You may remember that the smaller corners of the European currency markets were unexpectedly interesting at the beginning of the year.
For those who don’t, the fun started in January, when the Swiss National Bank announced that it would stop suppressing the value of the franc against the euro. That quickly led to big flows of money into Denmark as traders bet that its peg might also break:
From the Wall Street Journal’s picture of the Danish housing market:
“People will often put in an offer even before they see the apartment,” said Christopher Christiansen, a property broker at Danish real estate agency Home A/S. “Sometimes they will even sign before they see it.”
A cost of debt close to zero for house buyers seems to be having some sort of effect. Read more
In our previous post, we were inspired by a fascinating note from Deutsche Bank to look into the peculiar behaviour of the “net errors and omissions” category in certain European countries’ balance of payments statistics, on the theory that these can tell us about capital flows occurring under the radar.
One explanation would be a desire to avoid tax. As Gabriel Zucman has noted, there are trillions of dollars more financial liabilities in the world than there are corresponding financial assets. That only makes sense if people are hiding their wealth from the authorities. And, as it happens, the places we identified as having particularly large hidden capital outflows — Sweden, Denmark, Finland, Italy, the Netherlands, and Austria — all have very high taxes, while Malta, which was a large recipient of hidden inflows, is known for being a convenient euro-denominated tax haven. Read more
Those with the patience to pore over balance of payments data occasionally get rewarded with surprising nuggets of insight.
As a case in point, a new note from Deutsche Bank points us to the mysteries contained in the “net errors and omissions” category. In theory, mistakes that occur each quarter should cancel each other out. In many places, however, summing up these flows up over time produces distinctly non-random patterns — what Deutsche Bank calls “dark matter”. Read more
It’s been a long time since so many developed central banks were tested by free market forces. And free market forces aren’t finished yet.
Hot on the heels of the SNB giving up on its euro ceiling policy, the market is zoning in on the Danish central bank and its ability to maintain its euro-peg.
As Dan already pointed out, the Danes have had to cut rates three times in in the last two weeks: January 19, January 22 and January 29.
If that looks and feels desperate, perhaps that’s because it is? Read more
Last week’s Swiss surprise was a useful reminder that betting against currency pegs is one of the classic macro hedge fund trades.
Think Soros and Druckenmiller versus the Bank of England. It’s attractive because the cost of maintaining the position is usually small while the potential upside can be quite large. Someone who had been continuously buying short-dated puts on EURCHF at 1.2 since the establishment of the Swiss National Bank’s exchange rate floor over the past few years would have paid a pittance for the opportunity to make a lot of money. Read more
Some expansive credit-related thoughts arrive from Alberto Gallo at RBS, for a quiet May Day when Europe’s capitalists take the day off in honour of its workers.
In short, its the safe stuff that may not be safe anymore as/if/when the continent’s economy expands: Read more
Look, no minus signs.
Which means an experiment has ended in Denmark, for now. The CD rate rose 0.15 per cent on Thursday.
From the central bank… Read more
Back in July, 2012 the Danish central bank, Nationalbanken, lowered the deposit rate to -0.2 per cent. Back then we wrote that it was going to be costly for the banks, and that money market rates were going deeper into negative territory. With Draghi’s comments last week, how did that whole negative deposit rate action turn out for Denmark?
Nordea had a note out last week on that very subject. Now, before we move, let’s remember that Danish monetary policy is tailored around the FX peg. The deposit rate was there to assure outflow because of mounting pressure on the EUR/DKK pair. Read more
From the Danish central bank:
Effective from 25 January 2013, Danmarks Nationalbank’s interest rate on certificates of deposit and the lending rate are increased by 0.10 percentage point. The discount rate and the current account rate are unchanged. Read more
Remember when Denmark’s central bank went negative, back in July?
After the ECB’s deposit rate went to zero, the Nationalbanken cut its own deposit rate, largely in order to stem capital inflows. Read more
To all those still defending negative interest rates — arguing that the stimulative effects will outweigh the costs to banks — we bring you the following from Tina Mortensen at Citi on Wednesday:
Denmark — FSA urges banks to charge customers more and to cut costs deeper to stay competitive. Following the introduction of negative interest rates, Danish banks are struggling to maintain their interest rate margins. At the same time, the economy has still not recovered from last year’s funding crisis and the fallout of a burst housing bubble in 2007. Read more
Maybe not truly natural, as this is a matter of currency intervention, but close.
After the ECB lowered its interest and deposit rates on Thursday, the Danish central bank, Nationalbanken, followed a few hours later. Read more
(That’s Lisa, at Thursday’s European Central Bank press conference) Read more
For the second Thursday in a row, the Danish central bank has cut interest rates:
Why, it’s an investigation.
RTRS-DANISH FSA SAYS TO REPORT NORDEA BANK DENMARK TO POLICE IN CONNECTION WITH INVESTMENT ANALYSIS ON PANDORA Read more
That it should raise the debt ceiling to $42,000 billion.
Wait, hear us out… Read more
While the market’s attention was focused on the pop in LinkedIn’s US debut, another recently listed stock was having trouble of a different sort.
On Thursday, shares in Copenhagen-based jewellery maker Pandora — which listed on the Danish market in October 2010 at a valuation of €5bn — closed down more 21.65 per cent at DKK 199: Read more
ISS, the Danish outsourcing group, is seeking to tap into rising demand among western governments for outsourced services as it prepares for the biggest stock market listing in Europe so far this year, reports the FT. Jeff Gravenhorst, ISS chief executive, told the FT that the group hopes to raise $2.4bn on the Copenhagen bourse, and said other European countries were starting to follow the UK’s lead in welcoming private contractors into the public sector. He highlighted the education and healthcare sectors as offering some of the greatest potential. ISS, owned by Goldman Sachs Capital Partners and EQT of Sweden, is one of the world’s biggest providers of outsourced services such as cleaning, security and catering to the public and private sectors. Its owners said last month they had broken off talks over a proposed $8.5bn sale to Apax Partners, the UK-based buy-out firm, and would pursue a stock market listing.
Amagerbanken is a small bank in Denmark — but its failure could end up having big consequences for investors in bank debt. It might end up being a relatively rare instance of a bank’s senior unsecured investors (and depositors) taking a hit.
Here’s Ivan Zubo and Olivia Frieser at BNP Paribas with the background: Read more
Breaking pre-market news on Wednesday,
- Sanofi agrees to buy Genzyme for $74 in cash per share – statement. Read more
Something is interesting in the state of Denmark.
Over the weekend, Amagerbanken, a smallish Danish bank filed for bankruptcy. Its assets now have to be transferred to Denmark’s bad bank curating-company Finansiel Stabilitet (FS), which has already taken over the assets of a number of failed financial institutions. The Amagerbanken case is special however. Read more
Sweden’s prime minister on Sunday urged the country to “stand up for tolerance” after a botched terrorist attack in central Stockholm on Saturday highlighted growing Islamic extremism across the usually peaceful Scandinavian region, reports the FT. Fredrik Reinfeldt condemned the attack, in which a suspected suicide bomber was killed, as an assault that risked inflaming racial tensions in a society with a large Muslim population. The incident followed warnings from Sweden’s security service of the growing threat from Islamic extremists and came amid a Norwegian probe into a suspected terrorist plot aimed at neighbouring Denmark
The head of Danish telecoms giant TDC has insisted he can continue to improve its profitability through cost cutting, as the private equity consortium that controls TDC started to sell down its shareholding, reports the FT. Apax, Blackstone, Kohlberg Kravis Roberts, Permira and Providence are set to raise as much as DKr21bn ($3.7bn) through a sale and buy-back of shares at TDC. The consortium has sold a first tranche of its TDC shares at DKr51 each. Trading in those shares began on Thursday. TDC has retained a small free float under private equity control, and the shares closed down 5.6% on Wednseday at DKr49.1. Observers said the TDC share decline on Thursday risked undermining confidence in initial public offerings. Lex however says that even though the sellers have had to retain a hefty 60% stake, “the well-priced on-exchange sale should grease the wheels for more like it”.
ISS, the Danish cleaning, security and catering group, is considering launching one of the year’s largest IPOs in Europe, valuing it at €5bn-€6bn ($6bn-$7.6bn), reports the FT. While reporting solid first-half results, the company, one of the world’s biggest private sector employers with more than half a million staff, said it had hired Rothschild, Goldman Sachs and Morgan Stanley to conduct a review that could lead to a sale by its owners – Goldman and EQT, the buy-out arm of Sweden’s Wallenberg family. Bloomberg cites analysts saying it is possible that only a portion of the company may be floated.
A datapoint on the perception of the eurozone — courtesy of Danish bank, Danske:
Statistics Denmark regularly surveys the attitude of the Danes to the euro on behalf of Danske Bank. The June poll shows that the No side has caught up with – and overtaken – the Yes camp, so that it now has a comfortable lead of 11.3pps. This is the largest No lead since we launched our EMU poll in 1999. Looking solely at those who are certain how they would vote, the No side has in fact an even more solid lead. Only 32.1% of Danes polled expect to vote Yes, while 47.8% would be certain No voters – a difference of 15.7 percentage points. Read more
Nordic countries on Tuesday gave the go-ahead for up to €444m more aid for Iceland’s stricken economy even as northern Europe counted the mounting cost of travel disruption caused by the eruption of an Icelandic volcano, reports the FT. The Nordic region has been among the hardest hit by ash fallout from the Eyjafjallajökull volcano yet Sweden, Denmark, Norway and Finland appeared to be in a forgiving mood as they agreed to end a long delay in funding for Iceland’s economic recovery programme.
And the ECB will direct it. Ha.
As we mentioned earlier on Friday, UBS analysts John-Paul Crutchley and Alastair Ryan have been looking at the European banking landscape afresh — specifically in relation to the credit support ops of the European Central Bank. Their findings make for insightful reading. Read more