Investment banking fees fall 7 percent in 2016 dragged down by equity raisings

People walk by the JP Morgan & Chase Co. building in New York in an October 24, 2013 file photo.  REUTERS/Eric Thayer/Files
People walk by the JP Morgan & Chase Co. building in New York in an October 24, 2013 file photo. REUTERS/Eric Thayer/Files

Investment banking fees fell 7 percent worldwide in 2016, dragged down by a 23 percent fall in equity capital market (ECM) fees, Thomson Reuters data showed on Wednesday, raising the pressure on banking giants fighting to restore profitability.

The sharpest falls were in Europe Middle East and Africa where a 20 percent drop in total fees in southern Europe, still suffering from the fallout of the 2008-09 financial crisis, depressed the wider region.

The decline hit global investment banks battling to regain profitability after the financial crisis and ensuing regulatory changes made it harder to profit from their traditional lines of business.

U.S. bulge bracket bank JP Morgan (JPM.N) was once again paid the most globally despite its investment banking fees declining almost 5 percent, coming top in EMEA and the Americas, followed by Goldman Sachs (GS.N).

Boutiques Evercore, Lazard [LAZ.N] and Rothschild (ROTH.PA) bucked the downward trend, each increasing investment banking fees by more than 10 percent. Japan’s Mizuho Financial Group (8411.T) and Industrial & Commercial Bank of China (601398.SS) also enjoyed a bump in fees.

Banks’ takings from debt capital markets (DCM) underwriting totaled $24.8 billion, up 6 percent compared to 2015, increasing DCM’s contribution to overall fees to 29 percent from 26 percent.

Post-Soviet states, hurt by the fall in the oil price and the slowdown in Russia, saw a resurgence in investment banking fees. A 51 percent increase in Russia put the 2016 fee pool at $348 million, a tiny fraction of the contribution from China, the world’s second biggest economy, where fees totaled $10 billion.

Fees paid out by the biggest financial sponsors saw a sharp decline. Dropping its spend by 35 percent, Blackstone Group (BX.N) lost the number one spot to Carlyle Group (CG.O) which spent $395 million worldwide.

 

Forex – Dollar eases, remains close to 14-year highs

U.S. dollar notes are seen in this November 7, 2016 picture illustration. Picture taken November 7. REUTERS/Dado Ruvic/Illustration
U.S. dollar notes are seen in this November 7, 2016 picture illustration. Picture taken November 7. REUTERS/Dado Ruvic/Illustration

Investing.com – The dollar eased against a basket of the other major currencies on Wednesday as investors took profits following a rally which propelled the greenback to fresh 14-year highs.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, slid 0.17% to 103.06.

The index hit highs of 103.81 on Tuesday, the most since December 2002, after the Institute for Supply Management said its index of manufacturing activity rose to a two-year high in December.

The upbeat data fed into expectations for a faster rate of policy tightening from the Federal Reserve this year, after it hiked interest rates for the first time in a year last month.

Markets were looking ahead to Friday’s U.S. nonfarm payrolls report for December for indications on solid growth in the labor market, which could enable the Fed to keep pushing up interest rates.

Higher rates typically boost the dollar by making dollar assets more attractive to yield-seeking investors.

The dollar was little changed against the yen, with USD/JPY at 117.75, off Tuesday’s three-week highs of 118.6.

The euro pushed higher, with EUR/USD climbing 0.22% to 1.0428. The single currency touched lows of 1.0341 on Tuesday, the weakest level since December 2002.

Sterling also moved higher, with GBP/USD rising 0.27% to 1.2273, recovering from a two-month low of 1.2197 struck overnight.

The Australian and New Zealand dollar were also stronger, with AUD/USD up 0.73% at 0.7271 and NZD/USD trading at 0.6944, up 0.39% for the day.

Few people seen selling yuan for dollars on first day of China’s forex quota re-set

People enter a branch of the ICBC bank in Beijing, China, January 3, 2017. REUTERS/Thomas Peter
People enter a branch of the ICBC bank in Beijing, China, January 3, 2017. REUTERS/Thomas Peter

China’s authorities have sounded the alarm in recent weeks over the risk of capital outflows from the economy, but there was little evidence at Beijing and Shanghai banks on Tuesday that Chinese individuals were rushing to lock in 2017 quotas to buy foreign exchange.

Only a trickle of people at banks were seen selling yuan for dollars on the first business day of the new year, when buyers in theory could have made use of their quotas.

Under China’s capital controls, individuals are permitted to buy up to $50,000 in foreign exchange a year, and data shows January is typically a standout month for onshore foreign currency deposits.

The yuan shed nearly 7 percent against the dollar last year, its poorest showing since 1994, as policymakers struggled to contain capital outflows and preserve foreign exchange reserves in the face of a slowing economy and resurgent dollar.

Authorities have tightened monitoring of foreign exchange transactions out of concern over capital outflows.

China’s currency regulator this week began requiring Chinese individuals who want to buy foreign currencies to specify the purpose of the purchase and provide additional information, and said it would monitor transactions more closely and frequently as well as punish rule-breakers.

At major bank branches in two of China’s biggest cities, there were no queues on Tuesday, and the few individuals who changed money reported doing so with relative ease.

SMOOTH AND QUICK

“The whole process of changing money was pretty smooth and quick,” said an office worker surnamed Xu, who withdrew $500 from an ICBC branch in Beijing on Tuesday for a coming vacation in the United States.

Several other customers at banks in the two cities reported similar ease when changing amounts of money well below the quota.

However, it is unclear how much foreign currency exchange was being conducted online on Tuesday. Central bank data shows onshore foreign exchange deposits rose by almost 32 percent in the first 11 months of 2016, propelled in part by the yuan’s fall to eight-year lows.

Aside from the rising forex deposits, there has been little indication of growing unease among ordinary Chinese – although the authorities were taking no chances, repeating a mantra that the economy is improving and there is no basis for depreciation of the yuan in the long term.

Yang Zhao, chief China economist at Nomura in Hong Kong, said there wasn’t any widespread panic about the falling yuan, so he had not expected a surge in demand.

In recent months, analysts have noted that the yuan was not alone in falling against the dollar, with most other emerging market currencies also suffering, which has helped keep sentiment around the yuan from souring too much.

Zhao said restrictions on use of foreign exchange limited anyone’s options and so acted as a disincentive anyhow.

“You can’t buy real estate. You can’t purchase anything. Basically you can only park that FX in your deposit account onshore with interest rates that are very low,” he said.

 

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FOREX -Dollar gains against sterling on Brexit worries, U.S. growth bets

* Dollar hits two-month high vs sterling to $1.2201

* Euro hits one-week low vs dollar of $1.0385

* Higher expected U.S. growth boosts dollar

* Dollar on track to gain nearly 5 pct for year

By Sam Forgione

NEW YORK, Dec 28 The U.S. dollar hit its highest level in two months against the sterling on Wednesday on concerns over next year’s Brexit negotiations, while expectations of higher U.S. economic growth also underpinned the greenback.

Sterling fell as much as 0.5 percent to a session low of $1.2201, its weakest since Oct. 31. Britain faces uncertainty next year over Brexit negotiations. In October, Prime Minister Theresa May said she would trigger the process to leave the EU by the end of March.

Expectations that U.S. President-elect Donald Trump’s incoming administration would boost U.S. growth through fiscal stimulus also continued to bolster the dollar.

The dollar index, which measures the greenback against a basket of six major rivals, has gained 4.9 percent this year. All those gains have come after the Nov. 8 U.S. election.

“This is just a continuation of the trend” of dollar strength, said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments. “People are trying to be aligned with the winning positions.”

Merk said the challenges in Britain were not going away given the Brexit talks, and that “doesn’t bode well for sterling.”

The euro fell about 0.7 percent against the dollar to a one-week low of $1.0385, while the dollar rose about 0.4 percent against the yen to a six-day high of 117.81 yen.

The dollar index was last up 0.43 percent at 103.450 after hitting an eight-day high of 103.560 earlier. That remained below a 14-year peak of 103.650 struck Dec. 20.

Some analysts said another source of euro weakness was the rise in the European Central Bank’s estimates of how much additional capital will be needed to prop up Italian bank Monte dei Paschi di Siena.

“Our case is that there’s probably a bit more room for (the dollar) to run,” said Dominic Bunning, a strategist with HSBC in London.

The euro hit its one-week low against the dollar even though contracts to buy previously owned U.S. homes fell in November to the lowest in nearly a year, according to National Association of Realtors data.

Merk of Merk Investments said the theme of dollar strength continued despite the weak data, while thin trading volumes could be leading to unpredictable moves with many traders on vacation. (Reporting by Sam Forgione; Additional reporting by Patrick Graham in London; Editing by David Gregorio)

Forex Strength And Comparison For Week 52

In the Currency Strength table the USD was again the strongest currency while the AUD was the weakest. The Strong Currencies and the CAD, CHF remained around the level of last week.
All the currencies other currencies differ 2 point or more compared to last week. The GBP has the highest difference of 3 points and got a lot weaker.

13 Weeks Currency Score Strength

The 13 Weeks Currency Strength and the 13 Weeks Average are provided here below. This data and the “13 weeks Currency Classification” are considered for deciding on the preferred range. Because it is not ideal nor desired to change the range for a currency every single week, we perform several checks to avoid this.

  1. First of all, the strength over a period of the last 13 weeks is considered. See each row for more information.
  2. Next, the 13 weeks average is considered, see the last row called “Avg. 13 wks.”
  3. The number of weeks that a currency was stronger than another currency can also be considered.
  4. The Technical Analysis (TA) Charts for each time frame could also be consulted.
FxTaTrader Forex 13 Weeks Currency Strength Table Week 52
FxTaTrader Forex 13 Weeks Currency Strength Table Week 52

For analyzing the best pairs to trade looking from a longer term perspective the last 13 weeks Currency Classification can be used in support.
This was updated on 18 December 2016 and is provided here for reference purposes:
Strong: USD, NZD. The preferred range is from 7 to 8.
Neutral: JPY, CHF, AUD, CAD. The preferred range is from 3 to 6.
Weak: EUR, GBP. The preferred range is from 1 to 2.

When looking at the Average 13 wks. Score the USD is the strongest of all while the EUR is the weakest. There are at the moment 4 neutral currencies where the CHF is the strongest with possibilities to become a strong currency. The JPY is the weakest and may become a weak currency if the current development continues.


FxTaTrader Neutral Currencies For Week 52
FxTaTrader Neutral Currencies For Week 52

Currency Score Comparison

“Comparison table” and the “Ranking and Rating list”The Forex Currency Comparison Table compares each currency with its counterpart based on the Currency Score. For more information about the currency Score of this week you can read the article “Forex Ranking, Rating and Score” which is published every week together with this article.
By using the comparison table directly below you can get a view without the volatility and statistics as opposed to the “Ranking and Rating list”. Only the strength of each currency against the counterparts is analyzed by using the Technical analysis charts of the 4 time frames that are also used for the “Ranking and Rating List”.
The information from the Comparison Table is the source for calculating the “Ranking and Rating List” where this list additionally uses the volatility and statistics for creating the best and worst performer in the list from number 1 to 28.

FxTaTrader Forex Currency Score Comparison Table Week 52
FxTaTrader Forex Currency Score Comparison Table Week 52

“Comparison table” and the “Currency Score Chart”The additional value of this table compared to the Currency Score table is that the Comparison Table compares the strength between the currencies of each pair. By subtracting the strength of the weaker currency from the stronger currency, we have a way to compare each pair combination.
The comparison table provides a way to compare currencies from a longer term perspective of 13 weeks and also simultaneously taking the current trend into account. By coloring the currencies in the X and Y axis according to their Classification, we can show what the best combinations are. In doing this we apply 2 rules to make it clearer.

  1. First of all, only better classified currencies in combination with weaker classified currencies are “Approved” when there is a Currency Score difference of at least 1 in the current week.
  2. The only exception is when 2 currencies are similarly classified, but the Currency Score difference is equal to or more than 4.
  3. It means that each currency should be as far apart from each other as possible in the range from 1 to 8. The classification of the currencies in question may change in the longer term. By using the difference of 4, which is exact at the half of the range, it seems a safe approach for trading 2 currencies which are similarly classified.
  4. Even though currencies may be in the same classification, a currency may be in a weaker/stronger period and may even change its classification in the future. See the current classification for the coming period at the beginning of this article.

Putting the pieces together

Based on the last “13 Weeks currency classification” and the “Currency Comparison Table” the most interesting currencies for going long seem to be the:
USD, CHF and CAD.
These are strong or neutral currencies from a longer term perspective when looking at the last “13 Weeks currency classification”.

For going short the same analysis can be done and the following currencies seem to fit best:
EUR and JPY.
These are weak or neutral currencies from a longer term perspective.

Currencies with a high deviation seem less interesting to trade because they are less predictable. A good example at the moment is e.g. the:
NZD, EUR and AUD.

Some of the pairs in the “Currency Comparison Table” comply for a longer term trade based on the Technical Analysis (TA) of the daily and weekly chart. For the coming week these seem to be:GBP/USD, AUD/USD, USD/JPY, EUR/USD, CHF/JPY, USD/CAD and USD/CHF.

23 Banks Open on Christmas Eve 2016

JPMorgan Chase & Co. Bank Branches Ahead Of Earnings Figures

Luckily, you can bank online anytime.
If you’re like many people, you’re typically rushing around until the very last minute trying to accomplish every item on your holiday shopping to-do list.
Whether you need to deposit your last paycheck before Christmas or withdraw some cash for gifts, it’s always helpful to know your local bank’s holiday hours.
In 2016, Christmas Eve falls on a Saturday, so many banks will abide by standard hours on Christmas Eve. However, on Christmas Day, you likely will not find any branch locations open.
If you need to do some banking on Christmas Eve, you probably won’t have an issue. The banks listed below are open, but some will close early. If specific hours for your local branch aren’t noted, check early in the week to see if it will be operating on a holiday schedule.

How To: Get Your Finances Ready for the New Year

Bank of America
Bank of the West: Some branches will be open on Christmas Eve. Check with your local branch for specific operating hours.
BBVA Compass Bank
BB&T: Branch locations normally open on Saturdays should operate on a regular schedule.
BMO Harris Bank: All branch locations will close at noon on Dec. 24.
Capital One Bank: Branches will operate on a normal schedule on Christmas Eve.
Chase Bank
Citibank: On Christmas Eve, branch locations will follow a regular schedule.
Citizens Bank: All branches will close by 2 p.m. at the latest on Christmas Eve.
Comerica Bank
Fifth Third Bank: Bank Mart locations will close at 2 p.m. on Christmas Eve and traditional financial centers will follow a standard schedule.
First Niagara Bank: Branch locations and call centers will be open from 6 a.m. to 3 p.m. on Christmas Eve.
Huntington Bank: Traditional and in-store branches will close by 2 p.m. on Dec. 24.
KeyBank: If your branch location is closing early on Christmas Eve, a notice will be posted.
M&T Bank
People’s United Bank: If branch locations follow different hours on Christmas Eve, notices will be posted.
PNC Bank: Most branches will have normal hours on Christmas Eve.
Regions Bank
Santander Bank: Branches will follow regular hours on Christmas Eve.
SunTrust Bank: All branch locations will close at 2 p.m. on Christmas Day.
TD Bank
Union Bank: Branches will close at 1 p.m. on Christmas Eve.
U.S. Bank: Some branch locations might close early on Dec. 24.

Most banks open for at least a few hours on Christmas Eve, but others close so employees can enjoy the day with loved ones. All branch locations of the banks listed below will be closed on Christmas Eve.

Huntington State Bank
HSBC Bank
Wells Fargo: Branch locations will be closed on Christmas Eve, but some in-store locations might be open.

Christmas Day is one of the 10 holidays recognized by the Federal Reserve, so banks will not be open. The NYSE, NASDAQ and SIMFA are all closed and because the holiday falls on a Sunday, Christmas Day will be observed on Dec. 26.

Of course, online and mobile banking offer 24/7 access to certain account features every day of the year, so if you need to transfer funds or schedule a payment, you can do this right from your computer or smartphone. Since it only comes once a year, enjoy Christmas Day with your loved ones and save the banking for another day.

Closed on December 26

As noted above, banks are closed on Christmas Day, so employees can enjoy the holiday — some are even closed the following Monday in observance. The banks below have confirmed that no branch locations will be open, and it’s highly unlikely that others not on the list will be open either.

Bank of America
Bank of the West: Since Christmas Day falls on a Sunday, the bank will also be closed Dec. 26, in observance of the holiday.
BBVA Compass Bank
BB&T
BMO Harris Bank
Capital One Bank
Chase Bank
Citibank
Citizens Bank: All branch locations will be closed through Dec. 26.
Comerica Bank: Branches will be closed on Dec. 26.
Fifth Third Bank: Traditional financial centers will remain closed through Dec. 26, but Bank Mart locations will be open the day after Christmas.
First Niagara Bank
HSBC Bank
Huntington Bank
Huntington State Bank
KeyBank
M&T Bank
People’s United Bank
PNC Bank
Regions Bank
Santander Bank
SunTrust Bank
TD Bank
Union Bank
U.S. Bank
Wells Fargo

Now that you know most major banks’ operating hours for Christmas Eve and Christmas Day, you can plan accordingly. Complete your banking as soon as possible, so you can have one less errand standing in your way of holiday fun.

Sovereign-Wealth Funds Threatened by Government Spending

Kazakh President Nursultan Nazarbayev says the country’s sovereign-wealth fund has the money to help wean the central Asian nation off its dependence on oil revenues and build an economy of entrepreneurs.

The 76-year-old president, who led Kazakhstan to independence from the Soviet Union 25 years ago, earlier this year told visitors to the new capital city he built that “Kazakhs have never lived as well as they live today” and the nation’s savings help maintain living standards.

But since Mr. Nazarbayev created the so-called National Fund in 2000, his government has withdrawn $83 billion from it, according to a Wall Street Journal analysis of data from Kazakhstan’s central bank that was corroborated by the International Monetary Fund. The National Fund has a balance of $61 billion as of Nov. 30, down 21% from its peak in August 2014.

 The Bayterek tower in Astana, Kazakhstan's new capital city, with the presidential palace in the background. Photo: SIMON CLARK/THE WALL STREET JOURNAL
The Bayterek tower in Astana, Kazakhstan’s new capital city, with the presidential palace in the background. Photo: SIMON CLARK/THE WALL STREET JOURNAL

Leaders of petrostates from Kazakhstan to Azerbaijan, Russia and Venezuela have spent billions of dollars from sovereign-wealth funds as the relatively low price of oil has pressured government budgets. Spending the money deposited in these funds—rather than just the investment income they generate—is threatening the funds’ long-term viability.

“It’s really important for Kazakhstan and other oil-producing developing nations to convert these savings into a permanent windfall,” said Angela Cummine, an Oxford University academic and author of “Citizen’s Wealth,” a book examining sovereign-wealth funds. “It is very unwise to draw down the fund until it is depleted because then the major windfall from oil will be gone but economic problems will remain.”

Kazakh Prime Minister Bakytzhan Sagintayev acknowledged the problem in December. “If we continue spending in this way, we won’t have a National Fund soon,” he told business leaders.

The government in November published a draft decree “to prevent further reduction” of the National Fund. The government proposes spending less of it and investing more of the fund’s money in higher-yielding assets such as stocks and private equity rather than bonds, according to the draft. On Dec. 22, an official at the central bank said that the president has signed the new decree.

The scale of spending from the fund has prompted some people to express concern. That can be a risky move in a nation where, according to New York nonprofit Human Rights Watch, criticism of the government is regularly suppressed.

1

“It was a wise idea to create the National Fund,” Rakhim Oshakbayev, a former deputy minister for investment and development, said in an interview. “When we started spending the money in the National Fund, it was like opening Pandora’s box.”

Information on how the fund is spent isn’t readily available, Zauresh Battalova, a former Kazakh senator and democracy campaigner, said in an interview. Marek Jochec, an academic at Nazarbayev University, earlier this year published an article in a Kazakh magazine saying that the fund risks losing significant income because of its investment strategy.

Money from the fund has helped finance the construction of Astana, the new capital city, according to the government. At the center of the city’s futuristic layout is Bayterek, a gold-orbed tower that stands as a monument to Mr. Nazarbayev, containing his metallic handprint on a plinth encrusted with silver and gold.

Through a spokesman, Mr. Nazarbayev declined to comment for this article.

Sovereign-wealth funds are state-owned investment funds usually created to save surplus revenues, often collected from natural-resource exports.

Kazakhstan’s National Fund transfers billions of dollars each year to the government budget and projects, according to the central bank.

 The handprint of Kazakh President Nursultan Nazarbayev on a plinth encrusted with gold and silver in the Bayterek tower in Astana, the new capital of Kazakhstan. Photo: SIMON CLARK/THE WALL STREET JOURNAL
The handprint of Kazakh President Nursultan Nazarbayev on a plinth encrusted with gold and silver in the Bayterek tower in Astana, the new capital of Kazakhstan. Photo: SIMON CLARK/THE WALL STREET JOURNAL

The governments of Russia, Azerbaijan and Venezuela have also spent billions from their sovereign-wealth funds in this manner.

Venezuela’s Fund for Macroeconomic Stabilization is essentially empty after the government spent almost $7 billion from the fund since its inception in 1998, according to the Venezuelan government.

Russia, the world’s biggest oil producer, has spent about $195 billion from its Reserve Fund since it was created in 2008, leaving $31.3 billion in it as of Dec. 1, according to the government. Russia also has savings in its National Wealth Fund. It has spent about $1 billion of this fund since 2008, leaving it with $71.3 billion as of Dec. 1, according to the government. A Russian government spokesman declined to comment.

Azerbaijan has spent $89.7 billion from a sovereign-wealth fund created in 1999. The fund said it had $35.8 billion left as of Oct. 1. Money was used for “strategically important infrastructure and social projects,” a spokeswoman said. The government plans to draw less money from the fund as it develops new industries, she said.

Middle Eastern nations are also under pressure to tap savings. The Saudi Arabian Monetary Authority, the nation’s central bank, said its reserves fell more than 25% to $543 billion in the two years through the end of October. Spokesmen for the Saudi and Venezuelan governments didn’t respond to requests for comment.

The size of the withdrawals threatens the existence of the funds, potentially leaving oil-producing nations more vulnerable to an extended period of low oil prices. Norway, which owns the world’s largest sovereign-wealth fund, has a rule that the government shouldn’t spend more than the fund earns from investments, to “lessen the risk of overspending.” Norway has so far spent less than 1% of its fund. There is no such rule in Kazakhstan.

Mr. Nazarbayev, Kazakhstan’s president, wrote in his autobiography that the fund he created is a “particular source of pride.” It was inspired by Norway’s fund, he wrote, and “its aim was to safeguard the country’s stable social and economic development by accumulating financial funds for future generations.”

About Author

Write to Simon Clark at simon.clark@wsj.com and Selina Williams at selina.williams@wsj.com

EUR/USD Set for Volatility with Italian Referendum, ECB Rate Decision in Sight

 Fundamental Forecast for EUR/USD: Neutral
Fundamental Forecast for EUR/USD: Neutral

– Italian constitutional referendum today (December 4) looks likely to fail; if it does, weakness in EUR/USD could see it break its cycle low of 1.0462 set in March 2015.

– In such an event, EUR/USD looks increasingly likely to break consolidation streak to downside, setting up a move towards 0.9500 in 2017.

 

– Don’t forget the European Central Bank rate decision on Thursday – although, much of it has already been discounted by markets.

In what will likely be viewed as another watershed moment for the Euro-Zone, the Italian constitutional referendum on Sunday, December 4, represents the start of what should be a volatile week for EUR/USD. Between the Italian referendum and the European Central Bank rate decision on Thursday, traders should have a lot of opportunity on both the long and short side of the market. Implied volatility for EUR/USD had increased considerably through the end of last week, with 1-week implied vol going from 9.55% the day after the US Presidential elections to 17.41% on December 2.

Needless to say, excitement is expected around the two ‘high’ rated events for the Euro this week, particularly Sunday’s referendum. Before the polling blackout period went into effect, ‘No’ leads by about 5%, with about 23% of the electorate undecided. So, while the referendum passing isn’t of the question, it’s looking increasingly unlikely.

1

What matters to traders, of course, is how will markets react? Traders should begin to look to their newsfeeds right when markets open at 17 EDT/22 GMT on December 4. While exit polls will be released earlier than this time, they have been historically inaccurate, missing badly on the Berlusconi’s chances in 2008 and on the Democratic Party’s chances in 2013. As such, we thinking waiting until the official polling results come out starting after 22:45 GMT may be the safest way to obtain referendum results. A litmus test may prove to be Milan, which has historically (for decades) leaned to the right; yet it views Italian PM Renzi favorably, recently electing a major who supports Renzi’s center-left policies. If Milan swings back to the right, then Renzi – and his desire for a ‘Yes’ result – would be probably be in trouble.

1

While a ‘No’ outcome would feed into the growing mindset that economic populism is sweeping the West’s advanced economic democracies, it would more or less keep the current political system in Italy in place; the status quo would persist. Markets might act worried initially, selling EUR/USD and Italian equities in the neighborhood 1-3% and 2-4% on the results. EUR/USD could move to test the 1.0462 cycle low established in March 2015. Particular attention should be paid to Italian banks, which are in focus given the significant amount of non-performing loans (NPLs) on their books, and that Monti dei Paschi is in the midst of a debt-to-equity swap. Steeper losses seem unlikely.

In the event of a ‘No’ outcome, EUR/USD weakness would likely result, but a run towards parity given the scope of the referendum seems minimal. Even in the event of Renzi resigning and with new elections resulting, political gridlock would remain, preventing any significant reform – including legislation to take Italy out of the Euro, if say the Five Star Movement came to power in the next elections. Conversely, the scope for lasting EUR/USD gains in the event of a ‘Yes’ outcome seems limited as well – there’s simply too much political risk elsewhere on the horizon. Markets will remain as worried they are about elections in France, the Netherlands, and Germany next year; or these concerns will get worse.

Moving into the latter half of the week, the ECB meeting is expected to bring about significant changes to the ECB’s bond-buying program. At a minimum, the ECB will announce a six-month extension, extending the duration of its QE operations from March to September 2017. Any downside from this announcement has already been priced-in to the Euro, by our estimates; the formal recognition of this policy adjustment itself should have little impact on the Euro.

To ensure “smooth implementation” of its policies, the ECB will likely make an adjustment to its deposit floor threshold or capital key allotment. As a reminder, the ECB allots its bond buying based on the capital key. What is the capital key? The capital of the ECB comes from the national central banks (NCBs) of all EU member states. According to the ECB, the NCBs’ shares in this capital are calculated using a key which reflects the respective country’s share in the total population and gross domestic product of the EU.

As such, it’s no surprise that Germany – as the country with the largest capital key contribution – has seen the belly of its yield curve (3Y-7Y) drift into negative territory, below the ECB’s -0.40% deposit level – the threshold at which the ECB no longer purchases bonds in its QE program. While scarcity is not a concern now, the fear of liquidity issues down the road are significant enough that the ECB wants to act now to eliminate said speculation.

Likewise, beyond extending its QE program, the ECB will either: remove the limiting parameter of -0.40% on its bond buying; or discard the capital key variable. In the first case, German yields would like move lower the fastest; in the second, peripheral yields like in Italy and in Spain. If the ECB doesn’t, the odds of the Euro rallying on Thursday will increase as markets speculate that the ECB isn’t delving deeper into its extraordinary policy-loosening toolkit. –CV

 

Here’s why Facebook should buy Twitter

The Twitter logo is displayed on a screen on the floor of the NYSE
The Twitter logo is displayed on a screen on the floor of the NYSE

The suitors fell one by one. Disney. Alphabet. Salesforce.

Now, it seems no one wants to buy Twitter.

There is an obvious solution, though, and it would create a perfect new product. Facebook should buy Twitter, and roll it up with its Live video offering.

Facebook’s transformation from a free social-networking website for desktop web browsers into an ecosystem of mobile apps is one of the most remarkable business and technology success stories of the last century. And yet, Facebook wants more. Facebook is a machine for capturing attention, but it has not managed to capture some key categories of the attention market, most notably “Live.”

There is a reason that it wants the Live market. Live is a specific category of media that relies on the frisson of knowing that you’re being shown things as they happen, in real time. The immediacy of live events can generate a more focused kind of attention than the kind of continuous partial attention that most people give to their social media timelines. And as a result, Facebook Live video streams generate more engagement than other kinds of posts, including non-Live video. Facebook believes its engagement data, so it has begun to push hard for more Live video.

“Live is just one part of our overall video effort, but we think it has a lot of potential,” Mark Zuckerberg said earlier this year. “Friends go Live because it’s unfiltered and personal. Actors and news anchors go Live because they can reach bigger audiences in some cases than they can on even their own shows.”

Live has also become the go-to platform for streaming police brutality.

Live video has taken off among media companies (which are, in some cases, paid by Facebook to make content) and some individuals. Some feel that this is the next great bucket of audience attention that Facebook is opening up. But the truth is that Facebook Live, as a real-time video platform, doesn’t work very well. It’s hard to find compelling stuff. Doing Live video is really, really hard.

More significantly, the idea of the Facebook timeline militates against “Liveness” and real-time storytelling. The whole point of the algorithm is to show you the best stuff, and it’s rare that a Live video actually meets that threshold. Live is not what the News Feed does.

Getty Images
Getty Images

Facebook’s News Feed is about relevance, showing you the post you want to see out of all the thousands that you might be shown. And it’s unbelievably successful at that. But the software that underpins News Feed often falls down when it comes to providing real-time updates. So, Facebook is a place where your friend’s post about making guacamole for the Warriors game gets shown to you in the fourth quarter.

That’s okay! In fact, it’s kind of the point. The fundamental product of the News Feed is about what is happening, not when it’s happening. And Facebook has years worth of data showing that users prefer their feeds ranked in order of relevance, rather than chronologically.

But there is a place where Live video makes a ton of sense. A place that has built a whole business around being a real-time news and conversation engine for the world. That place is Twitter. Where do NBA players post updates? Twitter. Where do celebrities feud, and politicians battle over policy positions? Twitter. Where do people discuss television shows and sports games as they’re being broadcast live? Twitter.

Twitter CEO Jack Dorsey made the point that Twitter is still the best at real-time media earlier this year during a rough earnings call:

Twitter has always been the best place to see what’s happening immediately, to see what’s happening instantly, and to bring people together around a particular shared experience. And as we talked about last time we think the easiest way to get what Twitter is, is really to show a live event; show people the great accounts who are providing insight that you can’t find anywhere else, you can’t find in your address book but you actually meet on Twitter through that experience, to connect them through a Follow and also to encourage them in a conversation.

AP Images
AP Images

He’s right: The people making the culture are on Twitter, making and talking about that culture in real-time.

Imagine, then, a Facebook-owned product called “Now.” You pair the Twitter timeline, showing you the real-time global text conversation, based on a list of people you follow, with the best of Live video from around the world. This would be the best real-time media product imaginable, especially with Facebook’s corporate muscle behind it.

For Facebook, a Twitter purchase would join a long line of strategic acquisitions made to enhance the company’s core capabilities. When Facebook bought Instagram, it didn’t just want the app’s users—Instagram brought deep, native knowledge of the mobile game into the Facebook house, where it could be used to enhance Facebook’s primary app. Same with WhatsApp, which was purchased, in part, to augment Facebook’s knowledge about the messaging world.

Twitter would bring deep experience with the real-time world to Facebook. And as a nice bonus, Twitter would bring in a squadron of elite power users from across the celebrity and media landscape, who have gotten used to reaching their fans on Twitter.

For hardcore Twitter users, a Facebook acquisition would be something to celebrate. In the past several years, as Twitter has bounced from strategy to strategy in an attempt to chase user growth and justify its value to investors, the core Twitter experience has gotten a little schizophrenic—Twitter Moments appearing one day, hearts replacing stars the next, autoplaying Periscope video suddenly appearing in feeds, axing Vine, weird decisions about reply threads, and so on. (As our Felix Salmon pointed out last year, Twitter’s push for mass market growth “comes at the expense of some of the characteristics which cause its most active users…to love and value it.”)

But if Facebook bought it, Twitter wouldn’t have to change at all—it would simply become the backbone of Facebook’s Live offerings, and fill a niche that Facebook has had trouble building on its own. For the mainstream Facebook user, there would be Live Video. For people who wanted in on the real-time text conversation, there’d be the timeline formerly known as Twitter. Rather than trying to become something it is not, Twitter could double down on the core real-time components of its experience, while attaching itself to the most powerful mobile ad infrastructure in the world.