Fiscal Policy

The Fed may be cutting rates again within a year

17 Dec 2015

With official U.S. money finally costing something, there’s a risk that market overreaction saps funding in emerging markets and hurts exports as global demand softens. While a swift retreat might be insignificant on paper, it would harm the central bank’s credibility. 

Euro banks’ post-Fed good cheer looks short-lived

17 Dec 2015

European bank shares are up after the U.S. rate rise, aided by hints that future increases will be gradual. But EU rates won’t follow anytime soon, and $9.8 trln of non-U.S. dollar credit could get harder to service. Nor is the pace of future Fed hikes set in stone.

South Africa’s Zuma discount is entrenched

14 Dec 2015

Assets of Africa’s second-largest economy are up after President Jacob Zuma’s rethink on a new finance minister. But 10-year bonds and shares are yet to recover all their losses. As the U.S. prepares to hike rates, the government has lost credibility at just the wrong time. 

Far-right poll success jeopardises French reforms

7 Dec 2015

Marine Le Pen’s National Front won more votes than mainstream rivals in the first round of regional elections. Anti-euro and anti-immigration, the party espouses protectionism and state intervention. Its rise may force the ruling Socialists to rethink economic reform plans. 

Congress punts gas tax hike in favor of bank raid

3 Dec 2015

A $305 bln transport spending plan may soon be law. Rather than raise the absurdly low U.S. fuel levy, though, lawmakers are plugging a $70 bln shortfall by swiping the Fed’s rainy-day funds and dividends it pays lenders. Creative, perhaps – but it’s no long-term solution.

Mario Draghi is central banking’s tragic hero

3 Dec 2015

Despite new easing measures, the ECB chief’s fight to revive inflation looks doomed. Forces beyond his control, such as oil prices, are too strong. Markets are moving against him. Draghi is admirably determined, but will probably be remembered for trying rather than succeeding.

Dollar peg remains Saudi Arabia’s best option

27 Nov 2015

Saudi Arabia is under pressure to break its currency peg with the dollar. The inflexible riyal means Saudi can’t devalue to offset weak oil prices. But given Riyadh’s huge forex reserves, the risks of moving to a floating currency still outweigh the rewards.

ECB has bright idea for targeted bank-bashing

26 Nov 2015

Imposing a staggered penalty on banks that hoard cash is one of many ways to ease policy being discussed by the European Central Bank. Such levies have drawbacks. But at least a split-level charge would encourage the biggest hoarders to boost cross-border lending.

Britain joins sovereign wealth party too late

26 Nov 2015

Creating a 1 billion pound sovereign wealth fund to encourage shale gas drilling in the UK could fail on two fronts. It won’t sway opponents of fracking in the UK countryside, and a financial windfall is unlikely given a global gas glut and unattractive shale economics.

France can afford budget-busting security spend

17 Nov 2015

Prime Minister Manuel Valls says the deficit is bound to miss EU targets as security spending rises after the Paris attacks. Brussels is unlikely to kick up a fuss over this exceptional overspending. Nor will investors, who are used to serial French fiscal slippage.

Cerberus finds workaround for Northern Rock mess

13 Nov 2015

The private equity firm is paying a premium for 13 bln stg of assets from the collapsed UK lender. It helps the state’s finances, but leaves Cerberus to fund a big portfolio itself. Selling a 3 bln stg chunk to TSB, and better securitisation markets, suggest a way to do so.  

Qatar’s austerity drive will be felt beyond Doha

5 Nov 2015

Despite being among the wealthiest people on the planet, Qataris must cut “wasteful” spending as low energy prices squeeze revenue, their ruler has warned. Years of high-profile investments including VW, Glencore and Barclays mean it may not just be Qataris who feel the pinch.

U.S. election complicates Puerto Rico repair job

3 Nov 2015

President Obama wants Congress to help the island out of a $72 bln hole. His calls for debt restructuring, better oversight, tax and healthcare tweaks make sense, but risk falling prey to candidate posturing. It may take a full financial meltdown for D.C. to roll up its sleeves.

Mixed economic messages complicate Carney’s job

3 Nov 2015

Timing the UK’s first rate rise in eight years is especially tough for Bank of England Governor Mark Carney. Recent economic signals are muddy. Old certainties, such as links between unemployment and inflation, are in doubt. Hesitant central bankers make for choppy markets. 

Greek banks get marginally more investable

2 Nov 2015

ECB stress tests revealed a 14 bln euro capital hole. The tests were doubly tough: the pass mark was high, and the state will not prevent shareholder dilution. Yet banks are stuck with bad loans and the economic outlook is unclear. Greek bank equity is still a bet for the brave. 

Dixon: Tsipras’ biggest stress tests yet to come

2 Nov 2015

A central bank verdict that the top Greek lenders must raise only 14.4 billion euros is welcome news for the prime minister. But he has to implement more tough measures before he can secure debt relief from his euro zone creditors. Until then, he faces political risks.

French labour market is lose-lose for Hollande

27 Oct 2015

President Francois Hollande was hauled over the coals when the jobless total hit a record high in August. Yet a just-reported hefty fall in unemployment won’t save him from a backlash in December’s regional elections. The temptation will be to dilute reforms and deficit cuts.

Osborne’s new deficit: his own credibility

27 Oct 2015

The UK chancellor’s cut to tax credits has been thrown back by the upper house. The claim that cuts were offset by higher minimum wages always looked hollow. The hit to Osborne’s deficit reduction plan looks bearable. At worst, it dents his hopes of being the next prime minister.      

Argentines may risk austerity to get change

26 Oct 2015

Presidential elections will go to a runoff after business favorite Mauricio Macri surprised ruling-party candidate Daniel Scioli in Sunday’s vote. Scioli will now say Macri wants to slash social programs. But voters may rather see Cristina Fernandez’s economics as unsustainable.

Icahn takes $150 mln of activism to political realm

22 Oct 2015

The investor wants to help U.S. companies bring back $2 trln of overseas cash in return for a reduced tax that will fund infrastructure. A massive so-called super PAC will back like-minded candidates in 2016 elections. The idea makes sense, but a longer-term fix would be better.