The EU needs to make some changes if it doesn't want another Brexit

• Isabelle Mateos y Lago, The BlackRock Blog

• 11h
• 755

Spain's acting prime minister and People's Party (PP) leader Mariano Rajoy addresses supporters after results were announced in Spain's general election in Madrid, Spain, June 27, 2016.REUTERS/Marcelo del Pozo

First Brexit. Now on to the Continent.

Just days after U.K. voters shocked the world with their decision to exit the European Union, Spain’s general election on Sunday kicked off a 15-month run during which the Eurozone’s four-largest economies hold critical votes.

How Brexit could impact key Eurozone elections

We believe mainstream parties will retain control of government, but discontent is running high, and protest parties will continue to grow in influence. Europe’s stability and unity are at stake and the best response would be the immediate implementation of an effective growth strategy and a thorough reform of EU governance.

Unfortunately, the electoral calendar makes this unlikely. On the upside, we see the risk of domino referenda on EU membership as minimal over this timeframe.

BlackRock, national polls, Morgan Stanley Research

DID BREXIT SCARE SPAIN INTO STATUS QUO?

 Six months after an inconclusive general election, Spain just elected a new Parliament. Defying the polls, the traditional parties ­— the incumbent Popular Party (PP) and the Socialist Party (PSOE) — came out on top and in the PP’s case with much better results than last December. Meanwhile the new parties fell well short of expectations.

Still, like in December, the leading parties didn’t come close to an absolute majority, implying difficult negotiations in the weeks ahead. Scenarios include a grand coalition of PP-PSOE and center-right Ciudadanos, or more likely a minority government led by incumbent PM Mariano Rajoy.

Such a government would not be unstable but would find it difficult getting meaningful economic reforms through parliament. Given also the need for an austerity budget to comply with European rules, growth is likely to weaken, meaning the protest parties will continue to strengthen and may well be strong enough to take over in a couple of years.

Still, we see some near-term upside for Spanish markets as the threat of a government led by coalition protest party, Unidos Podemos, subsides.

ITALIAN TAIL RISK IN OCTOBER ELECTIONS

 Italians will go to the polls in October over a constitutional reform that PM Matteo Renzi has made the centerpiece of his agenda to jump start an economy that hasn’t grown meaningfully since 2000.

We believe Renzi will win the referendum, boosting Italian asset prices. But were the currently fragmented opposition forces to unite, they may well achieve a no victory, triggering the PM’s resignation.  We see this as only a slight risk, but not one to take lightly since a political crisis in Italy would have immediate economic and financial repercussions that could threaten the entire Eurozone.

FRANCE ELECTIONS WIDE OPEN

 France is gearing up for the most wide open presidential election in modern history come April. Incumbent and deeply unpopular Socialist Francois Hollande, should he choose to run, will compete in a primary of the “governmental left” that is deeply divided between a pro-market minority and a large, unreformed leftist group. The mainstream Right holds a primary in November with multiple candidates but only two possible winners: former President Nicolas Sarkozy and former PM Alain Juppé.

Amid this wide-open field, the only politician at this stage forecast to be present in the second ballot in virtually all scenarios is Marine Le Pen, leader of the populist, xenophobic, and anti-Europe Front National. While she is not expected to come close to winning, her ideas will influence other platforms.

The only near-certainty is that until the election is over, France will not be a leader in pushing forward a growth and reform agenda at the European level. Upshot for French assets: neutral to negative for now; revisit closer to the primaries in light of binary outcomes.

CONTINUITY IN GERMAN ELECTIONS NEXT YEAR

European leaders talk at an EU summit.Cristiano Laruffa Presidenza del Consiglio via Getty Images

Angela Merkel is widely expected to remain as Chancellor after a September 2017 general election, though possibly at the helm of a somewhat different coalition. But AfD, the populist, anti-Europe and anti-immigrant party, is likely to increase its share of the votes enough to be represented in parliament. And to constrain Merkel’s room for maneuver in exercising the leadership only Germany is capable of in the critical period ahead.

The state of the big four through 2017

None of the Big Four countries will be in a position to push forward a pan-European growth and reform agenda over the coming 15 months. This means the burden of supporting growth will continue to fall primarily on the ECB — with all the negative side-effects that implies, and populist forces will keep strengthening.

So it will be urgent that newly elected or comforted governments change gear and implement deep reforms, both nationally and at the European level. Specifically, we are looking for completion of the single market for services, product market reform, labor market liberalization and completion of fiscal and banking union.

Nearly 50 years after the EU was founded, time is running out for the project to show it stills works for the people on the street.

Isabelle Mateos y Lago is a global macro investment strategist in the BlackRock Investment Institute. She is a regular contributor to The Blog.

Read the original article on The BlackRock Blog. Copyright 2016. Follow The BlackRock Blog on Twitter.

MORE FROM THE BLACKROCK BLOG:

• How millennials can save the world while saving for retirement
• What’s the US yield curve signaling?
• What’s next for the Eurozone after Brexit
• What happened to the bull market?
• Where to find opportunities in a post-Brexit world

SEE ALSO: Brexit was a reaction to the 'avalanche of failed socialist rules and regulations'

Trudeau says Canada may adopt gender-neutral identification cards

• Ethan Lou, Reuters

• Jul. 3, 2016, 3:10 PM
• 2,595
 
• 12
 

Canadian Prime Minister Justin Trudeau delivers a statement on Parliament Hill in Ottawa. Thomson Reuters

Canada is exploring gender-neutral options on identity cards, Prime Minister Justin Trudeau told local television station CP24 on Sunday at a Toronto gay-pride parade.

Last week, the Canadian province of Ontario said it would allow the use of a third gender, X, on a driver's license, which is commonly used in North America to provide identification.

Read the original article on Reuters. Copyright 2016. Follow Reuters on Twitter.

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UBS: 'Gold has entered a new phase'

• Will Martin

• 7h
• 4,793
 

REUTERS/Yuriko Nakao

The price of gold will continue to shoot up in 2016, and has now "entered a new phase" of growth in the post-Brexit world, thanks to a variety of macroeconomic factors. 

The gold price has increased 24% this year so far.

And the risks to the global economy  will make it the go-to investment for the rest of 2016, according to UBS strategist Joni Teves in a note circulated to clients on Tuesday.

As a result, Teves and her team have increased their annual forecast for gold to an average of $1280 per ounce, compared to $1225 previously. Teves notes that she expects an average gold price for the rest of 2016 of roughly $1340, and in the short-term, gold will likely hit $1400 per ounce.

Teves notes that she expects an average gold price for the rest of 2016 of roughly $1340, and in the short-term, gold will likely hit $1400 per ounce.

Here's the key reasoning behind that forecast, from UBS' Global Precious Metals Comment note (emphasis ours):

Key drivers include: 1) low/negative real rates, 2) the view that the dollar has peaked against DM currencies, and 3) lingering macro risks. We expect the next leg to be driven by an extension of the trend of strategic portfolio allocation into gold from a diverse set of investors. This trend should now deepen, attracting more participants and encouraging those who have been hesitating to get more involved. Relatively orderly retracements, which have typically been shallow and brief indicates strong buying interest. This suggests that gold's floor is likely higher now given an even stronger fundamental argument for holding gold.

Teves continues (emphasis ours):

The UK's vote to leave the EU further underpins gold's macro narrative, reinforcing the themes of further dovish shifts in monetary policies, consequently lower yields, and heightened uncertainty. We continue to expect US real rates to fall from here and ultimately for equilibrium real rates to settle lower and have limited upside. These factors justify strategic gold allocations across different types of investors and we expect this trend to continue.

UBS said that the UK's vote to leave the EU has reinforced the risks facing the global economy, boosted uncertainty, and helped to crystallise worries about the effectiveness of unconventional monetary policies like negative interest rates. All of this combines to create an environment where gold is a hugely attractive investment.

That belief is corroborated by the explosion in the price of the precious metal since June 23rd, when Britain voted out of the EU. Prices have increased by around $100 per ounce since the vote, equivalent to around 8.5%. Here's the chart:

Investing.com

UBS' report includes some brilliant charts, including this one to show just how strong gold's rally has been so far in 2016 (note that it is the second-best performing major asset class):

UBS

UBS' call on the price of gold is just the latest in a series of bumps to forecasts on the precious metal following Britain's vote to leave the EU.

It is, however by no means the most bullish prediction about the future of gold to be released in the past few days. On Tuesday, Christopher Wood, an analyst at CLSA argued that the inability of central banks to exit unconventional monetary policies safely will cause gold to eventually more than triple in price. "A long-term bullish view is maintained on gold bullion, with the ultimate price target now set at $4,200 an ounce," Wood wrote in a note to clients.

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Barclays is already warning investors to take cover for the coming recession

• Oscar Williams-Grut
 

• 8h
• 14,847
 
• 11

Barclays is telling investors to prepare for a downturn.REUTERS/Eliseo Fernandez

Barclays on Monday downgraded forecasts for two UK-listed companies, blaming an expected "period of recession and uncertainty in the UK."

Analyst Andrew Ross and his team took the red pen to the online estate agent Rightmove and the price-comparison websiteMoneySupermarket.com.

The investment bank says it likes both companies' business models and believes they will win out in the long run. But both are too intertwined with the fabric of the UK economy to avoid taking a hit from the dip in the British economy that the bank expects to see as a result of the vote for a British exit from the European Union, or Brexit.

On Rightmove, analyst Ross and his team say:

"We remain structurally positive on Rightmove. But last week's referendum changes the story near term. Our economists now expect a period of recession and uncertainty in the UK, which is likely to mean reductions in house prices and transaction volumes. Rightmove does not have a one-for-one link to these two factors. But there will be an impact if new home developments are mothballed, estate agency branches start to close and price increases for the property portals become more difficult."

Barclays downgraded earnings forecasts, slashed its target price for shares to £33.0 from £37.38, and downgraded its stock rating to "underweight," meaning it expects Rightmove to perform below the wider market in the near future.

Rightmove shares are down over 6.8% at noon BST (7 a.m. ET):Investing.com

The move for MoneySupermarket.com is even worse. Barclays' Ross, also the analyst on the stock, writes:

"We have been positive on Moneysupermarket since initiating last year. But the layers of uncertainty in the story have been building in the last nine months, most notably from elevated competition. The outcome of the UK referendum and a forthcoming expected recession in the UK is now a new concern, and one uncertainty too many for us."

As with Rightmove, Barclays cuts forecasts for MoneySupermarket.com'snings, reduces its price guide to £2.60 a share from £2.75, and downgrades its outlook to equal weight, meaning it expects the price-comparison site to perform simply in-line with the sector average.

MoneySupermarket.com shares have crashed over 11% at 12:15 p.m. BST (7:15 a.m. ET) on Monday:Investing.com

The US Treasury and the Bank of England both warned ahead of the EU referendum that a vote to leave could tip the UK into recession, and multiple forecasting agencies and banks have pencilled in, at best, a hit to growth.

Many in the Leave camp dismissed this as simply scaremongering from "Project Fear." But Barclays' downgrades show how it may become a self-fulfilling prophecy as fear of a recession spooks investment.

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Silver is going nuts

• Will Martin
 

• 3h
• 8,167
 
• 5
 

The price of silver is charging on Monday, as expectations of central bank action following the UK's vote to leave the European Union increase.

The silver spot price is up around 4.7% at $20.60 per ounce at around 5:30 p.m. BST (12:30 p.m. ET), a level not seen since August 2014. Earlier in the day silver passed the $21 per ounce mark for the first time since July 2014.

If gains continue, silver will see its fifth successive day of price increases, equivalent to gains of 15% in less than a week's trading. Here's how the price of silver looks on the day:

Investing.com

The key driver of silver's rally is the expectation of easing from the Bank of England. Much like gold, silver generally sees gains when market expectations are for central banks around the world to ease monetary policy. That's because policy actions could devalue other assets.

Since Bank of England governor Mark Carney indicated on Thursday that further monetary policy action — either in the form of quantitative easing or a cut to interest rates — could be possible, precious metals prices have rallied. The metal has now gained almost 50% since the beginning of 2016 as part of a broader commodity price rally.

Silver's price jump on Monday gave a big boost to the shares of FTSE 100 listed precious metals miner Fresnillo. Despite being listed in the UK, Fresnillo has its operational headquarters in Mexico and concentrates its operations in the Central American country.

At the close, Fresnillo's shares are at the top of the FTSE 100, higher by more than 7.5% on the day. Fresnillo has now gained more than 180% since the start of the year and is the biggest annual riser on the index so far.

Here's how Fresnillo looks:

Investing.com

Elsewhere in the precious metals markets, gold is marginally higher on the day, trading up by 1.11% at $1,354 per ounce. That increase has boosted gold miner Randgold Resources. Randgold's FTSE-listed shares ended 4.4% higher, second only to Fresnillo in terms of single day gains.

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Goldman Sachs email said clients 'don't know what they want' and Goldman's job is to 'interpret their confused words'

• Ben Moshinsky
 

• 4h
• 1,759
 
• 1
 

The Goldman Sachs logo on a post above the floor of the New York Stock Exchange. Thomson Reuters

Goldman Sachs Partner Andrea Vella, now co-head of Asia investment banking, sent an email to former salesman Youssef Kabbaj in 2008, giving advice on how to interpret clients' needs and deal with internal politics.

The email was cited by lawyers for the Libyan Investment Authority, which is litigating a dispute with the bank in a London court.

The LIA was set up in 2006 to invest Libya's oil wealth internationally. The organisation claims Goldman Sachs took advantage of the low level of financial literacy of LIA staff, and suggested large and risky trades that led to heavy losses for the Libyans and large margins for the bank.

Goldman Sachs became close to the LIA after Kabbaj was embedded within the organisation in 2007. 

In the message, sent after a trip to Libya, Vella tells Kabbaj that clients "often don't know what they want or need" and it is the job of the bank to "interpret their confused words."

Here's the full email:

"Man,

Very good job on organizing the trip. You clearly have spent your time very well down there, and are in front of a very large opportunity.

I have sold billions of euros of transactions to a number of diverse clients, from the Italian insurance companies, to the government of Swaziland. The most important thing I learned on the way, is to read what the client is looking for: often they don't know what they want or need, we need to interpret their confused words and show them the right things. Focus on that.  

I hope I'll be able to help you make this relationship of yours a memorable basis of your career. Keep it up, and don't stress about the hungry management pulling left and right - sometimes keeping a low profile can save you from the unhealthy 'love' everyone suddenly wants to give you....

Let's talk more

Andrea"

Under cross-examination from Philip Edey QC on Friday, a lawyer for the LIA, Vella clarified what he meant about "hungry management," saying "a lot of different people within the firm would have been interested in utilising that access to push their own business agenda: different traders, different books, different bankers that have ideas would pull him one way or the other."

"There was a balance between the London office, the Dubai office, who should be taking the lead in showing things to the LIA. And Youssef Kabbaj was, to some extent, being pulled by a number of different people to provide that access that he had cultivated," Vella said.

Vella also elaborated on his remarks about dealing with clients.

Clients "may not immediately open up to what they really want, what they are looking for, and they will give bits and pieces," said Vella. "So one needs to listen, interpret what is really coming through, and then propose the right deal, the right strategy until it suits what their initial objectives were."

The Libyan Investment Authority is claiming it lost more than $1 billion (£750 million) on nine trades executed by Goldman Sachs in 2008 on banks such as Citigroup and UniCredit, as well as the French company EDF. The bank made more than $200 million in profit on the trades according to the LIA's lawyers.

Goldman Sachs has said it would defend against the claims "vigorously," calling them "without merit" when the case started.

Lawyers for Goldman Sachs, responding to the claims earlier, said that the LIA was suffering from "buyers' remorse," and that the bank wasn't responsible for the losses, which happened amid the 2008 credit crunch and financial crisis.

The trial is scheduled to last until August.

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