Kiron Sarkar is an investor and advisor in London. Formerly in the M&A dept of N M Rothschild in London, he was head of M&A of Rothschild (Hong Kong) and worked on their international privatisation team. He worked as privatisation adviser to the UK Governments Know How Fund. Most recently, he was European Head of Media, Tech and Telecoms at CIBC World markets. Kiron has acted as a lead adviser in respect of over US$150bn of deals and has worked globally in both developed and emerging markets.
Japan’s economy expanded for the 1st time in 4 Q’s last Q. GDP rose by an annualised rate of 6.0% in the 3rd Q, the fastest rate in 1 1/2 years and in line with forecasts. However, GDP is expected to decline significantly this Q;
China is to allow foreign firms to raise equity in their markets, though no timetable has been set. I would expect a number of multinationals, in particular, to take advantage of this and demand from local investors should be positive, given their current alternatives;
The Chinese yield curve is widening and expected to widen further.
Suggests that the current monetary tightening will be relaxed (through lower reserve ratio requirements for banks), especially as “official”
inflation was 5.5% in October (and expected to decline further), from 6.5% in July;
President Obama is pursuing a 9 country (including the US) Trans Pacific Partnership (excluding China) within 1 year. Japan, Mexico and Canada are also expected to enter into discussions. Should be positive for trade, but numerous problems remain, especially in agriculture. A deal of this kind will extend US influence in the region, which will be welcomed by countries in the region, given their concern about increasing Chinese dominance;
Indian inflation continues to be a problem – it exceeded 9.0% for the 11th month. The wholesale price index rose to 9.73% in October YoY, sightly higher than the 9.72% in September. Whilst the BoI is not expected to raise rates further, there is no indication that will decline this year either. Forecasts are for inflation to reduce to 7.0% by March next year – unlikely;
President Obama continued to raise the issue of the undervalued Yuan – the Chinese just ignore these comments;
The EU’s Sept industrial production declined -2.0% MoM (+2.2% YoY). EU economic data continues to decline;
Amusingly, it appears that the EFSF had to buy some E300mn of the E3bn of bonds it sold last week to raise funds for the next tranche of the Irish bail out – just goes to prove what a joke the EFSF is. The market will not wait forever. However, I have no indication that the Euro Zone has a plan B;
Italian 10 year bond yield have declined by over 100bps, to 6.35%. A 5 year E3bn auction is scheduled for today. The bonds were sold at a yield of 6.29%, up from 5.3% in October, though the bid to cover ratio was marginally better at 1.469 times. Mr B resigned on Saturday, but rumours of his demise are premature, I fear. The cruise line crooner looks as if he will make a comeback. Super Mario (Mr Monti) has taken over to establish the 2nd technocrat Government in the Euro Zone.
Interestingly, the Italian bank Unicredit is rumoured to be considering raising E7.5bn in new equity;
Mrs Merkel is attending her party conference today – she is suggesting further political union, which to code for “fiscal union”. She has already proposed EU Treaty changes – will and must happen. The time for Euro Bonds is coming – sooner rather than later. However, such measures will be accompanied by tough, predetermined and verified fiscal targets being established, which Euro Zone countries will have to adhere to;
The Head of Germany’s Bundesbank continues to object to monetary intervention by the ECB and, in particular, to enable the ECB to act as a lender of last resort. He also rejected the idea of the ECB capping interest rates for Euro Zone countries. All fine and great in theory Mr Weidmann, but complete nonsense in the rea world – there is no alternative. There is no Euro Zone institution that can intervene effectively, other than the ECB – forget the EFSF. If the ECB does not intervene and, in effect, implement QE, there will be NO EURO for the ECB to worry about, which will be seriously bad news for Germany.
Will someone please teach the Germans about financial/market issues – they really continue to be completely dogmatic, unrealistic and, in my humble opinion, completely stupid – much better to accept that its inevitable and try and work on measures to make sure individual countries meet their fiscal obligations, rather than keep bleating nein, nein, nein. Recently, Germany has had to U turn on virtually every occasion. A German friend of mine, may I add, agrees with my view that, in general, German’s are financially illiterate. However, interestingly, Mr Weidmann did not dismiss the idea of ECB rates falling below 1.0%, a position they have held in the past – at least he’s learnt one thing;
UK data, to be released this week, is likely to confirm that the UK economy continues to underperform. GDP forecasts are expected to be reduced to just 1.0%, from nearly double that figure previously.
However, inflation is set to decline sharply. As you know, I expect QE to be increased to well above the current £275bn in early 2012;
Coming to a crunch time in the Euro Zone. Personally, I continue to believe that the ECB will conduct QE, in spite of German objections, accompanied by a tight centally controlled and constantly verified fiscal programme. Subsequenty Euro Bonds.
The rise of the technocrats in Italy and Greece has certainly amused me – were not these people intimately involved in the EU and ECB, both of whom have been raging disasters. Just goes to show how bad Euro Zone politicians are, when these Technocrats are considered to be better.
In the US, focus on the Super Committee will be the key issue. The bad news is that you have to listen to politicians.
Euro weaker today – negative for markets.
Got to rush for the airport.