Finance Friday 6.11.2015

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Finance Friday

di Nikola Kedhi

China is off to a good start this November as are the European markets. Troubles are continuing for Volkswagen though, which appears to be hiding more skeletons in the closet than previously thought. Greece returns to the headlines after the IMF urged the Eurozone for a restructuring of the Greek debt as soon as possible.

On Monday, the Stoxx 600 increased 0.3% after new data showed that output accelerated this October in the Euro area in both manufacturing and services. The Markit Eurozone Manufacturing PMI Index, which provides insight into the economy by measuring output, employment and prices, was reported at around 52.3 indicating expansion of the manufacturing sector compared to the previous month. The increase in stocks continued through the week mainly because of ECB’s President Mario Draghi repeating his previous announcement that the ECB will consider further monetary expansion in December. The Stoxx Europe 600 index has jumped 12% since its lowest levels reached on 29th September. It is worth mentioning that European stocks have regained half of what they lost during this summer’s turmoil and investors are finally having a moment to breathe after a tumultuous summer and a difficult recovery in the first two months of autumn.

Following the analysis conducted on the four main Greek banks, the European Central Bank said that they must find an additional €14.4 billion of capital in total. National Bank of Greece, which is the largest bank in the country, is in need of €4.6 billion. Piraeus has the largest shortage of capital and requires €4.9 billion. Alpha Bank must increase capital by €2.7 billion, while Eurobank by only €2.2 billion. However, European Commission officials stated that they feel satisfied with the progress being made even though there is still work to be done to further invigorate the economy crippled by restrictions imposed this summer. This was manifested in the stock market on Monday, where both Alpha Bank AE and Eurobank SA rose 29%.

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On the other hand, the IMF conveyed their belief that a restructuring of the debt should be done before they give a new loan to Greece. The promise for a restructuring will not be sufficient and real actions must be undertaken. The Greek PM Alexis Tsipras has asked for a new aid program to substitute the current one, which according to him has not produced the desired effects. A new program can only be approved by the executive board of the IMF, which has not made a decision yet.

China’s stocks increased to the highest levels in seven weeks on Wednesday after the government revealed their 5-year plan to strengthen the economy. Shanghai Composite Index improved 4.3%, marking the biggest gain since September 16, whereas the MSCI Asia Pacific Index gained 0.6%. This boost in stocks is partly due to China’s central bank unintentionally disclosing some comments by the Governor of PBOC Zhou Xiaochuan hinting at a possibility of launching a scheme that would connect stocks in Hong Kong and Shenzhen — a major Chinese city north of Hong Kong.

Not everybody has started the month on the right foot. Volkswagen certainly has seen better days. At the beginning of the week it was announced that the carmaker had not reported to regulators at least one death and three injuries caused by possible defects in its vehicles. There were several lawsuits filed over the last 8 years concerning accidents involving Volkswagen vehicles in the US but none of them were registered in the US National Highway Traffic Safety Administration. The law clearly states that automakers must report all claims of automobile defects to this agency. Volkswagen’s CEO Matthias Mueller promised a thorough investigation. The company meanwhile became embroiled in another scandal: apparently, more cars than those previously reported — by as much as 800.000 — had alarming emission levels of carbon dioxide. This caused a further decline in stock on Wednesday by 9.5%.  The company is currently facing investigations in US, Europe, Japan and China. The potential costs caused by the scandal are estimated to be around $7.2 billion.

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