Pubblicato in: Devoluzione socialismo, Unione Europea

Il blocco europeo (ex Unione Europea) ha il 15% di rischio implosione.

Giuseppe Sandro Mela.

2020-05-23.

2020-05-19__Sentix Euro Break-up Index 001

Da quasi un mese i grandi media non usano quasi più il termine ‘European Union’, che è stato rimpiazzato con ‘European Bloc’.

Il cambio di denominazione sembrerebbe precedere gli annunci di dissoluzione. In questo, Bloomberg ha il fiuto di un can da trifole.

«The sentix Euro Break-up Index (EBI) indicates the probability that the euro will break up within the next twelve months as perceived by investors. Since the perceived risk of a break-up of the euro zone is an important determinant of the yields of euro zone government bonds, the indicator is suitable for increasing understanding of the development of these yields and improving their forecasts. In addition, there are national sentix Euro Break-up Indices which reflect the assessment of investors of the probability of the euro exit of individual countries. These indices help to uncover relative mispricings between eurozone government bonds. Finally, the “Index for the Risk of Spread” provides an additional risk measure that complements the EBI.»

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«Global Debt Funds Shun Italy on Fears That Euro-Area Is Cracking»

«Italian bonds suffer worst year-to-date performance since 2006 »

«Italian debt is once again the must-watch bellwether for growing tensions within the euro-area»

«Global investors have lasered in on the nation’s bonds because, while they feature tempting yields, the government’s relatively weak finances add to the shared risk across the region»

«Every now and then, concern that the euro-area will break up drives investors to question whether holding the region’s assets is worth the risk»

«We’re avoiding Italy at the moment because it’s probably that country where a lot of the political issues play out in the market»

«Italian government bonds are going to express that risk first and foremost so we are out of that market until we get clarity»

«Investors were already exasperated by the euro-area’s response to the spread of the coronavirus, and the damage it has wreaked on economies in the region, when a German high court gave the European Central Bank three months to fix its 2.7 trillion euro ($2.95 trillion) public sector purchase program that started in 2015.»

«It spurred concerns that more lawsuits may be filed against the ECB’s other vital programs, which have kept markets relatively buoyant through very turbulent times»

«The policy maker’s bond-buying programs — worth more than 1 trillion euros this year — are why Italy’s 10-year bonds are yielding about 2% and not 7.5%, the level they climbed to less than a decade ago when its membership in the currency bloc was in question»

«The rift»

«The court ruling also highlighted the growing divide in the bloc and a stubborn problem with Europe: That it doesn’t have the combined fiscal infrastructure to match its joint monetary prowess»

«if they have a referendum in Italy or Spain today, populations might vote to leave»

«Moody’s hinted last month that it may hold off downgrading Italy’s credit to junk from Baa3, the lowest investment grade»

«But should Moody’s decide to cut the nation’s rating to junk, Italy could start to see its bonds fall out of indexes, losing billions of euros of investment in the process»

«the tail risk of the euro breaking up has increased»

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«The European Union’s failure to rally together against the pandemic has left the euro the least defended currency of the developed world, reigniting fears of a breakup of the bloc itself.»

«Europe’s inability to mount a long-term joint fiscal defense against the economic shock from the coronavirus starkly contrasts with trillions of dollars of stimulus unveiled by governments from the U.S. to Japan»

«The virus has been raging through Europe for months, but euro-area leaders still differ on how to jointly contribute to a recovery package for struggling economies such as Italy»

«An index measuring the probability of a country leaving the euro in the next 12 months recently surged to its highest in three years»

«The sentix Euro Break-up Index, which is based on a monthly survey of individual and institutional investors, climbed close to 15, the highest since early 2017»

«Even the European Central Bank’s monetary policy has come under scrutiny after German judges ruled that some aspects of the institution’s earlier bond-buying program aren’t backed by EU treaties and needed to be fixed.»

«The coordinated fiscal and monetary stimulus provided by U.S. policy makers stands in sharp contrast to the slow response from European governments hamstrung by a lack of political unity»

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«Global Debt Funds Shun Italy on Fears That Euro-Area Is Cracking»

«the tail risk of the euro breaking up has increased»

In effetti, con una probabilità del 15% che l’euro si dissolva, sono in molti ad andare a dormire il venerdì sera timorosi di quanto possa accadere durante la notte.

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Bloomberg. Euro Risks Endangered Status on EU Squabbling in Time of Turmoil

– EU virus response puts question mark on euro outlook: Investec

– Bank of America to stay bearish on the euro for rest of 2020

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The European Union’s failure to rally together against the pandemic has left the euro the least defended currency of the developed world, reigniting fears of a breakup of the bloc itself.

Since the mid-March peak of this year’s market turmoil, the euro is the worst-performing currency in advanced economies, trailing a recovery in peers that was sparked by joint fiscal-monetary stimulus in their respective economies. Money managers’ positions in the shared tender have seen a bearish shift, while strategists are fast losing their optimism for a rebound.

Europe’s inability to mount a long-term joint fiscal defense against the economic shock from the coronavirus starkly contrasts with trillions of dollars of stimulus unveiled by governments from the U.S. to Japan. While doubts about the euro project’s longevity are nothing new, this time even the European Commission has warned that the region’s north-south schism could threaten the union.

“It’s not just Covid — I don’t think markets have taken any comfort from what it’s done to the European Union,” said Jonathan Pryor, head of corporate foreign exchange at Investec’s Treasury Risk Solutions. “That’s putting another question mark on the medium to long-term value of the euro.”

The euro has fallen more than 3% against the dollar this year to around $1.08. While a Bloomberg survey of analysts still points to a recovery to $1.12 by year-end, the consensus prediction has actually slumped from the $1.15 level that was in focus at the start of the year. Also, option traders are paying little heed to any calls for a rebound, positioning instead for more weakness.

Break-up Blues

Asset managers reduced bets on the euro’s advance while leveraged funds increased net short positions, according to latest data from the Commodity Futures Trading Commission.

The virus has been raging through Europe for months, but euro-area leaders still differ on how to jointly contribute to a recovery package for struggling economies such as Italy. While officials have endorsed a short-term 540 billion-euro ($586 billion) plan to support businesses and economies, they haven’t been able to agree on a longer-term recovery program.

All this has revived worries of the currency bloc’s future. An index measuring the probability of a country leaving the euro in the next 12 months recently surged to its highest in three years. The sentix Euro Break-up Index, which is based on a monthly survey of individual and institutional investors, climbed close to 15, the highest since early 2017.

The lack of a cohesive fiscal policy is one reason why analysts at Bank of America Securities have decided to stay bearish on the euro for the rest of 2020. They estimate that the average fiscal stimulus in the euro zone is the second lowest among Group-of-10 nations at about 2% of gross domestic product so far, compared with 9% in the U.S.

“Though euro-dollar is undervalued by about 10% according to our estimates, we see it weakening further in the rest of the year,” according to Athanasios Vamvakidis, the head of G-10 currency strategy at BofA. “We forecast euro-dollar at $1.02-$1.05, with risks to the downside.”

Even the European Central Bank’s monetary policy has come under scrutiny after German judges ruled that some aspects of the institution’s earlier bond-buying program aren’t backed by EU treaties and needed to be fixed. Worries that more such lawsuits could undermine the ECB’s latest Pandemic Emergency Purchase Programme (PEPP) have fueled unease in European markets.

“The coordinated fiscal and monetary stimulus provided by U.S. policy makers stands in sharp contrast to the slow response from European governments hamstrung by a lack of political unity,” said Edward Park, deputy chief investment officer at Brooks Macdonald Asset Management. “The U.S. response’s relative strength is likely to supercharge the eventual economic recovery which will support the dollar versus the euro.”

Not everyone expects a downfall of the euro. UBS Global Wealth Management’s house view is for it to strengthen from here to end the year at $1.15. The view is based on the prospect of a weaker dollar amid a gradual global economic recovery and concerns over rising U.S. government debt.

“The euro zone is clearly more complex,” said Rolf Ganter, head of European equities at UBS Wealth. “The U.K. — just one country, you make one decision, the U.S. — one country, one currency, one decision. The euro zone has many countries under one currency — it’s not that easy, it’s unrealistic to bring all nations to one decision quickly.”

“It seems to take a crisis in Europe to get things done, and we are right now in a crisis,” he said. “You think obviously that is bad for the euro, but in the end it still exists.”

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Bloomberg. Global Debt Funds Shun Italy on Fears That Euro-Area Is Cracking.

– Italian bonds suffer worst year-to-date performance since 2006

– Moody’s is set to review Italy and Greece after Friday’s close

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Italian debt is once again the must-watch bellwether for growing tensions within the euro-area.

Global investors have lasered in on the nation’s bonds because, while they feature tempting yields, the government’s relatively weak finances add to the shared risk across the region. UniCredit SpA estimates foreign asset managers and hedge funds’ exposure to Italian government bonds may be around the lowest since December 2018.

It’s a familiar story — albeit with a new twist. Every now and then, concern that the euro-area will break up drives investors to question whether holding the region’s assets is worth the risk. This time, economies are facing one of the most difficult challenges in living memory as a result of pandemic-induced shutdowns, adding to strains in the bloc that are likely to show up first in Italy’s bonds.

“We’re avoiding Italy at the moment because it’s probably that country where a lot of the political issues play out in the market,” said Bill Campbell, a portfolio manager at Los Angeles-based DoubleLine Capital, which oversaw $136 billion as of March. “Italian government bonds are going to express that risk first and foremost so we are out of that market until we get clarity.”

DoubleLine’s global bond fund is currently underweight on all core and periphery European sovereign bonds. That debt may get a jolt after Moody’s Investors Service publishes its rating decisions on both Italy and Greece on Friday.

ECB Backstop

Investors were already exasperated by the euro-area’s response to the spread of the coronavirus, and the damage it has wreaked on economies in the region, when a German high court gave the European Central Bank three months to fix its 2.7 trillion euro ($2.95 trillion) public sector purchase program that started in 2015.

It spurred concerns that more lawsuits may be filed against the ECB’s other vital programs, which have kept markets relatively buoyant through very turbulent times. German exports fell 11.8% in March, the most since at least 1990.

The policy maker’s bond-buying programs — worth more than 1 trillion euros this year — are why Italy’s 10-year bonds are yielding about 2% and not 7.5%, the level they climbed to less than a decade ago when its membership in the currency bloc was in question.

Indeed, the ECB’s support is the main reason Philadelphia-based Brandywine Global Investment Management bought Italian debt. It completed purchases of 10- and 30-year so-called BTPs on Tuesday, according to Jack McIntyre, a portfolio manager.

The company, which oversees $60 billion in assets mostly in bonds, didn’t own any European sovereign notes before the crisis. That’s because they weren’t attractive given the negative yields.

The Rift

The court ruling also highlighted the growing divide in the bloc and a stubborn problem with Europe: That it doesn’t have the combined fiscal infrastructure to match its joint monetary prowess. It’s one reason the euro is at a disadvantage to the U.S. dollar.

Case in point, the region’s leaders have struggled to agree on a joint bond issuance across member states, which would help countries such as Italy, where debt is well above the nation’s economic output. Euro-area finance ministers are holding a video meeting Friday to agree on the terms of emergency credit lines from the euro-area bailout fund.

“We’ve been trying to have a cohesive Europe since the ’60s,” said Jeremy Leach, chief executive officer at Managing Partners Group, which has hedged its exposure to the euro. “But I somehow feel that if they have a referendum in Italy or Spain today, populations might vote to leave.”

He started reducing his holdings of European stocks late last year because he didn’t think they were fairly valued. Leach expects a repricing of euro-denominated bonds as default risk rises and the common currency weakens.

Moody’s Has Its Say

Moody’s hinted last month that it may hold off downgrading Italy’s credit to junk from Baa3, the lowest investment grade. That’s on par with where Fitch Ratings knocked the nation’s credit score down to last week. Italy’s bonds climbed Friday, with yields dropping as much as eight basis points to 1.84%.

But should Moody’s decide to cut the nation’s rating to junk, Italy could start to see its bonds fall out of indexes, losing billions of euros of investment in the process.

“Italian bond ratings can’t afford to fall,” said Eiichiro Miura, general manager of the fixed-income department at Nissay Asset Management, based in Tokyo. “Japanese investors will be reluctant about taking new exposures at this stage.”

That’s despite Italian 10-year debt currently offering a yield premium of over two percentage points versus domestic Japanese bonds, when adjusted for currency swings.

While the euro-area will probably “muddle through, the tail risk of the euro breaking up has increased,” said Eric Stein, co-director of global income at Eaton Vance Management. “You need a strong political will to keep this project going, and I’m surprised that we haven’t seen more cohesive policy or more integration after the previous crisis.”