Halister News

--Washington Newsroom (202) 624-1820

(Bloomberg) -- Measures aimed at capping public spending increases and boosting investments in Brazil’s oil may advance in near-term, analysts at political-consulting firms in NYC and Brasilia say.

• Spending-cap bill may be approved by a Lower House commission in coming weeks, before the next BCB rates decision, Joao Augusto de Castro Neves, analyst at Eurasia says in a interview by phone
  • Bill could be fully approved, in House and Senate, before the end of the year
  • “All the signs are that the bill will advance fast”
• NOTE: Spending cap could be important sign for BCB, which has pointed out that whether it cuts rates will depend on improvement in the fiscal outlook, along with inflation slowdown
  • Bill aimed at freeing Petrobras of obligation to operate all pre-salt fields may also advance fast and be approved this year, Lucas de Aragao, partner at Arko Advice, says
  • Measure is “extremely important” for investors that may enter the auctions of licenses to explore pre-salt fields in 2017
  • Eventual Temer decision to delay dispatch of the pension regime reform to Congress to after municipal elections is not a big deal, the analysts say
  • Sending pension regime bill now or after election (the first round of which is this weekend) will make no- difference for the whole reform approval calendar, expected only for 2017
  • While the consulting firms are optimistic on approval of spending cap, pension and pre-salt measures, they say government efforts are needed to avoid changes in the reform bills that could weaken their impact on the economy

--DEREK WALLBANK

--Washington Newsroom (202) 624-1820

(Bloomberg) -- ECB President Mario Draghi tells German lawmakers structural reforms are necessary to complement monetary policy, amid a growing clamor of global voices questioning the impact of monetary policy and emphasizing the need for more fiscal policy.

• Political and institutional obstacles mean a paradigm shift isn’t imminent, though investors should be alert to what such a move would mean for markets, UBS’s Axel Weber and RBC’s Jonathan Golub say
• NOTE: Pimco, Pioneer say ignore fiscal stimulus at your peril

Axel Weber, UBS Chairman

• Side effects of some of monetary policy interventions starting to outweigh potential benefits; re-think of the relative role of fiscal monetary and structural policy is needed, Weber says at the Bloomberg Markets Most Influential Summit in London
• The fact that stock markets are buoyed when central banks ease shows markets no longer reflect the real economy
  • Correction at the start of the year is a stark reminder that monetary policy changes -- even when it’s baby steps -- spur massive market repricing as everyone is invested in the same assets
• There’s clearly very strong distortion; will become more obvious because given entire logic of longer-term savings and investments is being undermined

Goldman Sachs

• An emerging consensus on fiscal spending, especially on infrastructure, would weigh on long-term U.S. rates and damage the unstable consensus on “r-star,” supporting the dollar, analysts Charles P. Himmelberg and James Weldon write in note
• Equities, especially in industrials and materials sectors, would also feel the impact: MORE

Jan Dehn, Ashmore head of research

• Combination of vulnerable markets and economies makes QE countries especially sensitive to even modest shocks, such as central bank actions, Dehn says e-mailed comments
• Sooner or later, a QE central bank will make a mistake and economy could see inflation or recession, or both
• Market seems to correctly recognize QE central banks’ decisions are important as they can trigger major market or economic convulsions; positioning hasn’t yet responded to these risks

Anshu Jain

• Impact of current policy on institutional savers, particularly pension funds, is a worry, the former co-CEO of Deutsche Bank says at Bloomberg conference
• Industry can take the disruption between liabilities and assets for a period of time but there’ll be a real problem if rates stay where they are
• Will see a lot of pain when corporate bond market corrects

RBC

• Shift toward fiscal stimulus, whether initiated in the U.S. or abroad, should push global yield curves and stock prices higher and weigh on the dollar, analysts write in client note
• Any stimulus should have measurable impact on the economy and corporate profits in intermediate term
• Suggest patience when investing; there will be opportunity to profit once more specific policy proposals are presented: MORE

Nick Kounis, ABN Amro head of macro research

• Draghi’s call for action by national governments to support economic growth will probably not gain traction, with ECB likely to extend QE, Kounis writes in client note
• Without government action, euro zone risks being stuck with low growth and interest rates: MORE

Adair Turner

• Monetary policy is ineffective and has adverse side effects, the former U.K. FSA Chairman says at Bloomberg conference
• Current recovery is incredibly unequal in many countries; that plays a crucial role in the spread of political populism
• Need to rely more on fiscal policy to stimulate economy
• Dismisses concerns that high debt levels would be an obstacle; monetization of debt is possible and warrants being a policy given sufficiently deep situation

HSBC

• Global fiscal policy needs to be bigger and more targeted to lift long-term growth and curb major imbalances that are proving deflationary, HSBC economists Janet Henry and James Pomeroy write in client note
• There’s a particularly urgent need to use fiscal measures to reverse the re-widening of global imbalances, including curbing major current-account surpluses of Germany, China and Japan: MORE

Fergus McCormick, DBRS co-head of global sovereign ratings

• Highly indebted European countries would likely benefit from greater public investment among stronger countries, McCormick says in press release
• Fiscal stimulus isn’t without risks, though could be outweighed by benefits of growth-friendly programs that foster economic activity
• There’s an acknowledgment that monetary stimulus has done a lot in reducing economy-wide financing costs but it’s been insufficient to raise inflation expectations and growth prospects
• MORE here and here