Article / 20 May 2016 at 12:00 GMT

Daily Shot: ECB looking for supporters Team / Saxo Bank
  • The ECB can't do it alone, but needs government support
  • Household leverage trends in Germany, France, Italy, and Spain disperse
  • Find out, what drives Russia's GDP growth
  • Share buybacks in the US are at a pre-crisis peak level
By Walter Kurtz*

Let's start with the Eurozone. The latest ECB minutes point to the central bank's frustration with the currency bloc's governments' inaction. The Governing Council is effectively saying: "We are hitting a wall here - it's time for the Eurozone governments to step up." Labor reforms are especially important in this environment in order to support the ECB's effort.
Indeed, the ECB is providing government deleveraging via QE, as privately held government debt balances collapse. 
ECB QE and bonds
1. In other Eurozone developments, the IMF insists that it would only participate in the bailout process if Greece receives a number of debt concessions. The IMF wants to turn the current Greek debt into something resembling a zero-coupon perpetual bond. 

2. It's interesting that while this bailout debate rages between the Eurogroup and the IMF, the Greek fiscal situation continues to improve. The nation unexpectedly generated a €2.4bn budget surplus in 2016.  

3. Next, we have a comparison of household leverage trends for Germany, France, Italy, and Spain. Amazing contrast.
household debt / GDP separator
1. Turning to emerging markets, Iraq gets a $5.4 billion bail-out from the IMF. The nation's fiscal situation has completely deteriorated. 
2. Nigeria's oil output falls sharply, disrupted by the militants.
3. Indonesia's consumer loan growth hit new lows. It's hard to see strong GDP growth in this environment.
4. What drives Russia's GDP growth? Below is the answer in one chart. 
5. Emerging-market currencies are becoming more correlated with the global equity markets. Over the past year, the risk-on/off pattern (which raises the correlation) has returned.
In credit markets, HY bonds have underperformed leveraged loans over the past year.

Commodity-linked credit defaults spike. It will be interesting to see which banks are most exposed. 
1. In the equity markets, investors are questioning Bayer’s attempt to acquire Monsanto. Bayer would need to raise a massive amount of debt in order to close this deal. Shares fell sharply.
2. Wal-Mart beat earnings expectations, reducing the retail sector underperformance as the shares jump. This beat is a positive indicator for consumer spending. Wal-Mart also seems to be focused on grabbing market share by squeezing competitors. Good luck with that small retail shop ...
Wal Mart
3. Share buybacks in the US are at a pre-crisis peak level.   
Share buy backs
4. The next chart shows cumulative fund flows: US, Europe, Japan. How's that asset allocation working out? 
cumulative funds
5. Tech IPO count has collapsed. This does not bode well for private valuations. 
Tech IPOs
Turning to Food for Thought, we have 3 items this morning:

1. Video consumption by type and by age.
Video consumption
2. How much does a cheap date cost in Zurich? All that deflation hasn't helped. 
Date data
3. Need more consumer spending! 
Need more consumer spending!
Have a great weekend! 

— Edited by Clemens Bomsdorf

* Walter Kurtz is an alias

**This is an abridged version of the Daily Shot. To subscribe to the full version, link to the Daily Shot and select the appropriate command. E-mail addresses are never shared with anyone.



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