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Weekly update: week 38

Macro-economic insights

The global growth for 2019 is corrected to 2,9% compared to previous predictions of 3,2%, for 2020 growth rates are estimated at a global average of 3,0% currently what is 0,4% lower as previously anticipated. The risk on financial markets rose due to negative interest rates and deteriorating corporate loans.  The growth in China in August fell back sharply across production, investments and retail. Mainly companies active in the consumer sector are experiencing the consequences of the trade war. The government is expected to step in, although the measures would moderate in time.

  • Groei valt terug naar laagste niveau sinds crisis – FD (18/9/2019)
  • Terugslag groei China komt op slecht moment – FD (16/9/2019)

In the US, the Fed had to intervein four times in one week on the repo market. The repo market is a very short-term financing market to provide solvent companies with liquidity. The interest rate peaked because of lack of supply. This is partially due to the policy of the Fed, limiting financial institutions their exposure to the market. Consequently, the Fed had to step four times in one week resulting in a daily supply of 75 billion USD to bridge the lack of cash in the system. This measure does not impact any standings or view of the Fed nor does it change their view on the monetary policy. Trump continues to challenge the Fed’s monetary policy, every action the Fed takes to support the economy, he counters with a further escalation of the trade war.

  • Federal Reserve pompt $53 mrd in repo-markt – FD (17/9/2019)
  • Federal Reserve pompt $75 mrd in repo-markt – FD (18/9/2019)
  • Federal Reserve verlaagt de rente, verwacht verder nog hooguit kleine stappen – FD (18/9/2019)
  • Het financiële systeem kan nog niet zonder de Fed, bewijst de repo-markt – FD (20/9/2019)
  • Fed schiet repo-markt tot in nieuwe kwartaal te hulp – FD (20/9/2019)
  • Fed gaat de rente verlagen, zal het voor Trump genoeg zijn? – FD (17/9/2019)

The first auction for TLTRO’s was, as predicted in the previous update, a moderate success. The reason is quite likely the timing of the subscription and the update of the conditions. A moderate 3.4 billion euro was collected by the banks at –0.5% annual interest rate for a 3-year holding period. The ECB hopes to counter the negative effect the negative rates have on some financial intermediaries.

The Norwegian Central bank remains the maverick in the financial system with another interest rate hake of +25 bp putting the interest on 1,5%. The economy is performing solid, inflation numbers are on target and they want to hault the growth of debt. In contrast to the banking sector, some European countries are announcing costly projects. In Poland the promise of substantial higher minimum wages by 2020 and 2023 and a bonus for pensioners to change the current image of “low wage” labour providers for the west. Boris Johson states he will build a bridge between Northern Ireland and Scotland. The costs of this is estimated at GBP 20 billion minimum and the economic upside can be considered a small fraction of this cost. This is potentially a statement in the light of Brexit and the challenging surrounding Northern Ireland and getting a deal with the EU.

  • Banken halen maar €3,4 mrd op bij eerste ECB-veiling van gratis geld – FD (19/9/2019)
  • In Europa regent het geld – FD (16/9/2019)
  • Alle centrale banken verruimen, behalve Norges Bank – FD (19/9/2019)
  • Recessie 2.0 komt eraan – FD (15/9/2019)

Greek banks still have a large amount of defaulted or likely to default loans on their balans sheets (up to 48%). This is due to the previous crisis. The Greek government wants to make a guarantee of 9 billion Euro so these loans can be placed in a SPV and sold on the market. That way the banks have clean balance sheets, meeting the standards of European banks and they can finance solvable project again.

  • Griekse banken profiteerden al van verwachte overheidshulp – FD (18/9/2019)

Iceland recovered from its banking crisis in 2008 through tourism. WOW air, a low-cost airline company, contributed substantially to this revival doubling the amount of tourist from its founding in 2011 up to 2015. There bankruptcy is pushing the tourist dependent economy into recession.

  • Hoe de crash van WOW air IJsland een recessie induwt – FD (15/9/2019)

Research Archive

29 September 2019 Research Week 39
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22 September 2019 Research Week 38
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15 September 2019 Research week 37
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8 September 2019 Research week 36
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1 September 2019 Research week 35
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25 August 2019 Research Week 34
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18 August 2019 Research Week 33
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11 August 2019 Research Week 32
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30 July 2019 Research Week 31
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30 July 2019 Research Week 29
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