still Bumps in the Road for the Global Economy” – summary of our Global Economics Monitor
- Hurdles ahead for Chinese banks
International Expansion of Chinese Banks
Chinese bank assets have grown more than five-fold over the last decade, dwarfing the 40-50% increase in U.S., Euro Area and Japanese bank assets. This strong growth in Chinese bank balance sheets reflects not only domestic lending, but a notable expansion in Chinese banks’ lending to companies active and/or domiciled overseas. Chinese activity in international syndicated loan markets has almost doubled since 2011, and the customer base for Chinese banks overseas includes a growing number of major international firms in both mature and emerging markets. Increased activity by Chinese banks abroad helps facilitate the rising use of the renminbi (RMB) in international transactions.
Weekly Insight: Hedging Bets
- Early 2014 sees demand for both safe havens and risk assets
- IIF Portfolio Flows Tracker indicates pick-up in flows to emerging markets
- Flash PMIs mixed
- Crunch time for Japanese consumption
- Early 2014 sees robust high-yield bond issuance
Weekly Insight: Looking for Signs of Spring
- Bond markets move to price in earlier Fed tightening, developed market equities resilient
- Fed surprises on the hawkish side
- Renminbi drops sharply as PBoC widens the trading band
- EM monetary policy—diversity of challenges
- Greece contemplates a return to the markets as 5th IMF program review nears completion
Weekly Insight: Taking a more sober view
- Softer Chinese growth indicators, focus on deflationary pressures chip away at risk appetite
- China — activity slips over the new year
- Emerging market industrial production weakens more broadly
- Volatile data flow continues in U.S. and Euro Area
- Emerging market bond issuance wanes, but European borrowers venture forth
- New IIF Portfolio Flows Tracker shows pickup in EM Flows
Weekly Insight: Living With EM Uncertainty
- More risk appetite, but strains in a number of EM countries still evident
- Manufacturing PMIs—up in mature economies, down in EMs
- ECB on hold—improving growth amidst subdued inflation
- Ukraine—sharp escalation of the standoff with Russia has further intensified the already acute financing pressures
- China—keep up the growth
- India—off to the polls as Modi meets markets
Weekly Insight: A Better Week to be in Bonds
- Strains in a number of emerging markets prompt a move to safe havens
- Domestic political factors drive greater divergence in EM performance
- Weaker U.S. data – temporary, but not all weather-related
- Bank lending continues to decline in the Euro Area
- Chinese central bank to markets: currency appreciation is not a one-way bet
Infrastructure Investing. It Matters.
February 25, 2014 — IIF and Swiss Re released today a joint report emphasizing the importance of long term investments to support infrastructure growth and development—a key topic of discussion at the G20 Meeting in Sydney earlier this month. With annual infrastructure spending of $2.6 trillion expected to grow to $4 trillion annually by 2030, diversifying long-term investment funding sources for the real economy is essential. As the public sector struggles to meet these financing needs, institutional investors play an increasingly important role in providing long-term capital. The report recommends a specific set of actions to address existing impediments to long-term investing, and sets forth a proposal for private-public partnerships with the goal of further developing infrastructure as an asset class.
Weekly Insight: U.S. Dollar Strengthens; G20 Pushes for Growth
- Relative strength of U.S. data, G20 messages buoy the dollar
- Highlights from the IIF G20 conference in Sydney
- Flash PMIs—weaker China, softer Euro Area, better U.S.
- BoJ moves again after soft GDP numbers
- Ukraine—out of control
- Emerging market corporate bonds: risks ahead?
Weekly Insight: More optimism, calmer markets
- Better sentiment prompts search for buying opportunities in equities, risk assets
- Market signals suggest some EM currencies still under scrutiny
- Tweaking our forecasts—mainly in emerging markets
- Solid Euro Area growth in 2013Q4
Weekly Insight: A Tentative Calm
- Risk appetite returns, but selectively
- Clearer signs of differentiation seen in emerging market currency performance
- IIF EM Lending Survey: more loan demand, better funding conditions—but tighter credit standards
- January Manufacturing PMIs—a mixed bag
- ECB—caught in a conundrum between improving growth outlook and persistently low inflation
Weekly Insight: A Closer Look at the EM Asset Price Correction
- Broad selling of EM assets eases; more differentiation expected going forward
- Assessing the emerging market policy response
- Ghosts of 1998 – but this time should be different
- Capital Flows to Emerging Market Economies – our flagship report looks for a gradual rebound in flows to emerging markets, but still low relative to 2010-2012
- Strength in U.S. GDP growth in the second half of 2013 likely to soften somewhat in the first half of 2014
Weekly Insight: Second-guessing the equity market rally
- Equities and risks to growth; surge in dollar bond issuance
- Softer growth and credit concerns in China
- Emerging market currencies under pressure
- Turkish central bank moves to defend the lira
- Euro Area flash PMI for January signals continuing improvement
- BoJ on hold (for now)
IIF Special Committee on Financial Crisis Prevention and Resolution
Views on the Way Forward for Strengthening the Framework for Sovereign Debt Restructuring
This note highlights the Special Committee’s views on the way forward for strengthening further the sovereign debt restructuring framework, including the Committee’s reactions to the International Capital Markets Association’s (ICMA) draft new guidelines for aggregation clauses and to the IMF staff’s key points and suggestions included in the April 2013 IMF Staff Report on possible changes to the IMF policy and legal framework for sovereign debt restructuring that could be considered. The Special Committee comprises 43 senior officials from major IIF-member financial institutions that represent the private creditor and investor community. This note summarizes the views of the Special Committee expressed in a number of forums. The note is intended to contribute constructively to the ongoing discussions on possible refinements to the existing contractual, market-based approach to sovereign debt restructuring.
Weekly Insight: Lively debate on the global outlook, QE, capital flows
- “Show me the profits”- equities focus on earnings growth; credit spreads
- Highlights from IIF Economic Advisory Committee meeting in New York – cautious optimism on global outlook
- ... some skepticism about the effectiveness of forward guidance…
- ... and expectations of a pickup in capital flows to emerging markets this year, despite persistent vulnerabilities
Weekly Insight: Measured Fed, dovish ECB, market watchful
- Equity rally takes a breather; a good week for sovereign issuance; EM eyes on China
- Fed minutes suggest smooth launch for QE3 wind-down
- Stronger Euro Area growth outlook, but dovish ECB
- Frontier markets: popular, resilient—but still risky
Weekly Insight: New Year, Fresh Look
- Still constructive outlook for equities; risks to consensus view on bond yields
- Global manufacturing recovery remains on track, but EMs still lagging
- Strains in Turkey underscore political challenges ahead
- Chinese rising local government debt levels in the spotlight
- The big switch— out of bonds into equities; out of EM into DM
Weekly Insight: Tapering at last: equities like it better than bonds
- Limited selling in bond markets, modest rally in developed market equities
- Tapering may reinforce investor discrimination, vis-a-vis emerging market assets
- Emerging market central banks will watch Fed tapering impact
- December IIF Global Economic Monitor: sun coming out, but keep the umbrella
- Sentiment indicators support brighter outlook
- Behind the latest squeeze in Chinese money markets
December 2013 Joint CMM-GEM Conference Call
December 17, 2013 — IIF Managing Director and Chief Economist Charles Collyns and IIF Executive Managing Director Hung Tran present the key highlights of the December Capital Markets Monitor (CMM) and Global Economics Monitor (GEM). The GEM presents our latest assessment of the outlook, including 2015 for the first time, and discusses risks that could hold back the expected pick-up in global growth. The CMM focuses on changes in market landscape (demand for collateral, decline in market liquidity etc) following global regulatory changes and adjustment by market participants.
Weekly Insight: Risk assets lose steam despite good U.S. data
- Eyes on potential for December Fed taper, ECB comments
- Stronger U.S. data flow and budget deal put taper back in focus
- Mexico pushes a sweeping energy reform
- Chinese November data provide a mixed picture
- Volcker Rule approved – extra-territoriality a key focus
- Corporate bond issuance surges in 2013; amid low returns, bond funds see record withdrawals
Weekly Insight: Policy in the Spotlight—Focus on U.S., China
- Will higher bond yields dent the risk rally?
- China’s third plenum blueprint beats expectations
- Chinese domestic bond market—ready to open up?
- Slow but steady manufacturing expansion in China and the Euro Area
- Fed to markets: “tapering is not tightening!”
- Strong IPO activity in mature markets, but not in emerging markets
IIF Market Monitoring Group Warns on Impact of Regulatory Reforms on Financial Markets
December 5, 2013 — The IIF’s Market Monitoring Group released the following statement today after their quarterly meeting in New York, stating that some regulatory reforms aimed at stability may reduce financial market efficiency, and rising corporate debt levels pose risks for pockets of weaker firms and fragile economies.
Weekly Insight: Risk Rally Still Running
- Mature markets continue to rise, although emerging markets less buoyant
- Yellen remarks seen as dovish, and Fed policy normalization still seen distant
- Slowing Q3 growth in Japan and Euro Area likely to be temporary
- New IIF global forecast calls for rising growth momentum in 2014, but highlights risks
- China’s Third Plenary promises a greater role for market competition, but lacks specifcs
- Large Euro Area corporates increasingly turn to bond markets for funding
International Debt Negotiation: Experiences and Lessons Learned
November 7, 2013 — Speaking at a Bertelsmann Foundation–OAS Conference in Grenada, IIF Executive Managing Director Hung Tran discussed how to strengthen sovereign debt crisis prevention and resolution, as well as the importance of adhering to the current contractual, market-based framework for sovereign debt restructuring.
Weekly Insight: ECB Takes Action
- ECB cuts rates by 25bp — how much more ammunition do they have?
- Incoming real activity data for the Euro Area remained broadly positive
- U.S. Q3 GDP — strong headline due mainly to inventory buildup
- Emerging market manufacturing sector: regaining momentum
- Ongoing search for yield spurs high-yield debt issuance, currency pressures
Weekly Insight: Can This Rally Be Spooked?
- Only slightly curbed market enthusiasm
- U.S. economy failing to gain momentum so far and Fed stands pat
- ECB next week – on hold with an easing bias
- Euro Area deleveraging could have several more years to run
- Focus on Chinese policy decisions ahead of the Third Plenary
Weekly Insight: Return of the Punchbowl—Will the Buzz Last?
- “Taper-delay rally” highlights the renewed search for yield
- U.S. outlook: fiscal battles and weaker job growth suggest no taper until 2014
- Manufacturing continues to expand in China and the Euro Area
- ECB Asset Quality Review (AQR) highlights investor concerns
- UK banks to enjoy more support from the BoE; U.S. banks Q3 earnings reflect weaker mortgage activity
- EM bank lending conditions continue to tighten
Restoring Financing and Growth to Europe's SMEs
SMEs in Europe have been hard hit by Europe’s economic difficulties and have seen major declines in financing since 2008. To promote better understanding of the factors behind reduced financing, the IIF and Bain & Company held more than 140 interviews with a broad range of stakeholders in six Euro Area countries and with officials in key European institutions. The interviews made clear that progress is needed both to improve the availability of information and the financial health of SMEs and to broaden the base of financial institutions able to identify and fund promising SME activities. The report recommends the establishment of a coordinated European process focused on national task forces to develop tailored, technical, nonpolitical action plans to address each of these impediments in each national market.
Strengthening the Role of Markets in Sovereign Debt Crisis Prevention and Resolution
July 19, 2013 — IIF Executive Managing Director Hung Tran last week delivered a speech at the Banque de France’s Symposium on Sovereign Risk, Bank Risk and Central Banking in Paris (July 8-10, 2013). This text is based on those remarks. At this symposium, Tran discussed how to strengthen the role and efficacy of markets in sovereign debt crisis prevention and resolution and made several suggestions for improvement.
Euro Briefing: Looking for Traction
Prior to the recent shift in market sentiment, abundant liquidity and renewed efforts by the ECB to support growth (including a rate cut on May 2) had helped peripheral Euro Area sovereign yields drop to their lowest level since Q1 2011. Market appetite for Greek financial assets improved, contagion from Cyprus is under control, and Portugal held a 10-year bond auction—the first since its 2011 bailout. However, the selloff in risk assets and focus on Fed “tapering” since May 22 have shifted the focus to the potentially volatile corrections attendant on further increases in U.S. bond yields.
IIF Market Monitoring Group highlights risks of a liquidity-fueled rally: while fundamentals remain weak, parts of corporate sectors exposed
Warns of potential ripple effects as the U.S. moves closer to exit from accommodative monetary policyJune 4, 2013 — Following their recent meeting in Rome, members of the IIF’s Market Monitoring Group agreed today to release the following statement, noting: a lack of fundamental support for financial market rallies; risks associated with exit strategies and a potential rise in U.S. bond yields; a need to reconsider zero risk-weighting of domestic government bonds for members of a currency union; potential vulnerabilities exist in parts of the corporate sector; and restrictions on trading “naked” sovereign CDS might impair market efficiency.
IIF CAIM raises concerns that proposed EU Financial Transaction Tax could hurt savers and pensioners
April 23, 2013 — The IIF’s Council on Asset and Investment Management (CAIM) today released a position paper on the proposed EU Financial Transaction Tax (FTT). CAIM raised concerns that any revenue potentially generated by the proposed FTT would be considerably outweighed by the potential costs in terms of burden on end-users of financial services, potentially weaker economic growth and job losses.
Private Sector and Public Sector Leaders meet in Washington for a Roundtable on International Capital Markets and Emerging Markets
April 21, 2013 — Senior public officials from both mature and emerging market economies, leaders from the private finance sector, and representatives from international financial institutions participated in a Roundtable discussion on International Capital Markets and Emerging Markets in Washington DC. The Roundtable has become over the last few years a major annual event, and a key forum for the exchange of views among key decision makers in both the public and private sectors on global policy issues and sovereign debt market developments.
Strengthening the Role of Long-Term Investors
January 28, 2013 — The IIF and Swiss Re released today a joint report featuring eight short briefings on issues and challenges facing the long-term investment community, including financial repression, regulatory changes, the EU financial transaction tax and infrastructure investment. Long-term investors play a pivotal role for the real economy as providers of risk capital – but also for the financial markets as stabilizers and shock absorbers. This timely report is intended to raise awareness of the need to strengthen the role of long-term investors.