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2019: an exciting and challenging year

US - China trade war is a creative destruction process which is reshaping the global economic and financial order.

In this kind of environment, Chinese trade surplus and US trade deficit will both decline.

The targeted shrinking trend of US trade deficit and US sanctions policy will however reduce the status of the US Dollar as a global trade currency and main monetary reserve role.

Who will challenge the role of Dollar? … Euro, Gold, all other currencies? The process has already begun and it will take a while.

On December 19th hawkish Fed increased US FED funds to 2.5% and anticipated two more interest hikes for 2019.

US Dollar liquidity within the system keeps on a downtrend path due to FED selling its portfolio of Treasuries on the market together with the increased US Treasury issuance to cover the higher budget deficit due to fiscal reforms. The reduction in dollar liquidity has been widening credit spreads worldwide for all other borrowers and we think that to be watched carefully are Chinese corporates and other emerging markets borrowing in US Dollars.

As a recent report from the IMF shows, global debt is at a historic high reaching the equivalent of 225% of GDP, with China being the main source of new debt followed by US and Japan.

The US economy, that in 2018 is expected to expand by 3%, next year because of fiscal plans fading effects, FED rate increases and a slower global economy is expected to grow by 2.3%.

Also global economic growth, that in 2018 is estimated at 3.2%, and the IMF expects at 3% due to consequences of trade war, can go further below that level.

China official GDP growth is closing 2018 at 6.6% regardless of trade war; for 2019 we expect that the effects of economic clash with US will push the growth, expected around 6% , to a much lower level even under 4%. In fact, recent China data confirm weaker retail sales and slower industrial production.

Japan can have a really challenging year, squeezed between the great neighbour China and its powerful ally US. The worst scenario is not making a good commercial deal with China and not export enough goods to USA and instead buy from them alot of expensive weapons to threaten China itself.

Europe has alot of open issues which are hard to forecast: European elections in May, yellow jackets in France, Merkel’s declining leadership, Italian debt, Brexit consequences. Last French Purchasing Managers Index moving under 50 index level indicates a contraction in private sector for the first time in almost three years and this will have a negative impact on future GDP growth.

For the future of the United Kingdom economy the problem will not be a soft or a hard Brexit but the chance of the leftist Socialist Corbyn winning future elections.

The slowdown of the global economy will continue to reduce the demand for Oil and Commodities and push their prices down. In this environment it is hard to expect a bullish stock market.

Buy high quality USD bonds and diversify in Gold is the less risky option.

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The “fall” of equities

The economic reasons that supported global equity markets during these years are coming to an end.

Tariffs and trade discussions are affecting global growth


In China, GDP growth is slowing down and for the moment it continues to stay above 6% sustained by government measures in favor of the markets. Chinese Renminbi became weaker vs US Dollar and approaches the level of 7. In this situation it will continue to become weaker.
Other export-driven economies highly exposed to global trade start to show sign of weakness: South Korea reported the slowest pace of GDP growth since 2009, Germany reduced its 2019 growth forecast due to higher protectionism risk and Japan’s recent data on trade volume were soft. Tech companies that benefit a lot from globalization are now starting to get weaker.

End of monetary expansion by central banks


Central banks are continuing to tighten:
USA Federal Reserve has increased interest rates 3 times already in 2018 and now with the Quantitative Tightening is seller of 50 bln of Treasury per months reducing liquidity into the system.
European Central Bank will end its quantitative easing in December.
Central bank of Japan has reached its limit of intervention.
Bank of Canada and Bank of England started to rise rates.

In this environment of global trade slowdown and reduced liquidity, assets that are holding well are the US Dollar and the ‘barbarous relic’ gold.

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Two and half main events

US-Mexico-Canada reached a trade agreement that will replace NAFTA. In the end, also Canada after Mexico agreed on the trade deal.


The main new elements are:

  1. Automobiles: members must produce at least 75% of a car for it to pass through the countries duty-free, up from 62.5%. Additionally, 40% of each car must be produced by workers earning $16 an hour or more to avoid duties.
  2. More free trades for dairies, lumbers and agricultural products
  3. Increased protections for intellectual property

US officials have called the “USMCA” agreement a template for future trade deals that will lead to increased wages for Americans, improved workers’ rights and a better intellectual property protection.

President Trump said the deal was a victory for farmers, car workers and the US manufacturing industry: "It means far more American jobs, and these are high-quality jobs."

Following US government pressure on wages, Amazon will increase the minimum wage to $15 an hour for more than 250,000 employees in the USA from November 1st.

Italy against the European Commission


The new Italian government announced that they intend to set the budget deficit at 2.4% GDP in 2019 and for the following two years (expectation was 1.6%). The announcement was a disappointment for the market: Italy/Germany 10 year government bond spread widens 70 bps at 300 bps, the widest level since 2013.

This big movement in spread is not explained by higher than expected government expenses (a mere 10 bln of extra budget on 1.7 tln Euro GDP) but by political tensions between Italian government and EU institutions.

EU president Jean-Claude Juncker has warned: "Italy is distancing itself from the budgetary targets we have jointly agreed at EU level” and he added "If Italy wants further special treatment, that would mean the end of the euro. So you have to be very strict."

Italian ministers slammed comments by the Eurocrats in Brussels.

As ECB's President Draghi said “words on budget have caused economic damage in Italy”.

Words more than facts.

To be monitored closely is whether if Moody’s, S&P, Fitch and DBRS rating agencies will downgrade Italian sovereign rating. ECB provides liquidity to Italian banks based on the rating of Italian bonds given as collateral. In case of Italy downgrade, there will be a reduction or a stop of these liquidity transactions that will provoke a lot of damages to the Italian financial system and real economy.

From the Italian point of view, European Central Bank cannot keep relying on ratings made by these rating agencies, the same private entities that provided triple A (AAA) rating to complex structures based on defaulted subprime loans during the 2008 crisis.

In this turmoil also Greece is preparing a soft budget law looking at 2019 election.

Will also Greece enter in conflict with Brussels Eurocrats?

We continue to think that being long US Dollar is not the worst idea!

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Global Competition

US President Trump enjoys 4.10% GDP growth and declares that it will be sustainable for the future. He twitted “Tariffs are working far better than anyone ever anticipated... Our market is stronger than ever and we will go up dramatically...”.

Federal Reserve meeting on August 1st didn’t increase interest rate but confirmed that the economic activity has been “rising at a strong rate” and unemployment “has stayed low”.

US 10 years Treasury yield is around 3%, Germany Euro 10 years Bund is around 0.40% while Japanese 10 years government bond yield is at 0.10%.

JP Morgan CEO Dimon scared the market saying that 10 years US Treasury yield may go up to 4% and why not ? to 5% !

China defends its economy from US tariffs by levying their tariffs on US goods including LNG, increasing liquidity in the banking system reducing banks’ obligatory reserve from 17% to 15.5%. This year Chinese stock market felt around 20% while the GDP for the moment is still increasing a 6.7% yoy.

Central bank of India increased interest rate by 25 bps to 6.50% to prevent any increase of inflation. Indian Central Bank governor Patel “rising trade protectionism poses a grave risk to growth”. Government of India agreed to impose 20% import duty on textiles !

Turkish Lira tumbled to lowest level at 5.25 vs USD. Turkish central bank maintains interest rate at 17.75% and inflation reached 15.4% in June. President Trump threatens economic sanctions to Turkey for pastor Brunson case.

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Trump imposes fair trade on Europe

The conclusion of the meeting between US President Trump and European Commission President Juncker is a deal on trade.

As Juncker declares, US and Europe will “work towards zero tariffs on industrial goods”. Trump said also that they “will work to reduce barriers and increase trade in services, chemicals, pharmaceuticals, medical products, as well as soybeans”.

Juncker on agriculture added that “the European Union can import more soybean from the U.S. and it will be done”.

Besides they “decided to strengthen cooperation on energy” and “EU will build more terminals to import liquefied natural gas from U.S”. President Trump added that “European Union is going to be a very, very big buyer” and that “so they will be able to diversify their energy supply, which they want very much to do”.

They also agrees to work together on the reform of the WTO. As President Trump said they aim “to address unfair trading practices, including intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state-owned enterprises, and overcapacity”.

Everything fair ? Maybe not ! US shale gas costs 20% more than on the international market and if we add that European Union to stay in NATO has to buy very expensive US arms, Trump is winning on all fronts !

US economy is continuing to be strong. In June, the Federal Reserve raised 2018 outlook saying that Economic activity has been rising at a "solid" rate, marking an upgrade from "moderate" in the previous statement.

President Trump warned the FED against excessive rates increase because it can damage the government policy.

As forecast, Chinese economic growth is lower than expected. Chinese central bank responded with monetary policy measures as cutting reserve requirement to banks and encouraging them to lend to small and medium enterprises. Chinese Yuan lost over 6% vs USD in the last two months.

India is performing very well under the wise leadership of President Modi.

The appreciation of the US Dollar has caused and will continue to create volatility on Emerging Markets.

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Roma caput mundi

After the election of President Trump in USA and President Macron in France, now it’s time for Italy to change from its past.

During the inaugural speech, Italian new Prime Minister Conte said that priorities are lowering income tax and fighting tax evasion, the revision of pension reform and the creation of a universal basic income. He also hinted to a fairer Europe to boost economic growth.

Chancellor Merkel of Germany quickly understood the new environment and she has already proposed to not let Italy alone on immigration and she agreed with President Macron to create a European solidarity fund.

Anyway we do not recommend to invest in Italian government bonds because a hard discussion will start between Italy and its creditors. The international establishment that is fighting against President Trump and was deeply upset by the victory of President Napoleon Macron, from now on will struggle in Italy against the new Populist Government.

European Union in response to USA tariffs is learning to better defend its market, especially its workers, by implementing a new EU anti-dumping methodology to protect against imports from countries not members of the EU.

In the United States continues the success of Trump economic policy: new jobs higher than expected, unemployment at historic low at 3.80%, salary increase 2.70% year on year. Credit spreads continue to widen. The rate hikes of the FED and the increase of supply of US Treasuries in the market, due to more government issuance together with the FED selling part of its portfolio, have pushed US Treasury yields higher. This is repricing the secondary market of other issuers and forces them to offer larger premiums in primary market.

Emerging markets currencies and credit continue to be weak. As noted by the governor of the Reserve Bank of India Urjit Patel the “dollar funding has evaporated” and “emerging markets have witnessed a sharp reversal of foreign capital flows”.

Nevertheless, recent volatility creates opportunities for short term trading in the bond market.

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On the 21st of March, the Federal Reserve made the first US dollar rates increase of the three expected in 2018. The US Treasury yield curve is quite flat: 3 months 1.77%, 1 year 2.12%, 10 years 2.81% and 30 years 3.05%.

Credit spreads have widened considerably across all areas in recent weeks, causing repricing of corporate bonds and risk aversion.

The funding needs of the US Treasury, 1 trillion vs 500 billion last year, have put pressure on USD borrowing rates which are now much higher than Fed Funds.

Since the beginning of the year market interest rates increased more than the 0.25% rate hike of the FED: 3 months USD Libor moved from 1.69% end of last year to 2.29% (plus 0.60%).

China, the world’s biggest oil buyer, has opened a domestic market to trade oil future contracts denominated in Yuan. Activity has started with important volumes and would promote the use of China’s Yuan in global trade.

This will compete and reduce the oil trading activities on Chicago Mercantile Exchange.

Following election promises, President Trump introduced measures to correct the huge American trade deficit, especially versus China.

US applied to China tariffs on USD 60 billion worth of trade for stealing American intellectual-property focusing on information technology, robotics, aerospace equipment, engineering equipment, new energy vehicles and medicine.

On March 27th, the US commerce secretary Wilbur Ross said that initiatives will be taken to regulate and limit Chinese investment in areas of US strategic interest.

At present negotiations are taking place to modify trade agreements and tariffs with EU, Canada, Mexico and other important trade partners.

President Trump remarked that USA is “in the midst of a very large negotiation” and tweeted that “in the end, all will be happy”.

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A spring global cooling

On the 21st of March, the Federal Reserve made the first US dollar rates increase of the three expected in 2018. The US Treasury yield curve is quite flat: 3 months 1.77%, 1 year 2.12%, 10 years 2.81% and 30 years 3.05%.

Credit spreads have widened considerably across all areas in recent weeks, causing repricing of corporate bonds and risk aversion.

The funding needs of the US Treasury, 1 trillion vs 500 billion last year, have put pressure on USD borrowing rates which are now much higher than Fed Funds.

Since the beginning of the year market interest rates increased more than the 0.25% rate hike of the FED: 3 months USD Libor moved from 1.69% end of last year to 2.29% (plus 0.60%).

China, the world’s biggest oil buyer, has opened a domestic market to trade oil future contracts denominated in Yuan. Activity has started with important volumes and would promote the use of China’s Yuan in global trade.

This will compete and reduce the oil trading activities on Chicago Mercantile Exchange.

Following election promises, President Trump introduced measures to correct the huge American trade deficit, especially versus China.

US applied to China tariffs on USD 60 billion worth of trade for stealing American intellectual-property focusing on information technology, robotics, aerospace equipment, engineering equipment, new energy vehicles and medicine.

On March 27th, the US commerce secretary Wilbur Ross said that initiatives will be taken to regulate and limit Chinese investment in areas of US strategic interest.

At present negotiations are taking place to modify trade agreements and tariffs with EU, Canada, Mexico and other important trade partners.

President Trump remarked that USA is “in the midst of a very large negotiation” and tweeted that “in the end, all will be happy”.

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Yellen leaves a bull market and Powell arrives with a bear market

Jerome Powell, the new FED president, receives from former president Janet Yellen the task to increase interest rates by 3 in 2018.

Furthermore, the former FED president who left Friday already on Saturday made a statement reading that the equity market is high and may be too high.

he market reacted and S&P 500 lost 8%, it reminds us that it is not so difficult to have a bearish market.

Of course the market rose by 6% in January and it cannot grow at this speed during the whole year.

10 years US Treasury moved from 2.60% to 2.90% after fearing that rising wages and higher inflation could accelerate the increase of rates along with a faster reduction from Quantitative Easing by central banks.

We can say that the long term trend of interest rate reduction is now over!

This implies:

  • The end of various Quantitative Easing
  • The decline of medium and long term bonds prices following the rising interest rates
  • The widening of corporate credit spreads, especially Europeans’
  • The widening of emerging market credit spreads, corporates and governments
  • The moderate increase of volatility.


We think that in the foreseeable future the main central banks will be able to leave the quantitative easing, slightly increase the interest rates and avoid any damages to the real economy.

Regarding the forex exchange, US Treasury Secretary Mnuchin says that a weaker US dollar is good for US business, president Trump corrects his minister saying that "the dollar is going to get stronger”, and European Central Bank president Draghi says that some of the recent volatility is “source of uncertainty which requires monitoring”.

Generally, we think that in USA the fiscal plan is producing good things and the world economy is on the whole going well, the only small question mark is now the Italian political election on 4th March.

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Jump with confidence into 2018

We think that the main present conditions will not change in 2018.

Six principal leaders are taking care of the world, Trump, Xi Jinping, Macron, Putin, Abe and Modi and all of them are seriously engaged for peace and for the wealth of their citizens.

In the USA, the economy supported by a reduction of taxes will grow at more than 3%, the income of US citizens that increased 3% in 2017 will continue to grow reaching 4% in 2018.

The Federal Reserve expects 3 increases of 0.25% for the interest rate in 2018 from 1.5% to 2.25% and we forecast inflation around 2.5%.

We remain positive on the US equity market.

In Europe the major problem will be the Italian election and its stability; apart from that we do not see any major problems and we can even forecast a very good year for the European equity market.

Draghi’s ECB will continue with its accommodative and supportive monetary policy.

In Germany, three months after the election a new government is still not in place but the markets are not concerned about risks of Germany instability.

In Europe four systemic banks are working to find a good merger: Commerzbank, Deutsche Bank, Societe Generale and Unicredit.

In our beautiful Switzerland with the highest salaries in the world and with the lowest interest rate in the world the economic expansion will accelerate from around 1 % in 2017 to 2% in 2018. The actual exchange rate EURO Swiss Franc at 1.16 seems to us reasonable.

China Gross Domestic Product will slow a little under 6% due to the consequences of a more fair trade, especially with the United States of President Trump.

India economy will continue its performance and grow around 7.5%.

Investments in US Dollar continue to be a good choice considering the interest and the stability.

Merry Christmas and Happy 2018 !!!

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2017 was a champion year for financial markets

MSCI World Equity Index rose 18.20% in USD terms

US S&P 500 rose 18%

Eurostoxx 50 rose 8.50% in Euro terms and 21.80% in Usd terms

Bond credit spreads are at the lowest level since 2007 !

Emerging market bonds and equities performed very well.

USD from January 2017 lost a little more than 10 % versus the Euro, but probably in the next months will recover given the strength of the US economy and the spread between interest rates: Eur overnight rate – 0.30% versus USD overnight rate + 1.20%

President Trump, despite the strong opposition of the richest American elite, succeeded with the approval of a tax overhaul that will reduce corporate tax from 35% to 20%/22%, will also stop the possibility for major multinational companies to avoid taxes, and will simplify and reduce taxes for low and medium US incomes.

Because these measures will increase and extend the duration of US economic growth, the Federal Reserve can more comfortably increase interest rate to a normal level.

In Europe also economic momentum is good.

Germany has not yet earned a new government and we think that it is better for Germany to not have a government than to have a bad government.

French president Macron succeeded in reforming labor market and he is giving a new leadership to France and Europe in internal and external affairs.

For December we expect some profit taking in a market with low willingness to open new positions.

Enjoy Christmas holiday

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The Chinese emperor

The world listens to the president of China Mr. Xi Jinping.

He pledged to build a “beautiful China” with a clean environment, high tech companies, focusing on aerospace, cyberspace, transportation.

Xi Jinping committed also to free trade and a global economy.

China rises on the global stage, GDP in 2016 reached 12 trillion USD (USA gdp 18 trillion, German gdp 3.5 trillion), China drives 30% of world GDP growth.

President Xi Jinping explained that China loves peace but will never compromise on defending its sovereignty, he said, “We will not tolerate anyone at any time to separate one inch of land from China”.

In USA, President Trump proposes cuts to personal and business tax rates and to simplify tax code.

In Germany, Angela Merkel has taken the first steps on the long road towards forming a new government.

In France, President Macron stated his economic reforms.

Spain is experiencing trouble for Catalan independence.

European Central Bank will try to announce the reduction of quantitative easing without causing any panic on bonds of heavy indebted Countries.

Some ECB member said that the maximum limit to buy bonds for “quantitative easing” is close.

Stocks reached the highest level ever, prices of real estate are increasing, only salaries in this “global economy” are compressed.

All these news are not too bad for economy.

  30.06.2017 18.10.2017 change
EURO - USDollar 1.1426 1.1832 3.55%
EURO ECB rate -0.40% -0.40% unchanged
USD FED rate 1.25% 1.25% unchanged
S&P 500 2423.41 2561.26 5.69%
Eurostoxx 50 3441.88 3619.65 5.16%
Oil - Brent 47.92 57.29 19.55%
10 yrs German yield 0.47% 0.39% -0.08%
10 yrs USA yield 2.30% 2.31% 0.01%
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KIM JONG UN celebrated in Washington by the military industrial complex as top big salesman of American weapons.

Japan is spending 48.2 billion usd more for US arms in 2018, South Korea increased the military budget 2017 to 206 billion usd.

President Trump tweeted “I am allowing Japan & South Korea to buy a substantially increased amount of highly sophisticated military equipment from the United States”.

In United States the main programs of president Trump on domestic and foreign policy are quite stopped and his initial staff of businessmen is replaced by generals; we can suppose that generals are not good for economy and of course not good for peace.

Anyhow the global economy is going well and there is the ground for this to continue.

The Federal Reserve probably will not increase again interest rates this year, or maybe one hike at the end of the year, but they will try to reduce the Fed balance sheet selling bond assets. This is a very dedicated and hard task to avoid negative impact on treasury market.

European Central Bank will try to announce the reduction of the quantitative easing without causing any panic on bonds of heavy indebted Countries.

In Europe, nothing will move before that the new German government is in place after the election of 24 September.

Enjoy the good momentum!

  30.06.2017 11.09.2017 change
EURO - USDollar 1.1426 1.2007 5.08%
EURO ECB rate -0.40% -0.40% unchanged
USD FED rate 1.25% 1.25% unchanged
S&P 500 2423.41 2461.43 1.57%
Eurostoxx 50 3441.88 3447.69 0.17%
Oil - Brent 47.92 54.09 12.88%
10 yrs German yield 0.47% 0.33% -0.14%
10 yrs USA yield 2.30% 2.09% -0.21%
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Off to the beach !!

In the first half of 2017, the following data tells us that for the market everything is going well.

  31/Dec/2016 22/June/2017 % change
EURO - USDollar 1.0517 1.115 6.02%
EURO ECB rate -0.40% -0.40% unchanged
USD FED rate 0.75% 1.25% 2 rate increase
S&P 500 2238.83 2439.15 8.95%
Eurostoxx 50 3290.52 3556.34 8.08%
Oil - Brent 56.82 45.6 -19.75%

For the second part of the year there are some interesting challenges:

  • The US tax reduction
  • The new economic policy of President Macron in France more business friendly
  • The irrelevant influence of Brexit on European economy and probably also on Great Britain's economy
  • The reduction of 20 percent of oil price is good for the global economy

The increased of dollar interest rates two times this year by 25 bps seems enough until the tax reduction will not be implemented.

We do not expect in the next months any changes in the policy of European Central Bank.

In Europe, the banking sector is recovering after the recent bank restructuring in Spain and Italy.

Enjoy the good momentum!

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Europe will taste French President Macron

France has elected Mr Macron as president, one extremely clever and skilled young man.

Now it will be very important to see the result of June parliament elections to see whether president Macron will reach a stable majority. If he doesn’t get to a parliament majority he will have to make political agreements with other parties to realize his ambitious social and economical policies.

President Macron is a convinced European but he wants to modify this too bureaucratic European Union into something answering the needs of the citizens. He "will work to recreate the link between Europe and its peoples, between Europe and citizens." In this work of rebuilding the European Union he will receive the support from many Countries especially from Italy.

France and Europe are taking very important and delicate steps and they really need this French president with visionary leadership. As he said in his election victory speech, France and Europe have a “common fate”.

Since the beginning of the year equity markets have performed well, S&P 500 is up 7% while European Eurostoxx almost 11%.

US Federal Reserve kept interest rates unchanged during last meeting in May, after raising rates in December and March. However, another rate hike is expected and partially priced by the market for the June meeting.
USD 3M Libor rates fixes at 1.18%, the maximum since 2009.

Euro interest rates continue to remain negative. During European Central Bank conference on April 27th Draghi said that “the risks surrounding the euro area growth have become less pronounced” but confirmed that “the key ECB interest rates to remain at present or lower level for an extended period of time, and well past the horizon of the net asset purchases”.

Even if inflation is increasing, in Germany now is above 2%, the high debt of Italy, Eurozone third economy, is preventing European Central Bank from increasing rate and for further reducing government bond purchases. An increase in Italian yields would create issues in servicing and refinancing the debt.

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The comedy of misunderstandings

As expected the US Dollar continues to be strong versus the EURO, and now also President Trump complains about it.

The problem of a strong US Dollar exists, but for the moment is without solution because the Federal Reserve is preparing to increase interest rates while the European Central Bank is not.

On February 5 German finance minister Wolfgang Schäuble confirmed Donald Trump's charge that the Euro is “far too low” for Germany, but said he is unable to do anything about it and instead blamed Mario Draghi. “The euro exchange rate is, strictly speaking, too low for the German economy’s competitive position. When ECB chief Mario Draghi embarked on the expansive monetary policy, I told him he would drive up Germany’s export surplus... I promised then not to publicly criticise this policy course. But then I don’t want to be criticized for the consequences of this policy.”

Then German Chancellor Angela Merkel also admitted that the euro is “too low" for Germany, but once again made clear that Berlin had no power to address this "problem" because monetary policy was set by the independent European Central Bank.

To complicate the situation of the Euro is the forthcoming presidential election in France and the fact that Italy is not able to manage the debt neither its government policy.

In the United States, the high level of the stock market is justified by the “huge” increase of economic activities and by the expectation of a “tremendous” reduction of taxation.

We continue to advise to invest in good quality USD dollar bonds 1 year to 4 years maturity and in equity funds invested in mid-cap USA and global.

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CIM Bank wishes you a Merry Christmas and a Happy New Year

2017 a predictable year

We know almost everything about 2017.

In 2017 the Federal Reserve will increase interest rates by 0.25% for two, three or four times, but it will definitely increase.

In USA many political experts are waiting for the economic policy of Mr. Trump, they are the same that have not seen his victory coming.
Mr. Trump will do at least 80% of what he promised because he is a skilled businessman and he is assembling a dream team of top professionals to rule the Country.
The market understood this and S&P is at an all time high.

The US dollar is strong and will continue to be strong.

End of April will see elections in France, September elections in Germany and in Italy sometime in 2017. Of course we do not know the results but we know that there is willingness to change.

The strength of the USD and the very low interest rates in Euro will benefit the biggest industrial economies as Germany, Italy, France and Netherlands; above all Germany.

In world trade, the USA will defend the American workers affirming a more equitable condition of production and more fair trade agreements.

In Middle East and in North Africa the peace and the order will return with the collaboration among USA, Russia, Turkey, Iran and Egypt.

At the same time Countries who support the terrorists will suffer until they change their attitude.

We think that every Country will find a way to improve. Brazil and Mexico can suffer not because of international factors but because of their inability to control corruption and crime.

Oil price will stay stable or continue this slow uptrend because the world economy is slowly recovering, oil consumption is gradually increasing, and oil production is slowly decreasing.

Our best, easy and safe advice: invest in USD bonds 1 year to 4 years maturity.

Our skilled advice: invest in European-German, United States and Russian midcap equity fund.

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The victory of Trump is the victory of PEACE, of investment in infrastructure, of equitable trade and of low and middle class. It is the loss of the ARM’S lobby, of China unfair trade and of every integralist.

The economic program of Trump is “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We're going to rebuild our infrastructure, which will become, by the way, second to none, and we will put millions of our people to work as we rebuild it.”

The foreign policy will be “we will deal fairly with everyone, with everyone. We will seek common ground, not hostility; partnership, not conflict.”

With this economic policy, interest rates in USD will start to increase. A more expansionary fiscal policy will give the opportunity to the Federal Reserve to reduce its incredible expansionary monetary policy.

For the next months we view a volatile market. The possibility that equity market will be weak will depend on the forecast of higher rates.

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How long does it take for monetary policy to have an impact on the real economy?

The government bond purchases made by the European Central Bank began 19 months ago in March 2015; the purchase of corporate bonds began 4 months ago in June 2016; the ECB deposit rate was taken negative to -0.10% for the first time in June 2014, 28 months ago, and now even at a lower level to -0.40%.

The time lag between the implementation of monetary policy and the impact on the real economy is between 1 and 2 years, but for the moment there are no visible effects, although the ECB said that with no action the economy would be now weaker.

At this level, “capital” is not attracted to be invested in Euro and is moving to US dollar and other currencies.

For this reason the Euro is becoming slowly weaker against the US Dollar and its economy is taking advantage through exports, an advantage benefiting especially to Germany.

Because the world economy is slowly recovering, oil consumption is gradually increasing, and oil production is slowly decreasing we believe that the price of oil is on a slow uptrend.

The US market is at the top ever and whatever candidate will win market will correct. The level of correction depends on who will win and how will win.

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Negative Interest Rates


Negative interest rates


It seems illogical to buy bonds at prices guaranteed to lose money but this is the reality today.

Savers in Euro, Swiss Franc, Japanese Yen, Swedish and Danish Krona are observing their assets decreasing.

To protect the value of their assets people invest in currencies at positive rates, firstly the US dollar, in gold and in financial and real assets.
Policy makers are following the “melting” money theory, a money that reduces in value with time, to stimulate entrepreneurs to invest and people to consume instead of saving.

The first beneficiaries are nations with high debt levels as Italy and Japan. The lower borrowing costs take pressure off government finances. Italian and Spanish 10-year bonds, for example, are trading at yields around 1.25 percent, compared with more than 7 percent in 2012.

The reason for very low negative rates in Switzerland is different: the central bank is trying everything to cap the Swiss franc possible appreciation.

An alternative to negative rates, alias monetary expansion, would have been fiscal policy via lower taxation. This would have stimulated the economy too but many Countries are already in high debt and deficit.

Back in July 2012, the Danish central bank lowered the deposit rates into negative territory.
The European Central Bank became the first major monetary institution to venture below zero in 2014.
In 2015, also Sweden and Switzerland brought rates into negative territory.
The Bank of Japan adopted it in early 2016.
Even if these policies are in place since a while, real economy is still not observing a full recovery. It is true that central bankers can claim that without them the situation would have been worst.

In case of positive scenario, after some years of negative rates the mature economies of Europe and Japan can recover and start to growth again.

However, in a global market economy, we are worried that negative rates and the “melting” money principle to be effective need to be applied everywhere.

In a global world, the mature economies after experiencing the relocation of jobs are at risk of observing also the “relocation of capital”.

The last defense are the reduction of globalization and introduction of tariffs to protect their economies. The first signals are already here: the Brexit vote and the increased popularity of Trump economic proposal.

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The UK voted 51.9% to leave the European Union.

History restarts to move!

England returns in the center of world but maybe in the next year it will lose Scotland and Northern Ireland.

Apart some nationalism disappointment it will be even better for England that can be more concentrated in its future of international business and of big commercial center like Hong Kong plus Singapore.

All the people living on Atlantic coast can recognize that Singapore and Hong Kong are too far to be really useful.
All these events will take more than one year, probably two or three, so we will have all the time to invest in pound and in the English markets.

Regarding the remaining 27 countries of European Union, it will start also a very interesting time.

The centralization and burocratization of Europe, that recalled Soviet Union, is over.
If Europe wants to survive, it has to become much more flexible and has to return more power to the different States.

The US dollar is one more time the safe haven for investors, but of course, for only summer months and in November there will be USA presidential election.

Interest stay low, prices of oil and raw materials stay generally low.


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The first one is the very well known BREXIT following the result of the referendum to be held on 23 June to decide whether Britain should leave or remain in the European Union. We can’t add anything more on what all the news says so we just wait and see the result.

The second one is less spectacular and unknown to most people. On June 21, the German Constitutional Court will rule on the possibility for the Bundesbank to participate in the ECB outright monetary transactions program. The OMT is a bond-buying program that Draghi and the European Central Bank developed in 2012 as a response to the European debt crisis.

The OMT was never used until now. The fact the German court will vote against OMT will not block the European quantitate easing but it will create strong doubt on famous statement of Draghi “to do whatever it takes to preserve the euro” and it will limit the ECB’s unlimited commitment to purchase bonds issued by countries in crisis.

This judgement is a big question mark and of course the polls are not available.


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The Economic and Monetary Union (EMU) is the kingdom of European Central Bank President Mario Draghi.

Now everybody understands what means "we will not hesitate to act" said by Draghi last February.

The European Central Bank is doing the maximum to support the real economy and to protect financial markets from any possible shock like the consequences of a possible Brexit, the critics of the ECB by German politicians and bankers, Italian banks problems and Spanish and Greek government instabilities.

ECB president reiterated his desire that European States make structural reforms and said that "With rare exceptions, monetary policy has been the only policy in the last 4 years to support growth."

He added that even if countries feel threatened by the tensions, Euro area looks certainly attractive.

Regarding the issue on Non-Performing Loans of Italian Banks, Draghi said that Italy’s bank-rescue fund orchestrated by Prime Minister Matteo Renzi’s government is “a small step in the right direction.”

Enjoying the Draghi protection the financial market in Europe are a safe place where to invest.

In the United States, 27th April FED meeting left rates unchanged and monetary policy remains accommodative.

This is a positive condition for American financial markets that are facing a reduction in corporate earnings.

In Emerging markets, China data show the economy stabilized while Brazil is still experiencing difficulties.

S&P 500 (R1)            2095.15
EUROSTOXX 50 (R2) 3091.38


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On February 15th European Central Bank President Mario Draghi began talking up the eurozone’s banks during the statement at the European Parliament, many of which have seen their shares slump on worries they have too many bad loans and will not be able to make enough money due to lower growth and lower interest-rates.

The ECB head said: “There is a subset of banks with elevated levels of non-performing loans (NPLs). However, these NPLs were identified during the stress tests of banks, using for the first time a common definition, and have since been adequately provisioned for. Therefore, we are in a good position to bring down NPLs in an orderly manner over the next few years.” He also said that the ECB was "ready to do its part" to strengthen the wider Eurozone economy: "We will not hesitate to act."

On March 10 th , during the ECB meeting the governor of European Central bank has introduced important measures.

  • 1. Draghi announced a 10 bps cut to the deposit rate pushing it to - 0.40% and a 5 bps rate cut to the refinance rate pushing it to 0.00% and a 5 bps rate cut also to the marginal lending rate from 0.30% to 0.25%.
  • 2. Draghi announced a boost of QE by €20bn from €60bn to €80 billion per month.
  • 3. Draghi surprised markets announcing that they would also for the first time include investment grade euro-denominated bonds issued by non-bank corporations along the list of assets that are eligible for regular purchases.
  • 4. Draghi for stabilizing the banking sector creates “a new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years starting in June 2016. Borrowing conditions in these operations can be as low as the interest rate on the deposit facility”. That means that banks can now borrow at negative rate of minus 0.40% for 4 years directly from ECB if they provide long-term loans to corporates.

Draghi acted as a powerful dragon introducing this package of measures and we think that these measures are really exceptional and appropriate.

At the beginning, the financial markets seem not satisfied of his decision but we believe that today measures in the medium-term will push the European economy to grow and banks to become stronger and profitable.

On March 17 th , there will be the Swiss National Bank meeting and we think that they have to follow some measures of ECB. Probably they will increase the negative interest rate from minus 0.75% to minus 1% and introduce some other measures as ECB.

On March 16 th there will be also the Fed meeting and in this environment they will probably delay the interest rate increase.


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This year begins with a loss for Oil of 22%, Oil and Gas Exploration companies 16%, Chinese Stocks Exchange 23%, and this was a foreseeable scenario.

Now something different is happening. In the first 40 days of 2016, Deutsche Bank lost -42%, Commerzbank -35%, BNP -28%, Credit Agricole -28%, Santander -26%, Intesa SanPaolo -29%, Unicredit -44%.

On January 1st 2016, a new bail-in system went into effect for all European Banks. Under this new scheme, EU Governments cannot help the banks, not only the small but also the too-big to fail. Not only the capital, the subordinated debt but also senior and deposits over 100,000 eur can be affected by the bankruptcy of the bank.

At the same time the rules request the banks to increase the reserve for bad credits and the struggling economy increase the number of problematic loans.

As a matter of fact these rules are pushing the banks into problems.

It is more than clear that banks need to increase capital or to issue more subordinated debt, but how can they find someone who invests in this sector with the perspective to lose all his capital and with a public opinion that will enjoy these terrible bankers going into in bankruptcy.

Thanks God the president of European Central Bank knows something about banking system and we hope that his intervention will stop this crazy game.



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The fall of oil price below $30 per barrel and the decline of other commodity prices has put pressure on sovereign wealth funds to sell their reserves and to the banking system who provided credit to oil related industry.

All this has led to a bad start of the year in financial markets.

The USA Standard & Poor’s 500 and the other major stocks indexes are down 10 percent.

Chinese equity markets are down around 20 percent.

The ECB president Draghi in the conference of January 21st said that eurozone rates would "stay at present or lower levels for an extended period" and that "we have the power, willingness and determination to act. There are no limits how far we are willing to deploy our policy instruments".

The president of Federal Reserve Janet Yellen will be not less dovish than Draghi considering that just before the USD rate hike in December she warned that if the "outlook worsened, the fed might weight negative rates" adding that "negative rates could help encourage banks to lend."

Rebus sic stantibus, to invest in the market could be an opportunity particularly in mining and oil companies where we observed the worst performances.


USA S&P 500 1868.99


Rio Tinto 1697.00
Anglo American 241.35

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Our team wishes you all the best for next year

Last month the International Monetary Fund released their World Economic Outlook. It expects the world to expand in 2016 by 3.6 percent up from this year’s estimated 3.1 percent growth. It is marginally slower than the growth rates of 3.3 percent and 3.4 percent seen in 2013 and 2014.

2016 will begin with a well-defined and anticipated pattern of monetary policy. The Federal Reserve affirmed its plan to increase rates by 0.25% for 4 times during the year to reach a level of 1.25%, the market is pricing less than 4 increases and we see a level around 1% for the end of the year. The European Central Bank plans to keep its interest rate negative and to continue with quantitative easing until March 2017.

In this environment, we forecast a stronger US Dollar to reach eventually parity against Euro. The weakness of oil and other commodities can create credit problems to countries and corporates alike.

Major issues and risks:

  • find one majority that can govern in Spain
  • contrast inside the European Union
  • Brexit
  • Middle East and North Africa conflicts

We think that all these major events can also create a potential buying opportunities.
Many wishes and good luck for a great and rich 2016.

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CIM Banque is increasing its IT Department and is opennig a new office space.

Our bank, which uses the core banking system Apsys from the SunGard group, has developed its proprietary e-banking system and website.

The Great Divergence

On the international financial markets, there is an increasing divergence between the monetary policy of the USA Federal Reserve and the European Central Bank. On one side the FED is expected to raise the fed fund rate the next December. This will be the first increase in ten years.

On the other side on November 20th Mister Draghi said: "the risk had increased that the ECB would miss that target if we decide (on Dec. 3) that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible".

That means that ECB will strengthen its expansionary monetary policy. The currency market is pricing this because the Us Dollar is appreciating, step by step, in its value versus the Euro.

Fed chief Janet Yellen says ‘gradual pace of tightening’ expected to follow first rate hike.

Therefore we think that the rates market is correctly pricing the level of US dollar bonds hence prices should not suffer the next interest rate increase.


Interest rates differencial on two years between Germany and US.

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Something to worry about

The market was concerned for a paltry 0.25% rate hike of the Federal Reserve and for another Greek election, but in our opinion, the critical point will be the forthcoming Spanish election in Catalonia.

If the separatists win the majority, they will want to establish the new state of Catalonia increasing the total number of EU member states. Spain has already said that if Catalonia becomes an independent state they will not be accepted in EU, and separatist party answered that if they will not be accepted they will not honor their percentage of Spanish debt.

Will Mr. Draghi be very happy? …


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China has to grow anyhow

On Tuesday, People’s Bank of China (PBoC) surprised markets devaluing the yuan by 1.9 percent, the biggest one-day loss since the creation of the united Chinese currency system in January 1994.

This move increases the risks of a new front in a currency war that stretches from the Euro zone to Japan as every nations look to boost their economies.

The euro and the yen tumbled around 20 percent against the US dollar in the past 12 months. More than 20 central banks have loosened monetary policy this year to spur growth and fight deflation. Versus the US dollar the Russian Ruble has lost 44 percent, Brazilian Real 35 percent and Indian Rupiah almost 5 percent.

The consequence of these devaluations against the Us Dollar is that American economy is starting to suffer. At year-end 2014 the Fed was forecasting nominal GDP growth to accelerate to 4.1% this year. In six months, the Fed has been forced to massively lower its forecast of nominal growth to 2.6%.

China maintained a de facto peg forcing the yuan to be a strong currency.
The result is that the economy is not growing as fast as China needs. A report on Saturday showed Chinese exports shrank 8.3 percent in July, compared with a Bloomberg survey’s median estimate of a 1.5 percent.
Chinese authorities built into the market an expectation that they were keeping the currency stable and promoting a greater global use of the yuan. Then all of a sudden, they devalued. Because they devaluate today, markets will continue to look for similar conditions in the future. If exports will continue to fall, markets will expect more depreciation.

Our view is that in a weak global economy, it will take a lot more than a 1.9 percent devaluation to increase Chinese exports. This raises the chances of a future new yuan devaluation that could likely force other central banks to continue to proceed with competitive devaluations.
The debt of Chinese Government should not be an issue for now given the high level of reserve they own in foreign currency.

Depreciation of EUR, Yuan, and Real vs Us Dollar from 06/17/2014

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Economic view

In the last ten days in Greece happened one important event: citizens refuse the EU austerity policy through the referendum.

If Greece keeps Euro, defaults, or introduces a new currency in our view it is not very relevant for financial markets.

What it is important is the next spanish election in 2015, Podemos can repeat the success of the Greek Syriza while the actual government of Spain has already lost focus introducing new laws which limit seriously the freedom of expression and assembly.

Nowadays the work of Draghi to provide liquidity and low rates to the Eurozone has become more difficult.

The Chinese economy is slowing down and commodity prices are decreasing.

With the current situation all over the world, if the Federal Reserve will increase the interest rates next autumn the US dollar would become stronger.



iShares ® Asset Management

Ageliki Petropoulou presents you the asset management performance done in the first half of 2015 with Blackrock iShares ®.


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Aleksandra Arbanas from June is the new President of Board of Directors of Primorska Banka, part of CIM Bank’s group.

She looks very nice, young and she speaks with a charming tone but do not do mistake she is a tough manager with a great successful experience as manager director of Credit Division of Croatian Development Bank.


Economic view

US Fed still views a fragile economy and this means a slow path for rate increases. Fed Chair Janet Yellen said: “ We will evaluate incoming conditions and move in the manner that we regard as appropriate.”

European interest rate since mid-April move up sharply driven by a combination of a better macro and inflation outlook, the ECB Quantitative Easing modality of implantation, and lately Mr Draghi’s statement “one lesson is that we should get used to periods of higher volatility” .
Finally, one day there will be a resolution between Greece and its creditors. That day the uncertainty, that market hates, will end; the no-default will be almost a no-event while the default could open more negative outcome.


The World Bank and IMF downgraded its outlook for global economic growth this year due to a slowdown in emerging markets and softer output in the U.S. The institution said that it now expects the world economy to grow by 2.8%, instead of 3% it estimated in January.

European Union extended Russia sanctions until January 2016. This unintentionally will continue to strengthen the internal economy and to boost the commercial relations with the major economies China and India.


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Fiumanka Race 2015

Primorska Banka, CIM Banque Group, won the first premium in the Fiumanka Race in Rijeka for the second consecutive year.
Also this year, the smart Commodore Josip Protega led with intelligence the team of Zagorska navy to the victory.

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