{"id":1293,"date":"2013-06-28T15:00:00","date_gmt":"2013-06-28T15:00:00","guid":{"rendered":"http:\/\/starthostunlimiteddmffassi-ss.stackstaging.com\/bondworld.ch\/home\/sites\/20b\/7\/760c69a11c\/public_html\/investmentworld.ch\/index.php\/2013\/06\/28\/viewpoint-markets-on-rollercoaster-ride-expectations-on-fed-rates-guided-by-economic-data-in-europe-mixed-ne"},"modified":"2013-06-28T15:00:00","modified_gmt":"2013-06-28T15:00:00","slug":"viewpoint-markets-on-rollercoaster-ride-expectations-on-fed-rates-guided-by-economic-data-in-europe-mixed-news-from-the-institutional-front","status":"publish","type":"post","link":"https:\/\/www.investmentworld.eu\/ch\/viewpoint-markets-on-rollercoaster-ride-expectations-on-fed-rates-guided-by-economic-data-in-europe-mixed-news-from-the-institutional-front\/","title":{"rendered":"Viewpoint: Markets on rollercoaster ride: expectations on Fed rates guided by economic data. In Europe mixed news from the institutional front."},"content":{"rendered":"
In Europe  mixed news from the institutional front…..<\/div>\n

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The Fed\u2019s statement following the June meeting shook the markets into a new place. Bernanke  indicated that if the growth and employment trends continue as expected, the FOMC may start  to reduce the pace of asset purchases \u201clater this year\u201d and, if conditions remain favourable, the  reduction will continue \u201cin measured steps\u201d\u00bb in 2014, ending after the unemployment rate hits  7%, probably \u201caround midyear\u201d. Consensus ahead of the meeting expected the pace of asset  purchases to start moderating in October (our forecast: August-September), therefore not far off  Bernanke\u2019s indications. A more important element in guiding market movements was the  information provided on rate expectations, which marks the start of the future restrictive cycle.  The reversal is still \u201cfar in the future\u201d, with 14 participants (out of 19) expecting the first hike by  the end of 2015 (13 in March). However, the distribution of the level of rates sends a more  hawkish message than was the case in March: 13 participants expect a policy rate of at least 1%  by the end of 2015, compared to 9 in March; 7 expect rates at 1.5% or above (vs. 3 in March).<\/p>\n

A part of this shift, justified by the improvement in the economic outlook, has transferred to fed  funds futures, which for June 2015 have risen to 0.7% from 0.475% on 18 June.<\/strong> Therefore, the  market\u2019s position is close to that of the \u201cmedian FOMC participant\u201d:  forthcoming economic  data will be decisive  in guiding the next movements. A real rollercoaster ride lies ahead next  week: our forecasts are for a rise of the ISM to  51.5, as opposed to a slightly slower rise in  nonfarm payrolls, which should slow in June  (temporarily) compared to May (see \u201cThis Week\u2019s  Market Movers\u201d). Volatility is guaranteed.  
Interesting developments, albeit mixed, also  came from the European front. First of all,  Chancellor Merkel promised her party to make  Germany the engine of European growth,  making the most of the margin allowed for fiscal policy. On paper, this is an interesting  development, which goes in the direction of a symmetry of fiscal policies, which at the moment  represents the only real achievable surrogate of a fiscal union. In practical terms, however, it  remains to be seen if and when this will translate into tangible measures to support demand.<\/p>\n

Second, the IEB and the European Commission should present a number of options at the  European Council of 27 and 28 June to kick-start  lending to small and medium enterprises in  Southern Europe.<\/strong> Rumours on the contents of the proposals have been reported by press  agencies this week, and tell of 55-100 billion euros in loans which could be activated by the  programme over an undefined time horizon as yet: 1-2% of the stock of loans to non-financial  firms in the euro area, too little to independently and effectively support the recovery. Third, the  extension of the deadlines for achievement of fiscal targets by France, Spain, Holland, Slovenia,  and Portugal, went smoothly, as did Italy\u2019s exit from the excessive deficit procedure: orientation  towards a slightly more flexible approach to  the application of the Stability Pact seems to be  confirmed, although, adjusted by the cycle, implementation of the recommendations will imply
some fiscal consolidation in 2014 as well. Fourth, on Wednesday the Ecofin was expected to  reach an agreement on the second pillar of the banking union, the single resolution mechanism,  after the failure of Friday\u2019s attempt. The structure taking shape provides for the ESM to play a  role in direct capitalisation, albeit with strong limitations: (i) the credit ceiling amounts to only 60  billion euros in total; (ii) an adequate bail-in must be applied; (iii) the financial costs will be  shared with the Member State \u201cto ensure that incentives remain aligned\u201d; (iv) the bank must be  subject to single supervision; (v) retroactive application will be decided case by case,  unanimously. Intervention of the ESM remains  a last resort, after the participation of  shareholders, creditors, and of the national fund, but also after (or jointly with) the intervention  of the Member State. Given these limitations,  the aim of severing the ties between banks and  sovereign issuers will only be achieved in part. What\u2019s more, progress towards achievement of  the third pillar, i.e. a common system of deposit protection, is not expected to go much beyond  a harmonisation of national regimes. Ultimately, significant progress has been made only  towards the first pillar, i.e. the single supervisory mechanism.<\/p>\n

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Appendix<\/strong><\/div>\n

Analyst Certification<\/strong>
The financial analysts who prepared this report, and whose names and roles appear on the first page, certify that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures: The analysts who prepared this report do not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.<\/p>\n

Important Disclosures<\/strong>
This research has been prepared by Intesa Sanpaolo S.p.A. and distributed by Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for the contents of this report. Please also note that Intesa Sanpaolo S.p.A. reserves the right to issue this document to its own clients. Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both authorised by the Banca d’Italia, are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.
Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor.
This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. It should not be regarded as a substitute for the exercise of the recipient\u2019s own judgement.
No Intesa Sanpaolo S.p.A. or Banca IMI S.p.A. entities accept any liability whatsoever for any direct, consequential or indirect loss arising from any use of material contained in this report.
This document may only be reproduced or published together with the name of Intesa Sanpaolo S.p.A. and Banca IMI S.p.A.. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. have in place a Joint Conflicts Management Policy for managing effectively the conflicts of interest which might affect the impartiality of all investment research which is held out, or where it is reasonable for the user to rely on the research, as being an impartial assessment of the value or prospects of its subject matter. A copy of this Policy is available to the recipient of this research upon making a written request to the Compliance Officer, Intesa Sanpaolo S.p.A., 90 Queen Street, London EC4N 1SA.
Intesa Sanpaolo S.p.A. has formalised a set of principles and procedures for dealing with conflicts of interest (\u201cResearch Policy\u201d). The Research Policy is clearly explained in the relevant section of Banca IMI\u2019s web site (www.bancaimi.com).
Member companies of the Intesa Sanpaolo Group, or their directors and\/or representatives and\/or employees and\/or members of their households, may have a long or short position in any securities mentioned at any time, and may make a purchase and\/or sale, or offer to make a purchase and\/or sale, of any of the securities from time to time in the open market or otherwise. Intesa Sanpaolo S.p.A. issues and circulates research to Qualified Institutional Investors in the USA only through Banca IMI Securities Corp., 245 Park Avenue, 35th floor, 10167 New York, NY,USA, Tel: (1) 212 326 1230. Residents in Italy: This document is intended for distribution only to professional investors as defined in art.31, Consob Regulation no. 11522 of 1.07.1998 either as a printed document and\/or in electronic form. Person and residents in the UK: This document is not for distribution in the United Kingdom to persons who would be defined as private customers under rules of the FSA.
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Valuation Methodology<\/strong>
Trading Ideas are based on the market\u2019s expectations, investors\u2019 positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and\/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and\/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.

Coverage Policy And Frequency Of Research Reports<\/strong>
Intesa Sanpaolo S.p.A. trading ideas are made in both a very short time horizon (the current day or subsequent days) or in a horizon ranging from one week to three months, in conjunction with any exceptional event that affects the issuer\u2019s operations. In the case of a short note, we advise investors to refer to the most recent report published by Intesa Sanpaolo S.p.A\u2019s Research Department for a full analysis of valuation methodology, earnings assumptions and risks. Research is available on IMI\u2019s web site (www.bancaimi.com) or by contacting your sales representative.<\/p>\n

Source: BONDWorld – Intesa Sanpaolo \u2013 Research Department<\/p>\n","protected":false},"excerpt":{"rendered":"

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