December, 09 2015 by lsr team

Twelve months ago we said 2015 would be a year of ‘deceptive calm’. With the S&P 500 up 5% and US 10-year yields around 5bps higher, you could say our forecast was accurate. Markets spent much of the year in an anxious state, fretting about Greece, then China, then the risk of a synchronised global recession. In 2006 and 2007, LSR had a high conviction that a financial meltdown was about to wreak havoc on the global economy. This time around we stick with our 2015 theme ‘Keep Dancing’ but with no great conviction. Looking ahead to 2016, China...

September, 22 2015 by lsr team

In a recent note, we highlighted increasing EM political risk. Emerging markets constitute the ‘deflationary’ leg of our ‘deflationary boom’ forecast for the global economy. But heightened political risk is not just an emerging markets issue. Greece, for example, just held its third election in nine months. In Spain the rise of two new reformist parties, Podemos and Ciudadanos, effectively ensures that a coalition government will emerge from November’s election. Australia has had four prime ministers in 27 months whereas the previous four premi...

July, 21 2015 by lsr team

Despite the turbulence of the Greek crisis, the euro area government bond market has seemingly remained a haven of peace and contentment. Yields in southern Europe have remained low, the Spanish bonos, for instance, continue to yield over 40bp less than US Treasuries. While this suggests ECB’s temporary success in avoiding the Greek contagion, our analysis shows that contagion channels remain open in the case of Spain despite growth improving in the Spanish economy. With the upcoming general election in Spain later this year, political contagion could pose a bigger...

July, 17 2015 by lsr team

Greece came perilously close to crashing out of the euro last weekend and though a deal was agreed to reopen bailout talks, the country’s euro membership hangs in the balance. We continue to assume there will be a third bailout, but this remains a risky assumption and in any case the threat of Grexit will be a recurring theme. With this in mind, we consider what might happen in the Grexit scenario by examining the short term impact of Grexit on the Greek and the euro area economy. Click below to find out if Greece is better off without the euro and whether euro are...

July, 09 2015 by lsr team

The Greek No vote and the Chinese stock rout are key setbacks to investor sentiment. With the Greek public voting NO in the referendum and the subsequent reaction of several influential political leaders on the creditors side, the tone has now shifted towards containing the contagion if a deal cannot be reached. While a deal is still our base case (albeit with reduced conviction), we deem it prudent to reduce portfolio risk given the increasing uncertainty regarding the direction of the Greek negotiations. We regard contagion risks as manageable and intend to ramp up our ex...

July, 07 2015 by lsr team

Contrary to broad expectations of a split vote, Sunday’s much-awaited referendum produced a resounding ‘No’. The ball is now back in the creditor’s court, and all eyes are on this week’s Eurogroup and leaders’ summit. Whatever the outcome, this negotiation process has cost Greece dearly. The economy is sliding deeper into recession and the financial system is starved of liquidity. Should Greece default on a €3.5 billion bond payment to the ECB on July 20th, the gates of Grexit will be forced wide open. Click below to find out more.

July, 01 2015 by lsr team

How close are we to a Greece debt default? The Emergency Liquidity Assistance programme (ELA) expires today, is there any prospect of extension? What happens to the current Greek government in the event of a ‘Yes’ vote and what needs to be addressed? What’s the least bad option that can be explored from an economic perspective? Our economist, Konstantinos Venetis provides the answers you need to know in relation to the upcoming Greek referendum. Here’s the full video on BNN...

June, 29 2015 by lsr team

Greece’s Prime Minister Alexis Tsipras has called a referendum on 5 July, urging voters to make a decision on whether to accept the terms of a bailout offered by its creditors. Unless there is a dramatic twist, Greece will fall in arrears on its end-June payment to the IMF. While this has no immediate implications for the rest of Greece’s sovereign debt, it risks sending the economy into a tailspin and a slippery path to Grexit. We think that the referendum is both problematic and risky as neither outcome will recover the government’s shattered credibility...

June, 18 2015 by lsr team

The Greek central bank reported on Wednesday that €30bn deposits were pulled out of Greek banks between October 2014 and April 2015 and warned that Greece is likely to default and exit from the eurozone if it fails to reach a deal with lenders. Prior to that, we’ve also seen a massive sell-off in Bunds, triggered by modest inflation in the eurozone and markets’ refusal to believe that the QE programme will be implemented in full. While a Grexit isn’t our central scenario, we believe that the markets may be too complacent about the impact of a Greek...

June, 03 2015 by lsr team

Greece’s debt repayment profile points to a hot summer ahead. With €300m due to the IMF on Friday, out of a total €1.6bn by end-month, many are wondering how much time Greece has left. 

June, 03 2015 by lsr team

The government’s strategy of brinkmanship via self-harm is reaching its limits. Exchange controls around a “Greek euro” could be the least bad solution.  

June, 03 2015 by lsr team

Greek PM Alexis Tsipras heads to Brussels to negotiate a deal with the IMF, the ECB and the European Commission. Deal or no deal, has the real ‘Gr-accident’ already happened?