Markets pause ahead of crucial US healthcare vote – business live

Asian and US markets stabilise as investors await the first key test of whether President Trump will be able to able to press ahead with growth-boosting policies

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Asian markets are subdued after Wall Street stabilised on Wednesday. Fears that President Trump will not be able to deliver on his growth boosting policy pledges have not gone away, but investors appear to be taking a breather before today’s crucial vote on the Republican healthcare bill in the US.

US Closing Prices:#DOW 20661.3 -0.03%#SPX 2348.45 +0.19%#NDX 5367.55 +0.66%#VIX 12.81 +2.73%

Related: Donald Trump makes last-ditch pitch to Republicans to back healthcare bill

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9 Years Later… Greece Is Still In A Debt Crisis!

Authored by Simon Black via,

Sometimes you have to marvel at the absurdity of the financial universe in which we live.

On one side of the Atlantic, we have the United States of America, which triggered yet another debt ceiling disaster last Thursday when the US government’s maximum allowable debt reset to just over $20 trillion.

Of course, the US national debt is pretty much already at $20 trillion.

(That’s roughly $166,000 per taxpayer in the Land of the Free.)

This means that Uncle Sam is legally prohibited from ‘officially’ borrowing any more money.

But far be it from the US government to start living within its means. Sacrilege!

These guys have zero chance of making ends meet without going into debt.

Just last year, according to the government’s own financial report, their annual net loss totaled $1 TRILLION, and the national debt increased by $1.4 trillion.

And that was in a relatively stable year. There was no major war or financial crisis to fight. It was just business as usual.

This year isn’t going to be any different.

So, cut off from their normal debt supply (the bond market), the Treasury Department is resorting to what they call “extraordinary measures.”

They’re basically pillaging government employee retirement funds, and will continue to do so until Congress raises the debt ceiling.

It’s a repeat of what happened in 2015. And 2013. And 2011.

Pretty amazing to consider that the “richest” country in the world has to plunder retirement funds in order to keep the lights on.

Former US Treasury Secretary Larry Summers said it perfectly when he quipped “How long can the world’s biggest borrower remain the world’s biggest power?”

Then, of course, on the other side of the Atlantic, we have Greece, which is now in its NINTH YEAR of a major debt crisis.


Greece has had nine different governments since 2009. At least thirteen austerity measures. Multiple bailouts. Severe capital controls. And a full-out debt restructuring in which creditors accepted a 50% loss.

Yet despite all these measures GREECE IS STILL IN A DEBT CRISIS.

Right now, in fact, Greece is careening towards another major chapter in its never-ending debt drama.

Just like the United States, the Greek government is set to run out of money (yet again) in a few months and is in need of a fresh bailout from the IMF and EU.

(The EU is code for “Germany”…)

Without another bailout, Greece will go bust in July– this is basic arithmetic, not some wild theory.

And this matters.

If Greece defaults, everyone dumb enough to have loaned them money will take a BIG hit.

This includes a multitude of banks across Germany, Austria, France, and the rest of Europe.

Many of those banks already have extremely low levels of capital and simply cannot afford a major loss.

(Last year, for example, the IMF specifically singled out Germany’s Deutsche Bank as being the top contributor to systemic risk in the global financial system.)

So a Greek default poses as major risk to a number of those banks.

More importantly, due to the interconnectedness of the financial system, a Greek default poses a major risk to anyone with exposure to those banks.

Think about it like this: if Greece defaults and Bank A goes down, then Bank A will no longer be able to meet its obligations to Bank B. Bank B will suffer a loss as well.

A single event can set off a chain reaction, what’s called ‘contagion’ in finance.

And it’s possible that Greece could be that event.

This is what European officials have been so desperate to prevent for the last nine years, and why they’ve always come to the rescue with a bailout.

It has nothing to do with community or generosity. They’re hopelessly trying to prevent another 2008-style meltdown of the financial system.

But their measures have limits.

How much longer do Greek citizens accept being vassals of Germany, suffering through debilitating capital controls and austerity measures?

How much longer do German taxpayers continue forking over their hard-earned wages to bail out Greek retirees?

After all, they’ve spent nine years trying to ‘fix’ Greece, and the situation has only become worse.

For a continent that has been at war with itself for 10 centuries and only managed to play nice for the last 30 or so years, it’s foolish to expect these bailouts to last forever.

And whether it’s this July or some date in the future, Greece could end up being the catalyst which sets off a chain reaction on both sides of the Atlantic.

Do you have a Plan B?

Will Thursday’s Final TLTRO Finally Spark Carry Trades?

By Nick Kounis of ABN Amro

Euro Rates Watch – Will the TLTRO spark carry trades?

  • The last of the ECB’s TLTRO-II operations is expected to have a big take up, with the market expecting EUR 125bn, and some forecasts as high as EUR 300bn
  • From a rates perspective, what matters is whether these funds will trigger flows into the bond or swap markets as banks set up carry trades
  • Carry trades have certainly looked attractive and currently there is a possible spread of around 80bp between the rate on the TLTRO and similar maturity peripheral bonds
  • However, there is little evidence that banks have used TLTRO-II funds for carry trades over the last few months
  • Eurozone bank government bond holdings have actually fallen sharply since the first TLTRO-II…
  • …while a very small proportion of banks said they would use the funds to buy assets in the ECB’s Bank Lending Survey
  • Finally, there was no discernible impact on government bond curves around the time of the TLTROs…
  • ….and only a temporary impact on swap spreads in one of the three operations
  • Overall, we doubt the last of the TLTRO’s will have a major lasting impact on bond or swap markets

The impact of TLTRO-II on the eurozone rates market

On Thursday, the ECB will hold its fourth tender under the TLTRO-II (Targeted Long-Term Refinancing Operations) programme. A large take-up is expected. A poll published by Reuters had a  median forecast of EUR 125bn net borrowing (EUR 141bn gross given banks will repay EUR 16.74bn), with estimates as high as EUR 300bn. From a rates perspective, what matters is whether these funds will trigger flows into the bond or swap markets as banks set up carry trades. Certainly, carry trades can be attractive. At the time of past operations there has been a possible spread of around 40bp between the rate on the TLTRO and similar maturity peripheral bonds. Currently this spread has risen to around 80bp, given the rise in peripheral yields. In this note we assess how likely it is that we will see a major impact on bond and swap markets by looking at the impact of the first three tenders, which saw a cumulative net take up of EUR 138bn. We first take a look at what banks have said about the uses of TLTRO funds in the ECB’s Bank Lending Survey. We go on to look at bank bond holdings. Finally, we analyse price movements in the bond and swap markets around the time of the TLTROs.

Only a very small proportion of banks say they used TLTRO to buy assets

The ECB’s Euro area Bank Lending Survey of January 2017 (see here) asked 134 banks about their participation in past TLTRO-II operations and the upcoming tender. In addition, the banks were questioned on their planned use of the funds (see charts below). Of the banks, 37% said they participated in the third TLTRO-II operation, which was lower than in the second tender (see graphs below). Meanwhile, 26% said they intended to participate in the upcoming TLTRO-II tender, while 42% was undecided and 32% indicated that they did not plan to participate. It is likely that more banks now intend to participate given it is final tender and market expectations of interest rate hikes have risen (see appendix). For the use of past TLTRO-II liquidity, banks revealed that they would use the cheap liquidity for granting loans (60%), to refinance other funding sources (24%), while only a very modest proportion said they intended to buy assets (9%). For tomorrow’s tender, a slightly higher proportion of the banks said they would engage in carry trades (13%).

Eurozone government bond holdings have fallen

The banks’ responses in the ECB survey appear to be corroborated in data on eurozone banks’ non-MFI bond holdings (see charts below). Eurozone banks’ bond holdings fell significantly between June of last year and  January of this year. Total bond holdings fell by EUR 153bn (-9.6%), while domestic bond holdings fell by EUR 124bn (-10.6%). The large absolute falls were seen in Spain and Italy, followed by France and Germany. If banks had  initiated carry trades by using TLTRO-II funds to invest in bonds, their bond holdings would have been expected to rise. Rather, a large buyer – the Eurosystem central banks – seems to have crowded them out of the market.

Little discernible impact on bond or swap markets

Finally, we find no major or sustained impact on bo nd or swap markets in the day surrounding the TLTRO-II operations. In the charts below, T is the TLRO-II settlement day for the various operations, and we show movements in swap and bond markets 5 days before and 5 days after. Carry trades would be expected to induce steepening as they would support the segment around 4-years. The left hand chart shows 5s10s ASW swap spreads. There was only temporary steepening around the time of the first TLTRO-II in June, while there was no visible impact in the September and December editions. In the run-up to this month’s TLTRO-II, we do see some steepening, as there appears to be some front running. But it is too early to say it trend will be sustained, given the experience of the swap market behaviour in the first three tenders. The right hand chart shows the average 4s8s spreads of Italian and Spanish government bonds. There is little evidence of bull steepening around any of the operations.

No major sustained impact expected from last TLTRO-II

The last of the TLTRO-II operations will probably see a large net take up of EUR 100bn or more. As discussed above, it would seem very attractive to invest TLTRO proceeds into especially peripheral government bonds  or to conduct carry trades by entering receiver swaps of similar maturities to the tender. However, there is little evidence that banks have done so up until now, even though it has always been relatively attractive. One  potential reason for this is that (especially peripheral) bank holdings of government bonds were already very large at the start of the TLTRO-II operations. They may feel uncomfortable adding to those holdings. Another reason is that by investing in assets, banks increase their balance sheets. This could be accompanied by higher regulatory costs which would make carry trades less profitable. Furthermore, there have been initiatives in Europe to risk-weight banks’ domestic government bond holdings. At the same time, investors have recently become more concerned about the fundamentals of certain sovereigns in the periphery,  especially once QE ends. Overall, we  doubt the last of the TLTRO’s will have a major lasting impact on bond or swap markets

In Liverpool, 20 Tory cuts have brought a city and its people to breaking point | Frances Ryan

Adding up the impact of slashed benefits and a 58% reduction in central funding, the council says it’s England’s poorest wards that are being hit again and again

In Liverpool, austerity is visible: boarded-up libraries, closed-down day centres and shut nurseries. But, as in countless cities and towns across the UK, the bleakest of its marks are hidden behind closed doors: the young mum skipping meals to pay the rent because of the benefit cap, or the cancer patient kept awake by fear he’ll be found “fit for work”.

Related: Cuts that squeeze the life out of Liverpool | Letters

People living in Liverpool District B lost £807 per household, while Hart council in Hampshire got away with £28

Related: My daughter is not deemed ‘disabled enough’ to get free parking | Nicky Clark

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Economics Of The Standoff Between Turkey And The Netherlands

Authored by Altay Atli via The Strategic Culture Foundation blog,

As the diplomatic squabble between Turkey and the Netherlands continues to fester, concerns are raised about whether — and to what extent — the tensions will harm bilateral relations, particularly in economics where the two countries have robust trade and investment connections.

For Turkey, the Netherlands offers a large and expanding export market. Trade between the two countries has roots in the 17th century when the Ottomans exported wool and cotton (later tobacco as well) to the Netherlands and imported clothes and linen in return. Commerce between the two countries remained strong into modern times; in 2016 the bilateral trade volume was US$6.6 billion.

The Netherlands is the 10th largest export destination for Turkey, and perhaps more importantly from the Turkish perspective, it is also a fast-growing market. Last year Turkish exports to the Dutch market amounted to $3.6 billion, against $3 billion in imports. And while the annual increase in imports was 3.4%, exports expanded much faster, at 13.8%. For the Turkish economy, which is suffering an acute current-account deficit, the increasing trade surplus with the Dutch is a precious commodity.

On the other side of the equation, Turkey is and has always been a favored destination for Dutch investment. A process that started in 1930 when the Dutch company Philips set up shop in the newly established Republic of Turkey has reached new levels since then, making the Netherlands by far the largest source of foreign direct investment in Turkey today. According to data by the Turkish Central Bank, Dutch investment stock in Turkey was $22 billion in 2016, compared with $11.2 billion in US investments in second place, and $9.8 billion from Austria in third place.

Turkey is home to 2,700 companies funded by Dutch capital. This figure includes those transnational companies registered in the Netherlands for legal and tax-related purposes. This sizeable Dutch involvement in the Turkish economy benefits both sides. For Dutch multinationals such as Unilever, ING Bank, Philips, Perfetti, Royal Dutch Shell and Philip Morris, Turkey is not only a favorable production base but also a lucrative market and a trading and logistics hub for access to the Middle East and North Africa, Balkans, Caucasus and Central Asia. More Dutch investment is set to come to Turkey, such as the recent purchase by Vitol Group of the Turkey-based fuel products distribution company Petrolofisi for $1.47 billion. Investment needs a stable political climate, and the diplomatic spat between Turkey and the Netherlands doesn’t help.

It is also worth nothing that while the amount of Turkish investment in the Netherlands is considerably smaller, there are several large Turkish firms that have set up subsidiaries enabling access to the larger EU market.

For the past week, Dutch pundits have been commenting that Turkey is more dependent on the Netherlands, so possible sanctions imposed by Ankara would only mean “shooting themselves in the foot.” Turkish authorities have imposed political sanctions over the Dutch government’s refusal to allow Turkish ministers to meet with members of the Turkish diaspora there, including halting high-level political discussions between the two countries and the closing of Turkish airspace to Dutch diplomats. But Ankara has carefully ruled out economic sanctions. Turkey’s economics minister, Nihat Zeybekçi said: “If we take these steps, both sides would be hurt.” Ömer Çelik, minister of EU affairs said the Dutch business community, which is “investing in Turkey, doing commerce and generating employment” is “certainly not a part of this crisis,” and “Dutch investment in Turkey is by no means under risk”.

Economic sanctions between Turkey and the Netherlands don’t seem likely at the moment, but longer-term threats remain.

First, even if no sanctions are imposed, the significant loss of confidence caused by recent events will take a toll on bilateral economic relations for some time.


Second, the sizeable Turkish diaspora in the Netherlands, as well as the relatively smaller Dutch community living in Turkey, will face uncertainty, and this will have an economic impact too. An estimated 400,000 Turks live in the Netherlands, according to a diaspora association, and there are 25,000 businesses with Turkish owners, most of them smaller enterprises. Many of these companies are doing business with Turkey, and they are negatively affected by the current dispute between the two governments. So is the much smaller Dutch community in Turkey. But it is equally active in the economy, especially in the tourism sector. Declining tourist numbers will hurt Turkish and Dutch operators alike, and it might take some time to recover to pre-crisis levels of business.


Third, the diplomatic spat is likely to have a negative effect on efforts to revise the Turkish-EU Customs Union. The union, which took effect in 1996, is outdated, failing to catch up with the requirements of today’s global trade. Ankara and Brussels had begun talks to improve the deal, but the current circumstance is likely to overshadow attempts based on economic rationality.

This week Turkish football team Be?ikta? played the Greek side Olympiakos in the European cup. The Turks won 4-1 helped by two goals from Ryan Babel, the Amsterdam-born Dutch striker. Turkey and the Netherlands have links that are closer than many realize, and it will benefit both to keep them intact.