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[grupo guitarlumber] 12/2/2020 14:33

Surge in Euro Borrowing Could Store Up Trouble for Later
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By Paul J. Davies

The euro is cheaper than many think it ought to be. One explanation: A surge in euro-based borrowing abroad is weighing the currency down. This could make the euro prone to wild swings in the future.

A variety of actors are borrowing euros and exchanging them for other currencies, taking advantage of the region's superlow, even negative interest rates.

Some of this demand comes from hedge funds putting on so-called carry trades, in which they borrow in euros and swap them into higher-yielding currencies such as the Brazilian real or the Mexican peso.

Data from the Commodities Futures and Trading Commission show leveraged funds had at the start of February, the most recent data available, nearly the biggest volume of net shorts or bets against the euro since the end of 2016.

"This is a sign that leveraged investors are selling the euro to fund trades in more volatile, higher-yielding currencies," said Jordan Rochester, a currency strategist at Nomura.

There has also been a surge in borrowing from companies taking advantage of those low rates. And European banks are increasingly using their euro deposit base to lend abroad.

The euro has slipped since the start of February and is trading close to its weakest point against the dollar in over three years, with one euro buying $1.09.

Yet macroeconomic factors suggest the euro should be getting stronger. For one, the difference in interest rates between Europe and the U.S. has shrunk, which should erode the attractiveness of the dollar over the euro as an investment.

The eurozone has also seen growing capital inflows, which should give the euro a boost. It gets steady inflows from its current-account surplus -- roughly speaking, it exports more than it imports. There have also been strong flows into European stocks and bonds and increased foreign direct investment, factors that switched from heavy outflows to inflows since late 2017.

These things combined have swung from outflows of about EUR400 billion ($436 billion) in 2017 to inflows of more than EUR450 billion in the past year, according to George Saravelos, a currency strategist at Deutsche Bank.

"Despite the huge swing in [capital flows], the euro has stayed weak. This is unprecedented," he said. In a recent note, he forecast that the euro could move toward $1.08 in the near term.

One reason the euro has stayed weak is that these inflows have been balanced by other outflows from the surge in euro borrowing. The euro has weakened 3.5% against the dollar in the past year, suggesting these other outflows have been strong.

These cross-border borrowing trends keep the euro weak and calm when investors are happy to take risks, but could spark sharp bouts of volatility and send the euro suddenly higher when investors seek safety, Mr. Saravelos said.

So far, most analysts and investors don't see extreme levels of carry trades, like those done using the Japanese yen and emerging-market currencies before the financial crisis of 2008. Those trades unraveled violently, causing the yen to strengthen suddenly.

Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers, thinks investors are making smaller bets on emerging-market currencies because the trades have become riskier.

"A lot of countries aren't running managed foreign exchange any more," he said. "That volatility cuts into your carry."

European banks have recovered their appetite for lending outside the region, according to Mr. Rochester. Since 2016, the cumulative flow of bank loans from European banks to overseas borrowers has grown from the equivalent of 50% to 70% of annual gross domestic product, according to Nomura. Cumulative outbound currency and deposit flows have risen from about 40% to 55% of GDP in the same period. Loans could go to other non-European banks, or to companies for their trading or investment needs, for example.

These and other outflows increase the supply of euros in international currency markets, which depresses the euro's relative value.

International borrowers have flocked to European bond markets, too. U.S. companies issued a record amount of euro-denominated debt last year, including companies such as Coca-Cola Co. and International Business Machines Corp.

And last year, emerging-market countries sold a record EUR52 billion of government-backed sovereign, supranational and agency debt, smashing the previous EUR41 billion record set in 2016, according to Dealogic, a data provider. This year is setting a record pace already.

The longer rates stay ultralow, the more investors' hunt for yield could encourage them to juice returns with borrowed money. "If nothing happens, then the balance of [money] flows is to the continuation of carry trade dynamics," Mr. Saravelos said.

Some analysts don't think the euro borrowing will necessarily end in tears. In a market correction, there could be a balance between carry trades unwinding and money flowing out of European stocks that would limit any sharp rise in the euro, according to Paul Meggyesi, a currency strategist at JPMorgan.

Write to Paul J. Davies at [e-mail]



(END) Dow Jones Newswires

February 12, 2020 08:50 ET (13:50 GMT)

[cc2014] 12/2/2020 12:30

More stock rotating at 90p the last couple of days... Volume would appear from the RNS in the last few minutes to suggest the seller is Hambro who still have very many left and I would suppose they will keep on going.

[waldron] 12/2/2020 07:43

EURCHF:CUR
EUR-CHF X-RATE
1.0649CHF
-0.0003-0.02%

[roddiemac2] 09/2/2020 18:17

CC2014,

I am still a holder.I have always liked the long term potential for the Indian JV, and the domestic market looks OK.

It makes some sense that investors will be looking for companies that will not be victims of supply chain problems resulting from problems in China: SFR will be immune. I hold shares that will not be immune.

[grupo] 08/2/2020 12:07

Franc’s Ascent Versus Struggling Euro Shows Few Signs of Fading
By Anooja Debnath
7 février 2020 à 15:58 UTC+1

Swiss currency boosted by risk-off mood, while data hurts euro
Franc could rally 3% to end year at 1.04 per euro: MUFG

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EUR
Euro Spot
1.0946
EUR
-0.0037-0.3369%
CHF
Swiss Franc Spot
0.9777
CHF
+0.0029+0.2975%

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The reasons for an enduring Swiss franc rally against the euro just keep adding up.

Souring market sentiment from the coronavirus and geopolitical tensions have already driven the haven currency up 1.5% this year, and the rally has further to go for MUFG Bank Ltd. The franc touched its strongest level since April 2017 this week.
Swiss currency could extend its recent gains versus the euro: MUFG

Next week any further spread of the virus will continue to be a market driver, while traders will look to speeches by European Central Bank Christine Lagarde and Federal Reserve Chair Jerome Powell on Tuesday for clues on the prospects for monetary easing, which have been pressuring the euro. Sweden and New Zealand will also hold rate decisions.

“We expect the Swiss franc to remain in demand amidst weak global growth and the ongoing shift to looser monetary policy,” said Lee Hardman, a currency strategist at MUFG, predicting a steady climb to 1.04 per euro by the end of 2020, a level not seen in almost five years. “Historically the Swiss franc has been a better store of value than other major currencies. We don’t see that changing.”

It’s an appreciation that could irk the Swiss National Bank, which sees sudden surges in the franc as a deflationary threat and a risk to the competitiveness of Swiss exports. With their policy rate already at a record low of minus 0.75%, the SNB has little room to cut further to weaken the currency.
Read more:

SNB Won’t Shy Away From Interventions After U.S. Reprimand: FAZ

Coronavirus Helps Swiss-Franc Bulls, But Don’t Be Complacent
Euro at Risk of Dropping Further on Unwind of Equity Fund Flows

So far this year the central bank has refrained from directly intervening in foreign-exchange markets but President Thomas Jordan said earlier this week it won’t shy away from it given the franc remains “highly valued.” Switzerland was added back on the U.S. watchlist for currency manipulators earlier this year.

“Franc dominance seems to be here to stay, although I would expect an SNB intervention some time soon, said Kyriakos Pavlou, a trader at Eurobank Cyprus Ltd, one of the top 10 most accurate forecasters in Bloomberg’s Group-of-10 currency survey. Pavlou remains watchful of “the extreme level” of 1.0650 per euro for the franc.

[jadeticl3] 08/2/2020 08:32

damanco, I am almost the same as you, but I have not sold out. I keep thinking about it, and yet hold on expecting to reach 99p.

[damanko] 07/2/2020 22:11

CC, you're not talking solely to yourself.

I've been an investor in SFR for many years. Thanks to taking up the rights issue at 23p seven years ago, and dividend reinvestment since buying, I've recently sold at 84p, representing a profit of 148%.

I always buy for the longer term, ignore blips, but 12 years in SFR is enough.

Reluctantly, in a way, but the company's share price has proved itself perfect in hitting a ceiling, staying a short while, then sliding down once again. And then the cycle starts again...

Go well with your holding, it's a decent outfit, and really should be some way north of a pound. However my patience has run out.

d.

[cc2014] 06/2/2020 11:15

I know I'm taling to myself since everyone, his dog and his dog's pet are in BILN not SFR, but magically that 35k at 90p which has been there over a year is not there today and has not been reloaded at a different price.

So, with orders up 33% in January I'm expected buyers to have a real go at 90p soon.

[cc2014] 05/2/2020 13:52

Ok - up to near 90p and time to see what happens. There's a 35k sell order at 90p on the order book which rather surprisingly has been there for as long as I can remember. Perhaps a year, perhaps much longer. Which doesn't happen. I've had L2 for 20 years and I can't remember any other order left on the book as "good until cancelled" for this long. Anything longer than a week is rare.

So, I'm assuming someone has forgotten about it. Hard to see how, but I guess people die or someone put it there for a reason and forgot about it.

Anyway what's going to happen is everyone is going to leapfrog it at 89.8 for a while, but that doesn't really matter as they can only sell their stock once, or occasionally someone will strike through the orders at 89.8p and take part of the 35k at 90p as well until it is eroded. (or possibly the first time the 35k gets hits, a screen will beep somewhere in the world and someone will start panicking as they are getting filled an order they've forgotten about. I can say from experience that when your screen starts beeping with orders being filled and you had no expectation of it happenning mild panic can set in).

[cc2014] 05/2/2020 10:37

The chart in post 4385 shows the share price has previously hit resistance at 88p and failed. However, each time it goes back there it's propensity to fail to breach resistance falls as the number of sellers at 88p gets lower and lower.

I would suggest it's ability to get through 88p depends on what mood Hambro and M&G are in who have both been sellers recently. My guess looking at the dates and prices Hambro have sold is that they are more interested in selling a few over time. (it's taken them over 2 years to sell 16 million shares and there's no particular pattern based on price). I'm not even sure M&G are really a seller and the sale in January was more to do with portfolio management after the situation with Prudential.

What we can see is there is no desperate rush to sell at 87p. It's not like it's spiked up to 88p for 5 minutes and then been driven back quickly. It's happily resting there with decent volume on L2. So, we will see. My sense is the buyers are keener to buy than the sellers are to sell but often the real volume does not play out until the last hour.

[jadeticl3] 05/2/2020 10:06

Promising rise today. Are we going to see this exceed 90p this week? It is about time we did. Billington has risen noticeably over the past month or so.

[la forge] 05/2/2020 08:54

1.0702CHF
-0.0003-0.03%

[cc2014] 05/2/2020 08:12

Peel reitterates buy with target of 100p

[cc2014] 03/2/2020 11:32

Really good research available from Progessive Equity Research out today on SFR.

[waldron] 03/2/2020 08:39

EURCHF:CUR
EUR-CHF X-RATE
1.0675CHF
-0.0014-0.13%

[waldron] 31/1/2020 06:33

EURCHF:CUR
EUR-CHF X-RATE
1.0702CHF
+0.0008+0.07%

[ariane] 30/1/2020 14:18

1.0687CHF
-0.0030-0.28%

[waldron] 27/1/2020 15:51

yep amazing, mortgage rate has fallen from 4.5pc to less than 0,5pc over its life

cheap money honey

lucky i have sfr income too

[alphorn] 27/1/2020 15:49

10 year fixed rates are around 1.10% - 'free' money.

[sarkasm] 27/1/2020 15:48

in the meantime the swiss avs pnsion increased in euro terms but the swiss mortgage paid in euros but denominated in sfr can get more expensive

at least the mortgage rates are 0.25pc or less

you have gotta luv these negative rates