Fundamental events review for Apr 13, 2016

Europe Greece’s negotiations with international lenders may be completed within a month, said head of the European Stability Mechanism (ESM) Klaus Regling in an interview to Wall Street Journal. Greece has pledged to pursue a policy of austerity and negotiate with international lenders all actions in the economic sphere in exchange for program loans of up to 86 billion euros. The first evaluation of Greece’s reform and economic adjustment program is critical to obtaining loans under the financial support package. Without a positive assessment of the reform program, Greece will not receive the next tranche of loans to service its debt. Meanwhile, large payments are coming due in the summer, for which Greece does not have sufficient resources. A few days ago, a leaks out of Wikileaks suggested that the IMF was going to drag out negotiations until July to force Greece to take new austerity measures in the face of approaching payments. The main differences in the negotiations are related to taxation, pension reform and social security reform. Meanwhile, in the UK, they keep talking about the Brexit referendum. The closer it gets, the more anxiety emerges. The UK could deal a serious blow to the fragile global economy if it decides to leave the ranks of the European Union in the June referendum, said the International Monetary Fund (IMF) on Tuesday. This message is the most serious warning from international organizations recently about the risks associated with the UK’s potential exit from the EU. In a semiannual analysis of the state of the world economy, the IMF has termed the referendum, scheduled for June 23, to be a key risk, along with the instability in China and other emerging markets, the volatility of stock prices and the loss by developed economies of their long-term growth potential. The Fund has also lowered the UK growth forecast for 2016 to 1.9 percent from 2.2 percent in what is the sharpest decline for major advanced economies except Japan. UK GDP expanded by 2.3 percent in 2015. Analysts in the government believe that in 2016 and in subsequent years economic growth will slow. Despite this piece of news, inflation in the UK has moved away from the zero mark: in March, consumer price index rose by 0.5%. According to the National Statistics Office, the most significant contribution was made by a 23% increase in air fares ahead of Easter holidays. However, inflation still has a long way to go before hitting the 2% target set by the Bank of England. The regulator believes that inflation will not exceed 1% this year. However, experts do not expect the Bank of England’s to provide an active response, as the situation in Europe’s second largest economy is uncertain, especially in the context of a future referendum on EU membership. All of these data and in particular the approaching referendum increased volatility of the British currency. So, at the opening of yesterday’s trading session, the pound gained about 0.8% and tested the $1.4347 mark but then lost all positions earned earlier, dropping to the mark of $1.4196. At the moment, the currency pair GBP/USD is trading around the level of $1.4245.

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According to analysts, the UK pound will continue to demonstrate increased volatility. Oil Russian Energy Minister Alexander Novak and Saudi Oil Minister Ali al-Naimi held talks on freezing production, said the representative of the Ministry of Energy on Tuesday. After the February meeting in Doha, where the representatives of the Russian Federation, Saudi Arabia, Qatar and Venezuela agreed to freeze production at January levels in the case of support for this decision on the part of other countries, Novak has repeatedly stated that he maintains contacts with his foreign counterparts. On Tuesday, the largest oil exporters Russia and Saudi Arabia agreed to freezes oil production during the forthcoming meeting of OPEC member countries and non-OPEC countries in Doha on April 17, Interfax reported, citing an unnamed diplomatic source in Doha. The approach of the meeting, which will take place this weekend, is making oil very mobile. So, in yesterday’s trading, oil futures significantly increased in price. At the moment, the Brent blend is trading near the level of $44.00 per barrel.

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Oil will continue to maintain a positive trend in prices. After the weekend, the direction of prices will depend on the decision by Petroleum Exporting Countries. Of Interest — Securities of French LVMH group lost 2% and pulled down with them the share prices of other luxury goods manufacturers. Growth in the sales of the company that owns more than 60 brands, including Louis Vuitton handbags and the Hennessy cognac virtually stopped: in the last two quarters, growth was only 3%; revenue in the first quarter this year (8.62 billion euros) was lower than expected. Analysts said that after the November 13 attacks in Paris, the influx of tourists to France fell. Tourists are an important source of income for the sector’s players. The second problem for the sellers of luxury goods is a sharp slowdown in China’s economic development, which is having a negative impact on consumption by rich citizens. — The Government of Italy has found a way to support the national financial system without breaking EU rules banning protectionism. Italian commercial banks have agreed to finance a fund that can be used to save the weakest banks. The creation of the Atlante Foundation is controlled by the state, but the idea is being presented as a market-driven, rather than government-sponsored, initiative. Otherwise the European Commission would consider it a form of non-competitive government support of the sector and veto it. The size of the rescue fund is not disclosed, but sources in the media talk about 5-5.7 billion euros. The analysis above does not constitute direct trading instructions and is of purely informative nature.

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