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EU Watchdog Eyes Hedge Funds, Debt Shorting
May 27, 2011-Investors need more information on hedge fund risks, while planned European Union curbs on shorting sovereign debt could undermine regulatory credibility, the EU's new securities watchdog said on Thursday.
Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA), said investors need information to better assess the risk profile of a hedge fund.
"It will be important to achieve a balance between increasing investor protection while avoiding imposing undue costs on fund managers," Maijoor told the annual International Capital Market Association conference.
Source: Reuters
IMF Switzerland: Selected Issues Paper
MAy 27, 2011--IMPACT OF EXCHANGE RATE MOVEMENTS ON EXPORT PERFORMANCE AND
CONSUMER PRICES1
A. Introduction
1. The effect of the nominal exchange rate on the trade balance depends on the
degree of exchange rate pass-through and on trade elasticities. In the presence of price rigidities, the short-run expenditure switching effect of a nominal exchange rate appreciation
on the trade balance will depend on the exchange rate elasticity of imports and of exports.
The domestic value of the trade balance will worsen as a result of a real exchange rate
appreciation if the sum of the absolute values of the two elasticities exceeds one.2 The exchange rate pass-through is an important parameter determining the response of domestic import demand to exchange rate fluctuations by allowing expenditure switching effects to
operate. For example, with a high pass-through, the expenditure switching effect of a nominal appreciation is likely to be sizeable as an appreciation results in a decline in the
domestic price of imports and therefore tends to increase the demand for imports.3 In contrast, with a low pass-through, the domestic price of imports, and therefore the demand for import, are not significantly affected by the nominal exchange rate.
view the Switzerland: Selected Issues Paper
Source: Europe
Debt worries swept aside in Europe
May 27, 2011--European equities endured a choppy week, but thanks to a revival in commodity markets and rising risk appetite, concerns over the eurozone debt crisis were ultimately swept aside.
Gains on Thursday and Friday almost made up the losses earlier in the week when Standard & Poor’s said it was lowering its long-term assessment of Italian sovereign debt. Italy’s FTSE MIB index never fully recovered and was down 1.9 per cent over the week
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Source: FT.com
EU vows to respect Basel banking capital rules
May 27, 2011-EU financial services commissioner Michel Barnier said Friday he will respect ambitious new international guidelines on banking capital buffers in new legislation being drafted by the bloc.
Barnier said he felt obliged to respond to press reports suggesting the rules drawn up by the Basel Committee on Banking supervision, which groups states' central bankers and financial regulators, would be weakened when transposed into European Union law.
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Source: EUbusiness
Basel III break for banks in EU
May 26, 2011--Banks in the European Union could evade part of the tighter Basel III capital requirements under draft legislation implementing the new globally agreed standards across the 27-member bloc.
The 500-plus page draft, which has not been officially released, could allow EU banks to count more of the capital in their insurance subsidiaries than the global rules call for. It will also allow some banks to continue issuing hybrid capital – preference shares and other debt-like instruments – for longer than expected. The biggest French financial companies, including Société Générale and BNP Paribas, and the UK’s Lloyds Banking Group have insurance arms. They would benefit disproportionately from the exception
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Source: FT.com
ECB Monetary Developments In The Euro Area
May 26, 2011-The annual growth rate of M3 decreased to 2.0% in April 2011, from 2.3% in March 2011.1
The threemonth
average of the annual growth rates of M3 over the period February 2011 - April 2011 stood at 2.1%, compared with 2.0% in the period January 2011 - March 2011.
Regarding the main components of M3, the annual growth rate of M1 decreased to 1.7% in April 2011, from 3.0% in March. The annual growth rate of short-term deposits other than overnight deposits increased to 3.3% in April, from 2.3% in the previous month. The annual growth rate of marketable instruments stood at -0.7% in April, compared with -0.6% in March.
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Source: ECB
DB Global Equity Index & ETF Research : European ETF Market Weekly Review : May turns out to be a 'sit and wait'’ game as ETF investors largely stay out of the market
May 26, 2011--Investment Outlook: Cash Outflows in Equity & Fixed Income ETFs
Declining equity markets and cash outflows from equity & fixed income ETFs marked the week that ended on 20/05/11. Most of the European equity benchmarks ended lower than the previous week’s close: DAX, Stoxx 50, and the CAC lost 1.84%, 1.40% and 0.70% respectively.
The only exception was the FTSE 100 which showed resilience and gained 0.38% than the previous weekly close. Overall equity ETFs registered outflows of €933 million for the last week which places its YTD cash flow figures at €10.4 billion.
European developed country ETFs witnessed outflows of close to €1.1 billion in the last week. ETFs tracking major European country benchmarks [such as the DAX, FTSE 100, SMI & CAC] registered outflows thereby bringing down the YTD cash flows to €5.1 billion in this ETF market segment. Non-European developed market ETFs and European sector ETFs received €145 million and €132 million cash inflows respectively over the last week.
Fixed Income ETF cash flows were marked by money market ETFs which registered outflows of €488 million over the last week. Sovereign ETFs collected €166 million in cash inflows for the last week. Overall, fixed income ETFs have registered outflows of €605 million year till date.
Outflows in commodities continued, albeit at a much muted level with net cash outflows of €71 million in the last week. Broad commodity benchmarked ETFs registered outflows of €55 million in the last week. Overall Commodity ETPs have collected over €2 billion in cash flows in 2011 , €1.2 billion of which were received by broad commodity benchmarked ETFs alone.
Assets Under Management (AUM): Assets decrease by €1.8 billion
Total European ETP assets decreased by 0.7% and ended the previous week at €242 billion. Equities alone registered a decline in assets of close to €1.6 billion to end the last week at €156.6 billion. Within equities, ETFs tracking developed country ETFs witnessed the largest asset decline (€ 1.4 billion) from the previous week’s closing numbers. This decline was primarily driven by DAX outflows. ETFs tracking regional Eurozone benchmarks also declined by €297 million week over week.
Fixed Income ETFs also lost €413 million in assets over the last week to close at €41.8 billion. Money market ETF assets declined by over € 500 million to end the week at €5.2 billion which is lower than 2010 year end assets. Commodity assets registered moderate increase by adding €190 million taking its total assets to €40.7 billion as of 20/05/11.
On-Exchange Total Weekly Turnover: Decrease in turnover levels as Commodity trading activity slows
Weekly on exchange European ETP total turnover decreased by 9.4% to end the past week at € 10.7 billion. Commodities played a significant role in this; registering week on week declines of €0.8 billion in total weekly turnover. Equity turnover remained flat with weekly total figures of €8.3 billion. Fixed Income ETF turnover declined by 13.8% to end the week at €832 million.
New ETP Product Launch Calendar: 12 product launches, 3 Cross-Listings Emerging Markets find flavor with Issuers
State Street launched 8 new products in the last week on the European ETP markets. There were 5 ETFs focused on MSCI indices tracking Emerging markets equities and 2 ETFs on broader investable equity securities. A Fixed Income ETF was also introduced which tracks the Barclays Capital EM Bond Index. All these products were listed on the Deutsche Borse.
Comstage introduced 4 Equity ETFs tracking a range of German and Swiss benchmark country indices. These ETFs were listed on the Deutsche Borse.
To request a copy of the report
Source: Christos Costandinides, European Head of ETF Research & Strategy, Deutsche Bank
Mercer study: having up to 5 percent gold in your portfolio considerably reduces the risk of loss
Study on gold as an asset class for institutional investors
May 25, 2011--The Mercer study examines the effect of holding a certain proportion of gold on the performance of a portfolio of large-cap shares and government bonds. To this end, it defines two different scenarios: a normal market environment scenario and a stress scenario. In a nutshell, investment in gold was shown to be a sensible diversification of a portfolio, particularly in times of crisis.
The study also shows that adding gold reduces the risk of loss in achieving any target return or that the expected return for any targeted risk of loss is higher.
"For institutional investors who are not permitted to make direct investments in gold for regulatory reasons, we consider ETPs to be a suitable form of investment for participating as directly as possible in the performance of the gold price," said Dr Heinz Kasten von Mercer. "However, we should take into account whether this ETP is secured by physical gold and its market price is thus directly coupled to the gold price. In addition, investors should ask themselves whether the price of the ETP will perform systematically differently from the gold price over time, for example through a certain fee structure."
"Xetra Gold is the only product on the market that is backed by physical gold and doesn't show a tracking error because the management fees are not taken out of the portfolio," said Martina Gruber, managing director at Deutsche Börse Commodities GmbH. "It is the first choice for institutional investors because it's inexpensive, flexible and very safe."
"Since mid-2010, insurance companies in Germany have also been allowed to purchase Xetra Gold for their restricted assets in the amount of up to 5 percent of their commodities investment," said Steffen Orben, managing director at Deutsche Börse Commodities GmbH. "The Mercer study proves that the risk of loss can be considerably reduced in this way."
Source: Deutsche Börse Commodities
Total end 'unlikely' to bank aid, says Vickers
May 25, 2011--Members of a commission that is proposing a shake-up of the banking industry admitted their reforms might not prevent more failures or free the taxpayer from providing support to the sector.
Sir John Vickers, chairman of the Independent Commission on Banking, told parliamentary members that while its recommendations would reduce the implicit state subsidy for banks it was unlikely they would abolish it totally
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Source: FT.com
BlackRock ETF Landscape: European STOXX 600 Sector ETF Net Flows for Week Ending 20-May-2011
May 25, 2011--For the week ending 20 May 2011, there were US$109.7 Mn net inflows into STOXX Europe 600 sector ETFs. The largest sector ETF net inflows last week were in healthcare with US$143.7 Mn followed by food and beverage with US$49.1 Mn net inflows while oil and gas experienced net outflows of US$149.3 Mn.
Year to date, STOXX Europe 600 sector ETFs have seen US$477.6 Mn net inflows. Healthcare has seen the largest net inflows with US$316.4 Mn, followed by banks with US$279.6 Mn net inflows while basic resources experienced the largest net outflows with US$172.7 Mn.
As of 20 May 2011, there is US$10.8 Bn AUM invested in the STOXX sector ETFs which is almost double the US$6.9 Bn open interest in the sector futures. The ETF AUM is greater than the open interest in the corresponding futures contract in 16 out of 19 sectors.
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Source: Global ETF Research & Implementation Strategy Team, BlackRock
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