Daily Agenda: Riksbank Takes Lead into Negative Rates

Swedish kroner falls on news; British gilts briefly hit all-time low; Societe Generale earnings disappoint; Puerto Rico approves utility restructuring; gold surges.

The race to the bottom among central banks heated up today as Sveriges Riksbank policymakers announced a further cut into negative territory, setting the benchmark repurchase rate at -0.50 from -0.35. In response, the Swedish krona declined by more than 1.5 percent versus the euro immediately after the announcement. Whether or not sustained negative rates can keep krona appreciation in check in the long term is an open question. Less than two weeks after the Bank of Japan sent shockwaves through global markets by announcing negative rates, the yen today rose to the highest level versus the dollar in over a year, as flight-to-safety concerns trumped monetary policy.

U.K. bond yields reach record lows. Ten-year gilt yields briefly reached an all-time low of 1.296 in trading Wednesday. With persistent deflationary pressure persuading even the most hawkish members of the Bank of England’s Monetary Policy Committee to retain low rates, investors appear more than willing to hold U.K. government debt regardless of paltry returns.

Societe Generale earnings plummet. France’s second-largest bank by market capitalization, Societe Generale, today reported earnings for the final quarter of 2015 that were 35 percent weaker than the same period in the prior year. A sharp decline in equity trading revenues during the period contributed to the shortfall, which was more significant than consensus analyst estimates.

Puerto Rico lawmakers approve restructure for utility. The Senate of the Commonwealth of Puerto Rico approved legislation Wednesday that will allow the primary electricity provider for the territory to restructure its more than $9 billion in debt. The bill will allow the Puerto Rico Electric Power Authority, known as Prepa, to reduce its debt levels by 15 percent via a bond exchange with creditors.

European drug firms to merge. Dutch-headquartered Mylan on Thursday announced a cash and stock acquisition of Swedish specialty dugmaker Meda. The transaction, valued at over $7 billion, has been accepted by Meda’s board of directors but remains subject to shareholder approval.

Gold surges. Spot gold prices rose by more than 3 percent overnight to reach the highest list in a year. According to the demand-trends report issued today by the World Gold Council, global investment demand for the precious metal grew by 8 percent for full year 2015. According to Alistair Hewitt, head of Market Intelligence for the organization, “Looking ahead, physical demand will continue to be supported by strong central-bank purchases, and continued buying of jewelry, bars and coins by households across the world, led by India and China.” Hewitt adds that in his view the investment case for gold is as strong as ever, saying “while stock markets have wobbled, gold has performed well.”


Rio Tinto to slash dividends. In the latest fallout from downward price pressure on commodities, London-based Rio Tinto Group today cut its dividend after reporting a sharp fall in earnings. Distributions to shareholders will be reduced by up to 50 percent according to the mining giant.