Latvia and the IMF seem to have come to agreement on lending terms to unlock EUR200M from the Fund, notes RBS. Fails still, however,
to understand Latvia’s logic defending its pegged LVL “at all cost,” instead of
taking “a much easier route” and devaluing to a competitive level. Says doing
so will require restructuring some private sector liabilities, but notes that
these liabilities are owed to foreign, mostly Swedish owned banks, which can
“surely look after themselves.” Adds with “much better credit fundamentals than Latvia,” there wouldn’t necessarily be a domino effect on pegged currencies in Estonian and Lithuania if Latvia devalues.
European stocks climbed higher Monday, with optimism regarding the global economic outlook continuing to prompt investors into pushing more cash into the equity asset class.
By 0805 GMT, the Dow Jones pan-European Stoxx 600 index was up 0.6% at 220.9. London’s FTSE 100 index was 0.2% higher at 4587.65, Frankfurt’s DAX index pushed up 0.8% to 5269.14 and the CAC-40 index in Paris up 0.7% at 3388.33.
This session’s rally follows several days of straight gains, with London’s
FTSE heading for its eleventh day of consecutive gains, its longest winning
streak for four years.
ING described the current optimism as “infectious” with analysts moving
recommendations in a positive direction and upgrading earnings forecasts. “This should underpin recent gains and is likely to add further fuel to the rally,” the brokerage said.
It noted that in March, earnings momentum was negative in all sectors, except health. Now half of all sectors are seeing upgrades, led by resources,
financials and technology.
A “quite chunky” supply of government bonds in Italy this week is being offset by coupon and redemption proceeds out of Spain, and “we think the recent outperformance of the latter in the broader country spread compression may have further to run,” says Nomura International. That said, it says, (yield) differentials have covered some distance already and are especially susceptible to a reversal of the “re-risking” them, it adds.