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Strong Polish Economy Faces Risks, Needs to Remain Flexible
Strong policies, protection under IMF's arrangement have contributed to strong performance
But risks threaten outlook, some vulnerabilities remain, room for maneuver more limited
Monetary policy, fiscal automatic stabilizers should support growth if needed
July 5, 2012-- The Polish economy has, on average, performed better than peers throughout the crisis despite the challenging environment in Europe, the IMF said in its annual report on the state of the economy.
This reflected very strong fundamentals, sound policies, and confidence in the economy due in part to the Flexible Credit Line (FCL) arrangement with the IMF. The report added that―given the more limited room for maneuver on the fiscal front―monetary policy should be the first line of defense in providing support to the economy in the event the eurozone crisis intensifies.
The Polish economy grew by a solid 4¼ percent in 2011 despite a substantial decline in public spending. The banking system has remained profitable, well capitalized, and liquid. Credit expanded at a healthy pace, though banks are now tightening their conditions for lending. The IMF expects real GDP growth to moderate to 2½ percent in 2012, as both external and domestic demand are expected to weaken.
view the IMF Country report-Poland 2012 Article IV Consultation
Source: IMF
Short selling: Commission adopts delegated act detailing rules on the ban on uncovered sovereign credit default swaps and short sales of shares and sovereign debt
July 5, 2012--The European Commission has today adopted a Delegated Act which sets out important technical rules needed to ensure the uniform application and enforcement of the Short Selling Regulation1.
In particular, the delegated act specifies the cases in which sovereign credit default swaps are considered covered, and therefore not banned in accordance with the Regulation. Investors can demonstrate that the sovereign credit default swap contracts they have entered into are covered by demonstrating either a quantitative or a qualitative correlation between the hedged assets and liabilities and the sovereign credit default swap. Other issues addressed in the Act include technical rules relating to the reporting of short positions in shares and sovereign debt, and the thresholds which can trigger a short term suspension of short selling in illiquid shares and other financial instruments. A related regulatory technical standard on short selling was also adopted by the Commission today, based on a draft submitted by the European Securities and Markets Authority (ESMA).
view Executive Summary
Source: EUROPA
Europe 2020 Project Bond Initiative: Frequently asked questions
July 5, 2012--On 5 July 2012, the European Parliament adopted the proposal for a pilot phase of the Project Bond Initiative.
Last October, the European Commission proposed the creation of project bonds for infrastructure investment, as a new tool to unlock private funding.
This initiative marks another building block in the European Commission's actions to revive growth through investment in the European Union. The basic principle underpinning this initiative is a better use of public banks better. In the case of the European Union, this is the European Investment Bank (EIB). The EIB and the EU budget can be used more effectively to achieve major leverage through limited risk-sharing with private investors. The legal provisions are being put in place, in order for the first project to be launched as early as this summer.
Q1: What are the main objectives of the Initiative?
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Source: European Commission
EEX and TEIAS sign Memorandum of Understanding for a cooperation on the establishment of a Turkish Energy Exchange
July 5, 2012--Today, the European Energy Exchange (EEX) and TEIAS, the Turkish Electricity Transmission Company, have signed a Memorandum of Understanding for a co-operation on the establishment of an organized energy market.
Turkey represents one of the biggest and most dynamic energy markets with an important geographical position within the Southeastern European and Asian region.
“As a bridge between Asia and Europe Turkey has the potential to develop a reference price for this region. The establishment of a Turkish Energy Exchange with liquid power spot and derivatives markets is crucial for the successful liberalization and further growth of the electricity markets”, says Metin Kilci, Undersecretary for the Turkish Ministry of Energy and Natural Resources.
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Source: European Energy Exchange (EEX)
DB - Equity Research-European ETF Market Monthly Monitor : ETF cash flows pick up in Europe over June as investors take different views
July 5, 2012--A market of two minds: Gold and European equities
Besides European football, June was also an eventful month for European ETPs. The sixth month of 2012 brought €2.0 billion of flows to the European ETP industry. European domiciled ETFs registered total inflows of €1.6 billion while commodity ETCs registered flows of€496 million over the month.
This is one of the strongest months of this year so far, with flows exhibiting both size and directionality. This signals the end of a period of ambivalence that had a negative impact on ETF trading volumes.
*There were two major ETF investment trends over the month of June, both of which in our view were driven by investors taking different views about the next chapter of the European debt crisis. These opposite views polarized positive cash flows patterns in the European ETF industry.
*The first trend was gold ETP inflows, totaling $1.6 billion in Europe and $770 million in the US. Publication of key indicators of both the US and European economies over June point to global growth prospects becoming increasingly under pressure. As a result the market is discounting increased likelihood of further monetary easing which in turn can have a positive impact on the price of gold. This is somewhat supported by the 2.4% rise in the price of gold over June.
*However, it is interesting to point out that gold ETP flows in Europe over June eclipsed those in the US market. The US gold ETP market ($77.7 billion) is 1.8 times larger than that in Europe ($43.4 billion). The fact that European ETP investors gave a stronger push towards gold allocation in portfolios indicates the return of a trend we have observed in 2009 and 2010. Gold has often been used as a ‘safe heaven’ investment by European ETP investors during periods of high equity market volatility. The divergence of the gold flow size between US and European ETP investors, as well as the lack of cash flow correlation with gold price rises throughout the month, does suggest that the June gold ETP inflows in Europe are less associated with expected monetary easing and more with concerns on whether the Euro zone can effectively address fiscal governance issues. The total June gold ETP inflows globally of $2.4 billion amount to just under 50 metric tons of gold.
*The second ETP market trend relates to European diversified equity benchmarked ETFs that while very neglected over the first five months of the year (YTD outflows €762 million). These ETFs saw healthy interest in the month of June. Developed market equity benchmarked ETFs saw inflows of €1.3 billion, most of which went to European broad equity benchmarked ETFs (€847 million). France (€162 million) and the US (€152 million) were the other two developed market equity benchmarked ETF beneficiaries at a country level. German equity market benchmarked ETFs saw inflows of €631million in the fourth week of June, however they finished the month almost flat (€50 million of inflows) due to outflows in the first two weeks of June.
*The European Brussels summit on June 28th/29th took place on the back of elections in France and Greece that brought in new governments in those countries. For more discussion on the implication of these events as well as their impact on European ETF cash flows in more detail, please refer to our last weekly report published on June 29th and titled “Europe: Deliberating about the end or the means?”.
*The latest Euro zone debt crisis developments have evidently evoked different reactions by European ETP investors. Some believe that more turbulence might be on the horizon and are buying gold. Others see current Euro zone valuations attractive and have invested in European equities.
*The largest outflows in June came out of emerging market (EM) equity benchmarked ETFs (€570 million) and sovereign benchmarked fixed income ETFs (€260 million). EM outflows exhibit negative pressure across the board. Most EM outflows came out of diversified indices (€221 million), however, BRIC benchmarked ETFs (€171 million) and other single country benchmarked EM ETFs also saw marginal outflows.
ETF Comparatives: Mutual Funds, cash equity turnover
*European ETF turnover , as a percentage of the region’s cash equities turnover, decreased to 6.8% (from 7.5% in May) as of the end of June 2012. The equivalent number for the US market stands at 26.9% for the same period, marginally up by 0.2% from the end of May 2012.
*European ETFs comprised 2.6% of the continent’s mutual fund industry as of April 2012. European domiciled ETFs registered outflows of €3.8 billion over April 2012, while UCITS mutual funds registered inflows totaling €8.3 billion. Mutual fund industry data as per the European Fund Management Association (EFAMA).
*US ETFs comprised 8.5% of the mutual fund industry as of the end of May 2012, unchanged from the end of April 2012. US domiciled ETFs registered inflows of $6.4 billion in May 2012, while US mutual funds registered inflows of $10.1 billion over the same period. Mutual fund industry data as per the Investment Company Institute (ICI).
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http://pull.db-gmresearch.com/p/610-705F/68716947/European_ETF_Market_Monthly_Monitor.pdf
Source: Christos Costandinides, European Head of ETF Research & Strategy, Deutsche Bank
BoE prints money again to boost to UK economy
July 5, 2012--The Bank of England launched a third round of monetary stimulus on Thursday, announcing it would restart its printing presses and buy 50 billion pounds of asset purchases with newly created money to help the economy out of recession.
The move was widely expected after BoE Governor Mervyn King said last month the economic outlook had deteriorated since the BoE called a halt to its second round of asset purchases - also known as quantitative easing - in May. "Against the background of continuing tight credit conditions and fiscal consolidation, the increased drag from the heightened tensions within the euro area meant that, without additional monetary stimulus, it was more likely than not that inflation would undershoot the target in the medium term," the BoE said in a statement.
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Source: Todays Zaman
Bond ETF trading on LSE surges
July 5, 2012--Trading in fixed income exchange traded funds on the London Stock Exchange almost doubled in value in the first half of 2012
underlining the growing importance of bond trading to the LSE's role as a centre for ETF dealing in Europe. Fixed income ETF turnover jumped 93.2 per cent to
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Source: FT.com
Council adopts rules on derivatives
July 4, 2012--The Council today1 adopted a regulation aimed at increasing transparency in derivatives
and reducing risk in the over-the-counter2 (OTC) derivatives market (PE-COS 8/12).
Adoption of the regulation follows an agreement reached with the European Parliament; accordingly, the Council accepted all amendments voted by the Parliament at first reading
on 3 July.
The regulation requires:
the clearing of standardised3 OTC derivative contracts through central counterparties (CCPs)4 in order to reduce counterparty risk (i.e. the risk of default by one party to the contract). This is aimed at preventing the default of one market participant causing the collapse of other market players, thereby putting the entire financial system at risk. To be authorised, a CCP will have to hold a minimum amount of financial resources.
Specifically, the regulation requires a CCP to have a mutualised default fund to which members of the CCP have to contribute
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Source: European Council
NYSE Euronext Monthly ETF Activity Report -June 2012
July 4, 2012--Listings-June 2012 saw two new ETF listings from Lyxor on NYSE Euronext Paris:
Trading Name: LYXOR ERC
ISIN:LU0776635921
Symbol: ERC
Underlying index: Euro iStoxx 50 Equal Risk
TER:0.25
Trading Name: LYXOR WLDR
ISIN:LU0776636812
Symbol: WLDR
Underlying index: MSCI World Risk Weighted
TER:0.45
At the end of the month NYSE Euronext European markets had 686 listings of 591 ETFs from 16 issuers.
Trading activity
The average daily value traded on-book last month was €257.7 million, down 39.9% vs. June 2011. The total value traded on-book amounted to €5.4 billion, down 7.5% month-on-month;
An average of 7,167 on-book trades (single-counted) was executed daily last month, a decrease of 24.0% vs June 2011, and down 4.4% month-on-month;
A total of €733.4 million was exchanged in block trades in June, down 12.9% from the €842.1 million in the previous month. Overall, block trade volume represented 13.5% of total regulated market ETF trading activity on NYSE Euronext.
Assets Under Management (AUM)
At the end of June 2012, the combined AUM of all ETFs listed on the NYSE Euronext European markets totalled €130.8 billion.
Market Quality
Last month, NYSE Euronext welcomed UBS as a new Liquidity Provider; UBS now officially provides liquidity on one iShares ETF.
Our high-capacity, low-latency technology, combined with the flow from client orders, competitive market makers and our 23 first-class Liquidity Providers, contributed to a median spread for all listed ETFs of 31.15 bps.
view report
Source: NYSE Euronext
Eurex expands European index derivatives segment
Introduction of futures and options on the EURO STOXX 50 ex Financials Index next Monday, 9 July
July 4, 2012--The international derivatives market Eurex Exchange is expanding its offering to include futures and options on the EURO STOXX(R) 50 ex Financials Index.
This index has been calculated since October 2011 by the global index provider STOXX Ltd. The new contracts will be tradable as of next Monday, 9 July 2012.
“Our new index derivatives give market participants additional investment and hedging opportunities for their investment strategies. At the same time the new index products complement our highly liquid future in the European blue chip index EURO STOXX 50,” said Mehtap Dinc, Head of Product Development at Eurex.
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Source: Eurex
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