Prospect of Italian Election Crushes Italian Bonds

new Italy

News that an agreement has been struck that will allow for national elections in Italy in March spurred a large rise in Italian bonds, and likely signals the underperformance of Italian assets.  


Reports suggests that Italy’s president likely dissolve parliament in the last week of December in preparation of elections that will be held in early March.  March 4 seems to be the favored date, but March 11 is also possible.   Elections need to be held by May 20.    In recent weeks, speculation of this has mounted as the prerequisite preparation of the new laws and electoral college have been agreed by the relevant bodies.  The leading political parties also apparently have reached an agreement.  

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US Monetary and Fiscal Policies

new united states

US monetary and fiscal policies are moving.  While the Federal Reserve is widely expected to raise the Fed funds target range by 25 bp, for the third time this year, Congress is trying to reconcile the House and Senate tax bills.    Treasury Secretary Mnuchin released a one page statement that explained how the proposed tax cuts pay for themselves, a claim often heard by the proponents. Mnuchin clearly indicated that they don’t.  He was explicit: only when the tax cuts are considered in conjunction with other actions, will the growth rate be lifted and where the revenues will offset the tax cuts.

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From the Securities Lending Trading Desk

Mega merger news this week in the health care sector as CVS Health announced plans to acquire Aetna for $69 billion in cash and stock. We are seeing shares in Samsung Heavy Industries plung to a record low after the company announced plans to raise much needed capital.  Meanwhile in Europe, the Steinhoff CEO resigned following the company admitting accounting irregularities. 

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UK Front and Center, but Sterling is Laggard in Today’s Move Against the Dollar

New taxi

  • The US is a little  heavier against most of the major and emerging market currencies
  • Equities are mixed, European bonds yield are firmer, while US Treasuries are little changed
  • Sweden and UK reported higher than expected CPI
  • Emergency repairs to the UK Forties Pipeline has pushing up Brent prices
  • S&P cut Colombia’s credit rating to BBB- from BBB

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NAFTA Update: Little Low Hanging Fruit


new pool

On the eve of the WTO meeting that started yesterday, Japan and the EU struck a free trade agreement.  The combined market is for around 600 mln people and accounts for a little more than a quarter of the world’s GDP.  When the UK leaves, ostensibly at the end of March 2019, though with a likely standstill transition period, the EU side will be reduced and the agreement will cover a little less than a quarter of the world’s GDP.  

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