{"id":981,"date":"2012-04-20T14:00:00","date_gmt":"2012-04-20T14:00:00","guid":{"rendered":"http:\/\/starthostunlimiteddmffassi-ss.stackstaging.com\/bondworld.ch\/home\/sites\/20b\/7\/760c69a11c\/public_html\/investmentworld.ch\/index.php\/2012\/04\/20\/viewpoint-the-first-round-of-the-presidential-elections-in-france-could-trigger-a-further-correction\/"},"modified":"2012-04-20T14:00:00","modified_gmt":"2012-04-20T14:00:00","slug":"viewpoint-the-first-round-of-the-presidential-elections-in-france-could-trigger-a-further-correction","status":"publish","type":"post","link":"https:\/\/www.investmentworld.eu\/ch\/viewpoint-the-first-round-of-the-presidential-elections-in-france-could-trigger-a-further-correction\/","title":{"rendered":"Viewpoint: The first round of the Presidential elections in France could trigger a further correction"},"content":{"rendered":"

<\/span><\/span>The G-20 may bring some developments, but no final decision, on fresh IMF resources to ringfence the euro area crisis….. <\/strong>
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For professional investors and advisers only<\/strong><\/p>\n

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The stability programmes will provide indications on the health of public finances in the medium term. Market tensions are set to linger, as they are tied in part to the waning effects of the 36-month LTROs and to the uncertainty over the reactivation of the SMP, which for the time being remain the sole fast intervention tool. The first round of the Presidential elections in France could trigger a further correction, should Hollande win greater consensus than indicated by recent voting intention polls.<\/div>\n
After a turbulent start to the week, tensions on the European bond markets eased somewhat, probably thanks to the outcome of the Spanish 10Y bond auction, at which demand was 2.42 times the offer, although yields were up compared to the previous auction. In general, news flows on the crisis are still far from encouraging. The Governor of the Bank of Spain confirmed the risk weighing on achievement of the 2012 deficit target, given the fragile macroeconomic picture and rather optimistic assumptions on revenue and spending. In Italy, the Council of Ministers has approved the Economy and Finance Document for 2012. Although the full text has not been released yet, the government announced downwards revisions to growth estimates (from -0.4% to -1.2% this year, and from 0.3% to 0.5% next year) and that it has postponed by one year (to 2014) balanced budget target (from an estimated -0.5% in 2013).<\/div>\n
The revision of 2012-2013 targets is not entirely due to the adverse economic cycle (given the new GDP assumptions, based on the elasticity of the Commissions\u2019 estimates, the deficit would level off at -0.8% this year and -0.2% next year). The government indicates that debt could reach 120.3% of GDP net of direct loans to Greece and of the share paid into the EFSF and to the ESM, (although based on our calculations, the aforementioned items should have an impact of around 3% of GDP). In our view, the new growth estimates are still slightly optimistic (our central scenario points to a -1.5% contraction in GDP this year, and a zero rate next year) and therefore we believe the deficit will level off at -0.6% in 201, with overall debt peaking at 123.3% of GDP this year. Market tensions may increase if the first round of the presidential elections in France see the socialist candidate Hollande achieve a stronger advantage than predicted by latest polls, based on which he is ahead of Sarkozy with 29% of voting intentions (vs. 24%).<\/div>\n
The same polls point to Hollande as the winner of the second round on 6 May (58% vs. 42%). The possibility of Hollande coming out on top is a source of concern, given his opposition to the fiscal compact and his \u201crevolutionary\u201d proposal of bringing retirement age back to 60 years. To date, the markets have been relatively positive on France, but in the postelection period the government will have to adopt new measures to guarantee that the deficit\/GDP ratio is brought back to 3% in 2013, and assure medium-term sustainability. This week the Netherlands too have come under scrutiny, as Fitch has warned it may lose its triple-A rating, and therefore its core country status, unless austerity measures are implemented. Some detail of the fiscal consolidation programmes in the medium term will become available in midweek, with the publication of the stability programmes.<\/div>\n
The G-20 should bring some news on the enhancement of the IMF resources to counteract the euro area crisis to 400 billion euros, based on Mrs. Lagarde\u2019s indications. EU countries have committed 200 billion euros; Japan 60 billion euros; Sweden, Norway, and Denmark 26 billion.<\/div>\n
Australia said it is ready to step up its share. However, fiscal plans and G20 developments will not be enough to calm market tensions. Concerns remain on the capacity to absorb government refinancing flows and\/or bank recapitalisation problems should the SMP remain dormant. If volatility increases, we do not rule out an ECB intervention. Despite opposition within the Council, the SMP remains the sole tool that can be promptly activated. Precautionary programmes and\/or conditional loans imply longer timelines.<\/div>\n

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Appendix
<\/strong> <\/p>\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.
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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<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

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