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Forex Week's Wrap
"I don't see any winners in this election, just losers. I think Italy altogether is losing because we are going to face a period of uncertainty; Italians are losing out because I doubt that we can see in the very short term the kind of structural reforms that are needed. And also politicians are the real losers, or a generation of politicians, because basically this has been a vote of no confidence in them" Intesa Sanpaolo
The above is a rather damning view given by the chief executive of Italy's largest retail bank, Intesa Sanpaolo. Mr Cucchiani has every right to be angry too, as the inability of the political 'leadership' in Italy to sort things out has cost his bank 15% of its share price.
On top of the political problems, Italy has today introduced its Financial Transaction Tax on equities. The rules are now that people will pay twelve basis points on their net daily transactions on equities with a market cap of more than €500m. So if you buy 10,000 shares of company A and sell 5,000 shares in company A on the same day, you face a transaction tax on 5,000 shares. If you buy 10,000 and don't sell any, you get taxed on 10,000 - We can't help but think this isn't the best approach to promoting stable investment practices, but only time will tell.
Moving away from Italy, but only as far as Greece... A document compiled by the EU and IMF has been leaked which reports that tax revenue collection targets have been missed by miles. The numbers are quite concerning - only €1.1bn over overdue tax was collected, compared to a target of €2bn, meanwhile the estimated overdue tax grew by €5bn and now stands at €55bn - which would go a very long way to paying back their bailouts. The worrying part for the rest of Europe is the question it raises over Greece's commitments to reforms, especially as we're only a year or so into them.
It appears it's not just the southern states having problems in Europe though. Yesterday the Netherlands were forced to admit they will miss their EU deficit target. Countries that are going to miss it include Spain, France, Portugal and Greece, so they're not exactly alone. However the Dutch were very vocal when calling for the target's introduction, so this doesn't look great.
In Asia, Taiwan has seen an exceptionally high number of individuals depositing Chinese Renminbi into Taiwanese banks. Since Wednesday individuals and businesses have been able to make deposits in Chinese currency in the new offshore centre. Taiwan now joins Hong Kong in being able to provide offshore services for Chinese currency providing a large boost to their banking sector and simplified logistics in working with the mainland. Questions will be raised on how much influence this will give Beijing over the fiercely independent state, but for now it will be a welcome boost to the domestic banking sector, as well as opening up competition for the highly lucrative offshore RMB market.
Today's the day the sequester kicks in. After failing to find agreement in Congress last night, Barack Obama will have a final meeting with John Boehner this morning to see if anything can be done, but realistically tonight at midnight will signal the beginning of $85bn in spending cuts over the next seven months. It's a bit of an unknown how long it will be before an agreement is reached, so we could see this as a lot of fuss about nothing, but if the full cuts were to roll in throughout the rest of the year some estimates are that it will take as much as three quarters of a percent off US GDP - leaving us all with a cold.
Thank you CM Trading
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