Halister News

(Bloomberg) -- “Banks servicing foreign clients face a changing landscape, with pressures on correspondent banking relationships, dwindling business, and a continued reduction of deposits,” International Monetary Fund says in statement following visit to Latvia.

• Industry’s additional buffers and separation from rest of financial sector limit risks
• Further actions to boost anti-money laundering rules and enforcement would be “helpful”
• IMF raised forecast for Latvian 2017 GDP growth to 3.3% from 3%
• Ex-Soviet Cash Drain Deepens as Baltic Bank Rules Tighten

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Andrew Langley, Michael Winfrey

(Bloomberg) -- The European Union’s top financial regulators propose regulator technical standards “specifying how credit and financial institutions should manage money laundering and terrorist financing risks where a third country’s law prevents the implementation in their branches or majority-owned subsidiaries of group-wide policies and procedures on anti-money laundering and countering the financing of terrorism.”

• Link: http://tinyurl.com/yc4rj3n7

(Bloomberg) -- Previously, bank was expecting an acceleration in the pace of Selic rate reduction from the 100bps of the April meeting to 125bps at the meetings of May and July, and a cut of 50bps in September, Credit Suisse’s analysts led by Nilson Teixeira say in a report.

• Political crisis and its consequences for Brazil’s economic fundamentals justify the change
• “The change in the political scenario leads us to expect a reduction of 100bps in the Selic rate also at the meetings of July and September”
  • “Thus, although we have changed our expectation for the pace of interest rate cuts, we keep our projection of a Selic rate of 8.25% at year- end 2017 and 9.0% at year-end 2018”
• Comments from Copom members and the communiqués released by Brazil Central Bank “after the start of the political crisis suggest low probability of a reduction in the pace of interest rate cuts from the 100bps implemented at the last meeting”
  • “Such comments and documents suggest to us that the continuous decline in annual inflation and inflation expectations for the next few years to a level below or close to the center of the target range of 4.5%, in a scenario of greater uncertainty regarding a resumption of activity, will be decisive for the Copom’s decision to keep the pace of interest rate cuts in place so far, despite the current political crisis”
  • “In our opinion, a reduction in the magnitude of the monetary easing cycle in 2017 or even its interruption would be sparked by a possible deepening of the political crisis, with substantial BRL depreciation, an increase in Brazil’s country-risk premium, a rise in the projection for inflation for the next few years, and a sharp reduction in the probability of congressional approval of the reforms currently being discussed in Congress”
• Bank’s projection of 9.0% for Selic at year-end 2018 assumes that the pension reform and changes to the labor laws will be approved by the Congress
  • “We keep our assessment that if such measures are not approved, especially the social security reform, the domestic fundamentals will deteriorate significantly, with a local currency depreciation, a more prolonged recession, and a rise in inflation owing to BRL depreciation”
  • “This scenario would probably require an even greater monetary policy tightening in 2018, given the higher fiscal risk”
  • “Postponement of the approval of the social security reform to 2019 would have an additional cost of nearly 4.0 percentage points of GDP in ten years, and the social security deficit would increase from 3.7% of GDP in 2017 to 4.2% of GDP in 2019, instead of remaining relatively stable in this period if the reform were approved in 2019”
• NOTE: Access TOPLive to follow coverage of Brazil rate decision and analysts comments on May 31 (in Portuguese). To create an alert, click here

To contact the reporter on this story: Leonardo Lara in Sao Paulo at llara1@bloomberg.net To contact the editors responsible for this story: Daniela Milanese at dmilanese@bloomberg.net Danielle Chaves

(Bloomberg) -- Euro-area front-end breakevens may face negative carry in July given the likely large fall in HICPxT for May, Bloomberg strategist Tanvir Sandhu writes.

• Euro-area May flash HICP (due at 10:00am London time) will likely fall due to negative energy price inflation and payback from last month’s gains in services price inflation
  • Both headline and core prints may fall more than consensus given downward surprise to German and Spain yesterday
• NOTE: Bunds remain contained with the dominant valuation drivers not gaining traction, which may encourage core alpha strategy of selling volatility at record speed on any spikes; inflation has likely peaked and recent dovish ECB speak on sequencing has prevented sell-off in the short end, see more here

• NOTE: Tanvir Sandhu is an interest-rate and derivatives strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

To contact the reporter on this story: Tanvir Sandhu in London at tsandhu17@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Anil Varma