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22/12/2016

Weekly News Bites: 3 above par

Our top picks from this week's Morning Chat

3 above par: The euro slipped to 1.0375 against the US dollar, the closest it has been to parity (i.e. €1=$1) at any point since early 2003. Investors are reacting rationally to expectations the Federal Reserve will raise rates least three times in 2017, while the European Central Bank will push €800 billion of cash into its banking system over the same period. (21/12)

New World, same old King: Italian parliament approved a €20 billion publicly funded aid package to rescue its weakest banks. It will probably need to spend a big chunk of that very soon to save Monte Dei Paschi. MDP was founded in 1472 to support Tuscan farmers, 20 years before Christopher Columbus discovered New World. But In 2008, just prior to the onset of the financial crisis, it acquired its local rival Banca Antonveneta for €9 billion in cash. Had that cash had been on its balance sheet, the last decade would have been far less trying. (22/12)

Credibility killed the cat: Bank of England policymaker Ian McCafferty foresees a Brexit-driven triple-whammy of higher inflation, higher import costs and companies reluctant to invest in 2017. However, the Bank of England has been wrong on its post-Brexit projections thus far. Indeed, Mr. McCafferty, a policy hawk, was the only Monetary Policy Committee member voting to raise rates at this time last year. However, he publically admitted he got inflation wrong in April, and began voting with the consensus opinion for most of 2016. (22/12)

Caught off Garde: The head of the International Monetary Fund, Christine Lagarde, has been found guilty of negligence over compensation she approved to Bernard Tapie, a former majority shareholder of Adidas, when she was France’s finance minister. Mr. Tapie had to sell his stake in the company in 1993, but the sale was bungled. A long-running legal battle was eventually referred to final arbitration by Ms. Lagarde in 2007, where a very favourable outcome to Mr. Tapie was decided, included €45 million for "moral damage". She could have challenged the ruling, but chose not to. Some believe her judgement was “compromised”, but not the IMF’s Executive Board, as it has decided to stick with her. (20/12)

Going MADuro: A new height to the chaos in Venezuela was hit last week with a deadline to swap 100-bolivar notes with 500’s extended. While the official reason for putting the "100" out of circulation is to crack down on crime – criminals have hoarded the bill, previously the largest in circulation – few believe it is anything other than the latest rung on Venezuela's hyperinflation ladder. The oil-rich country is into Weimar Republic levels of dysfunction: 2015 GDP contracted 10%, 2016 will be similar; 2015 inflation was 275%, 2016 will be 720%. (19/12)

 

 

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