REG-BH Macro Limited: Monthly Shareholder Report - December 2015 <Origin Href="QuoteRef">BHMG.L</Origin> - Part 1
29/01/2016 13:50
BH MACRO LIMITED
MONTHLY SHAREHOLDER REPORT:
December 2015
YOUR ATTENTION IS DRAWN TO THE DISCLAIMER AT THE END OF THIS
DOCUMENT
BH Macro Overview
Limited
Manager: BH Macro Limited ("BHM") is a closed-ended investment company, registered and
Brevan Howard incorporated in Guernsey on 17 January 2007 (Registration Number: 46235).
Capital BHM invests all of its assets (net of short-term working capital) in the
Management LP ordinary shares of Brevan Howard Master Fund Limited (the "Fund").
("BHCM") BHM was admitted to the Official List of the UK Listing Authority and to
Administrator: trading on the Main Market of the London Stock Exchange on 14 March 2007.
Northern Trust
International
Fund
Administration
Services
(Guernsey)
Limited
("Northern
Trust") Total $1,495 mm¹
Corporate Assets:
Broker:
J.P. Morgan
Cazenove
Listings:
London Stock
Exchange
(Premium
Listing)
NASDAQ Dubai - 1. As at 31 December 2015 by BHM's administrator, Northern Trust.
USD Class
(Secondary
listing)
Bermuda Stock
Exchange
(Secondary
listing)
Summary BH Macro Limited NAV per Share (as at 31 December 2015)
Information
Share Class NAV (USD mm) NAV per Share
USD Shares 349.7 $20.33
EUR Shares 93.4 €20.56
GBP Shares 1,051.8 £21.21
BH Macro Limited NAV per Share % Monthly Change
USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2007 0.10 0.90 0.15 2.29 2.56 3.11 5.92 0.03 2.96 0.75 20.27
2008 9.89 6.70 -2.79 -2.48 0.77 2.75 1.13 0.75 -3.13 2.76 3.75 -0.68 20.32
2009 5.06 2.78 1.17 0.13 3.14 -0.86 1.36 0.71 1.55 1.07 0.37 0.37 18.04
2010 -0.27 -1.50 0.04 1.45 0.32 1.38 -2.01 1.21 1.50 -0.33 -0.33 -0.49 0.91
2011 0.65 0.53 0.75 0.49 0.55 -0.58 2.19 6.18 0.40 -0.76 1.68 -0.47 12.04
2012 0.90 0.25 -0.40 -0.43 -1.77 -2.23 2.36 1.02 1.99 -0.36 0.92 1.66 3.86
2013 1.01 2.32 0.34 3.45 -0.10 -3.05 -0.83 -1.55 0.03 -0.55 1.35 0.40 2.70
2014 -1.36 -1.10 -0.40 -0.81 -0.08 -0.06 0.85 0.01 3.96 -1.73 1.00 -0.05 0.11
2015 3.14 -0.60 0.36 -1.28 0.93 -1.01 0.32 -0.78 -0.64 -0.59 2.36 -3.48 -1.42
EUR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2007 0.05 0.70 0.02 2.26 2.43 3.07 5.65 -0.08 2.85 0.69 18.95
2008 9.92 6.68 -2.62 -2.34 0.86 2.84 1.28 0.98 -3.30 2.79 3.91 -0.45 21.65
2009 5.38 2.67 1.32 0.14 3.12 -0.82 1.33 0.71 1.48 1.05 0.35 0.40 18.36
2010 -0.30 -1.52 0.03 1.48 0.37 1.39 -1.93 1.25 1.38 -0.35 -0.34 -0.46 0.93
2011 0.71 0.57 0.78 0.52 0.65 -0.49 2.31 6.29 0.42 -0.69 1.80 -0.54 12.84
2012 0.91 0.25 -0.39 -0.46 -1.89 -2.20 2.40 0.97 1.94 -0.38 0.90 1.63 3.63
2013 0.97 2.38 0.31 3.34 -0.10 -2.98 -0.82 -1.55 0.01 -0.53 1.34 0.37 2.62
2014 -1.40 -1.06 -0.44 -0.75 -0.16 -0.09 0.74 0.18 3.88 -1.80 0.94 -0.04 -0.11
2015 3.34 -0.61 0.40 -1.25 0.94 -0.94 0.28 -0.84 -0.67 -0.60 2.56 -3.22 -0.77
GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2007 0.11 0.83 0.17 2.28 2.55 3.26 5.92 0.04 3.08 0.89 20.67
2008 10.18 6.86 -2.61 -2.33 0.95 2.91 1.33 1.21 -2.99 2.84 4.23 -0.67 23.25
2009 5.19 2.86 1.18 0.05 3.03 -0.90 1.36 0.66 1.55 1.02 0.40 0.40 18.00
2010 -0.23 -1.54 0.06 1.45 0.36 1.39 -1.96 1.23 1.42 -0.35 -0.30 -0.45 1.03
2011 0.66 0.52 0.78 0.51 0.59 -0.56 2.22 6.24 0.39 -0.73 1.71 -0.46 12.34
2012 0.90 0.27 -0.37 -0.41 -1.80 -2.19 2.38 1.01 1.95 -0.35 0.94 1.66 3.94
2013 1.03 2.43 0.40 3.42 -0.08 -2.95 -0.80 -1.51 0.06 -0.55 1.36 0.41 3.09
2014 -1.35 -1.10 -0.34 -0.91 -0.18 -0.09 0.82 0.04 4.29 -1.70 0.96 -0.04 0.26
2015 3.26 -0.58 0.38 -1.20 0.97 -0.93 0.37 -0.74 -0.63 -0.49 2.27 -3.39 -0.86
Source: Fund NAV data is provided by the administrator of the Fund,
International Fund Services (Ireland) Limited. BHM NAV and NAV per Share data
is provided by BHM's administrator, Northern Trust. BHM NAV per Share % Monthly
Change is calculated by BHCM. BHM NAV data is unaudited and net of all
investment management fees (2% annual management fee and 20% performance fee)
and all other fees and expenses payable by BHM. In addition, the Fund is
subject to an operational services fee of 50bps per annum.
NAV performance is provided for information purposes only. Shares in BHM do not
necessarily trade at a price equal to the prevailing NAV per Share.
*Calculated by BHCM as at 31 December 2015
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Brevan Howard Master Fund Limited
Valuation
Categorisation* Unaudited estimates as at 31 December 2015
% of Gross Market Value*
Level 1 73.3
Level 2 26.2
Level 3 0.5
Source: BHCM
* These estimates are unaudited and have been calculated by BHCM using
the same methodology as that used in the most recent audited financial
statements of the Fund. These estimates are subject to change.
Level 1: This represents the level of assets in the portfolio which are
priced using unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted assets
or liabilities.
Level 2: This represents the level of assets in the portfolio which are
priced using either (i) quoted prices that are identical or similar in
markets that are not active or (ii) model-derived valuations for which
all significant inputs are observable, either directly or indirectly in
active markets.
Level 3: This represents the level of assets in the portfolio which are
priced or valued using inputs that are both significant to the fair
value measurement and are not observable directly or indirectly in an
active market.
Annual Manager The NAV per share of the USD share class of BH Macro Limited depreciated by
Review: 2015 1.42% in 2015, while the NAV per share of the Euro shares depreciated by 0.77%
and the NAV per share of the Sterling shares depreciated by 0.86% in 2015. In
aggregate, gains in FX trading were more than offset by losses in other areas.
BH Macro Limited invests all of its assets (net of short-term working capital)
in the ordinary shares of Brevan Howard Master Fund Limited (the "Fund").
Our largest exposures at the start of the year were short positions in both the
Swiss Franc and the Euro currencies, which were held in expectation of further
ECB easing. The Fund successfully avoided the debacle caused by the Swiss
National Bank unexpectedly de-pegging the Swiss Franc from the Euro in January,
whilst profiting from the ECB's subsequent quantitative easing ("QE")
announcement, to finish up approximately 3% at the end of Q1. Roughly half of
these gains were given back in the second quarter as positions held in
anticipation of an increase in market volatility due to the Greek crisis, which
in the end was resolved, led to losses.
During the second half of the year we became increasingly convinced that the
economic slowdown in Europe, and the likelihood that inflation expectations
would start to decline substantially, would lead the ECB to ease much more
aggressively than already elevated market expectations. We consequently took
large, highly convex positions to gain exposure to that view. In the event, the
ECB disappointed the market at its December meeting and the gains we had made
in November were negated by losses in December. Overall the view cost the Fund
a little more than 1% over the two months. We knew that the amount of risk we
took into the ECB December meeting was high, but our conviction was very strong
and the Fund's positions were structured in such a way that the potential gains
on a positive outcome would have been far greater than the amount that was
eventually lost in December.
On the business side, the Fund's team of investment professionals remained
largely unchanged from the previous year with few arrivals and departures.
Outside of the investment team, we rationalised the mid and back office
functions at the end of the summer. This adjustment reflected the reduced
number of Brevan Howard funds, consistent with a decision taken nearly two
years ago to focus on our core macro strategies.
Looking forward, the central bank policy divergence that we have been
anticipating for over a year has now finally arrived and I am confident that
this will materially improve the opportunity set for us.
After 6 years at zero rates the Fed has started a hiking cycle, which means
that every future FOMC policy decision will have some element of uncertainty.
This is an important development for us as, for the first time in several
years, there are two way trading opportunities on Federal Reserve decisions. At
the same time, the zero bound for rates has been well and truly broken which
means that the ECB, and the BOJ, amongst others, have room to further cut
interest rates if they deem it necessary. In addition, the low volatility
environment prevailing since the end of 2011 appears to have come to an end.
The slowdown of global growth seems to be accelerating and disinflationary
pressures appear to be intensifying. Should these trends continue, major
central banks may in the future find it increasingly difficult to offer the
level of support to capital markets that investors have come to expect.
The Fed took the crucial decision to begin the 'exit' from its policy of zero
rates by enacting a first rate hike of 25bps at the end of 2015 with the
declared intention to follow up with more increases in 2016. It would require
Annual the risk of a true crisis for them to reverse course quickly.
Performance
Review: 2015 In the meantime the ECB, by deciding to disappoint market expectations at their
December meeting, only to follow up with a rather more dovish press conference
at the subsequent January meeting, seems to have fallen into a reactive mode.
With price developments in the Eurozone continuing to undershoot both ECB and
market expectations, the risks of fully fledged deflation have not gone away.
Finally, the PBoC is in the difficult position of having to balance a policy of
smoothing an exchange rate depreciation, at the cost of a rapid erosion of
foreign exchange reserves and a tight monetary policy stance, against the need
to provide the monetary easing required by the economy and to allow for a
non-disruptive de-leveraging process. The PBoC's dilemma offers no comfort to
global markets.
Given this background, it is perhaps not surprising that capital markets have
got off to a rocky start to 2016.
While we begin the year with very low levels of risk, I believe that some
exceptional opportunities are likely to present themselves in this environment
of regime shift and dislocation. We look forward to exploiting a rich
opportunity set in the year ahead.
Performance Yours sincerely,
Review: Alan Howard
December 2015
Performance by Asset Class
Overall, the Fund's performance in interest rate
Rates trading was negative. The majority of the losses came
from directional and curve trading in USD interest rate
markets. The Fund made gains in EUR directional and
curve trading while trading in emerging market interest
rates was a small detractor. Volatility strategies were
also a small detractor overall.
The Fund's performance in FX trading was positive, with
FX most of the gains generated in the first quarter. The
majority of the gains came from a general long USD
theme against various currencies, in particular against
the Euro. Trading in China FX also contributed
positively in the third and fourth quarters. The Fund
had an average FX exposure of approximately 50% of NAV,
with more elevated levels of risk at the start and
towards the end of the year.
Overall, the Fund's performance in equity trading was
Equity negative. However, it started the year well with gains
in Q1 from longs in European equity indices following
the announcement of QE by the ECB.
The Fund's commodity risk in 2015 was low. The Fund
Commodity suffered losses in precious metals and energy.
The Fund made small losses in credit in 2015 mainly due
Credit to losses in corporate credit.
The information in this section has been provided to BHM by BHCM
The majority of losses in December resulted from positioning around the ECB
meeting which was the same theme that had driven the gains in November. The
bulk of the losses came from FX trading, but also from a combination of
interest rate and equity index trading in Europe. FX trading losses came from
short positions in the EUR; small offsetting gains came from China, SEK and CAD
trading. Interest rate trading generated negative returns, with long positions
in European interest rates being the main factor, only partially offset by
gains from US directional and curve and basis trades. Equity trading was also a
detractor; losses due to the weakness in European and Japanese equity indices
outweighed the very small gains from US equity index shorts. Tactical long
positions in energy incurred small losses.
Performance by Asset Class
Monthly, quarterly and annual contribution (%) to the performance of BHM USD
Shares (net of fees and expenses) by asset class
2015 Rates FX Commodity Credit Equity Discount Total
Management
January 0.22 2.27 -0.01 0.00 0.62 0.04 3.14
2015
February -0.09 -0.69 -0.10 0.01 0.28 0.00 -0.60
2015
March 2015 -0.47 0.63 -0.05 0.14 0.11 0.00 0.36
April 2015 0.09 -1.31 -0.06 -0.02 0.02 0.00 -1.28
May 2015 0.41 0.61 0.01 -0.05 -0.05 0.00 0.93
June 2015 -0.01 -0.45 0.00 -0.11 -0.44 0.00 -1.01
July 2015 0.18 0.50 0.07 -0.05 -0.39 0.01 0.32
August -0.38 -0.08 -0.02 -0.05 -0.30 0.05 -0.78
2015
September -0.03 -0.43 -0.05 -0.07 -0.11 0.05 -0.64
2015
October 0.08 -0.43 -0.08 -0.03 -0.21 0.08 -0.59
2015
November 0.30 2.09 -0.06 -0.03 -0.01 0.09 2.36
2015
December -0.90 -2.15 -0.05 -0.04 -0.53 0.19 -3.48
2015
Q1 2015 -0.34 2.21 -0.16 0.15 1.01 0.04 2.90
Q2 2015 0.48 -1.16 -0.05 -0.18 -0.46 0.00 -1.37
Q3 2015 -0.23 -0.02 -0.01 -0.17 -0.79 0.11 -1.10
Q4 2015 -0.53 -0.53 -0.19 -0.10 -0.75 0.35 -1.78
YTD 2015 -0.62 0.47 -0.40 -0.30 -1.01 0.50 -1.42
Monthly, quarter-to-date and year-to-date figures are calculated by BHCM as at
31 December 2015, based on total performance data for each period provided by
the Fund's administrator, International Fund Services (Ireland) Limited.
Figures rounded to two decimal places.
The performance attribution above is derived from data calculated by BHCM,
based on total performance data provided by the Fund's administrator,
International Fund Services (Ireland) Limited and risk data, as at 31 December
2015.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
Monthly VaR of the Fund by asset class as a % of total VaR*
Rates Vega FX Equity Commodity Credit Total
January 14 15 38 25 5 4 100
2015
February 16 12 26 39 1 5 100
2015
March 2015 20 14 23 37 2 4 100
April 2015 21 12 29 29 2 7 100
May 2015 21 10 36 27 2 4 100
June 2015 30 16 26 20 2 5 100
July 2015 12 16 38 26 3 3 100
August 37 16 31 9 3 4 100
2015
September 35 16 33 9 2 4 100
2015
October 34 11 41 7 4 3 100
2015
November 14 13 57 13 1 2 100
2015
December 39 11 25 14 4 7 100
2015
Source: BHCM. Data as at 31 December 2015.
* Calculated using historical simulation based on 1 day, 95% confidence
interval.
Performance by Strategy Group
Monthly, quarterly and annual contribution (%) to the performance of BHM USD
Shares (net of fees and expenses) by strategy group
Macro Systematic Rates FX Equity Credit EMG Commodity Discount Total
Management
January 2.05 0.02 0.48 0.18 0.03 0.32 0.03 -0.01 0.04 3.14
2015
February -0.44 -0.00 -0.12 -0.06 -0.01 -0.02 0.05 -0.00 0.00 -0.60
2015
March 0.06 0.00 0.31 0.02 0.02 0.09 -0.12 -0.00 0.00 0.36
2015
April -0.75 -0.01 -0.39 -0.03 -0.01 -0.04 -0.04 -0.00 0.00 -1.28
2015
May 2015 0.41 -0.00 0.45 0.10 -0.00 -0.03 -0.01 -0.00 0.00 0.93
June 2015 -0.83 -0.01 -0.08 0.02 0.00 -0.04 -0.07 -0.00 0.00 -1.01
July 2015 -0.02 0.01 0.42 -0.02 -0.01 -0.09 0.02 -0.00 0.01 0.32
August -0.57 -0.01 -0.22 0.00 0.01 -0.05 0.01 -0.00 0.05 -0.78
2015
September -0.78 0.00 0.36 -0.06 0.00 -0.05 -0.17 -0.00 0.05 -0.64
2015
October -0.39 -0.02 -0.28 0.05 0.01 -0.08 0.04 -0.00 0.08 -0.59
2015
November 2.00 0.01 0.18 0.16 -0.01 -0.06 -0.01 -0.00 0.08 2.36
2015
December -2.94 -0.01 -0.32 -0.19 -0.00 -0.01 -0.19 -0.00 0.19 -3.48
2015
Q1 2015 1.66 0.03 0.66 0.13 0.03 0.39 -0.04 -0.01 0.04 2.90
Q2 2015 -1.17 -0.03 -0.02 0.10 -0.00 -0.12 -0.12 -0.00 0.00 -1.37
Q3 2015 -1.37 0.00 0.56 -0.08 -0.00 -0.19 -0.14 -0.00 0.11 -1.10
Q4 2015 -1.39 -0.02 -0.42 0.03 -0.00 -0.15 -0.16 -0.00 0.35 -1.78
YTD 2015 -2.28 -0.01 0.79 0.17 0.02 -0.07 -0.45 -0.01 0.50 -1.42
Monthly, quarter-to-date and year-to-date figures are calculated by BHCM as at
31 December 2015, based on total performance data for each period provided by
the Fund's administrator, International Fund Services (Ireland) Limited.
Figures rounded to two decimal places.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
Methodology and Definition of Monthly Contribution to Performance:
Attribution is approximate and has been derived by allocating each trader book
in the Fund to a single category. In cases where a trader book has activity in
more than one category, the most relevant category has been selected.
The above strategies are categorised as follows:
"Macro": multi-asset global markets, mainly directional (for the Fund, the
majority of risk in this category is in rates)
"Rates": developed interest rates markets
"FX": global FX forwards and options
"EMG": global emerging markets
"Equity": global equity markets including indices and other derivatives
"Commodity": liquid commodity futures and options
"Credit": corporate and asset-backed indices, bonds and CDS
"Systematic": rules-based futures trading
"Discount Management": buyback activity for discount management purposes
Manager's The information in this section has been provided to BHM by BHCM
Market Review
and Outlook US
The year ended much as it began, with healthy gains in employment contrasting
with anaemic growth. The economy appears to have expanded by approximately
1.75% in 2015, paced by consumption spending and held back by the drags from
international trade and inventory destocking. The fundamentals in the household
sector are solid. Real income is expanding at a moderate pace, wealth as a
share of income is relatively high, balance sheets are in good shape on
average, and credit is readily available for most borrowers. As a consequence,
there is renewed vibrancy in the housing sector and brisk demand for consumer
durables like motor vehicles. The inventory destocking appears to be a largely
one-time adjustment that weighed on growth in the second half of the year, just
as the sharp decline in capital expenditures in the energy sector subtracted
from growth in the first half. Meanwhile, the headwinds from international
trade are likely to persist in 2016, both because such adjustments tend to take
longer and because the US dollar continues to appreciate. We anticipate 2016
mostly reflecting a repeat of the trends seen in 2015 without the drags from
inventories and energy-related investment. In terms of risks, consumption could
surprise to the upside if households spend more of the wealth accumulated over
the last few years; however, global growth could disappoint further and lead to
worse net exports, or the energy sector could suffer another round of cutbacks
if low prices persist.
The labour market was the highlight of the macro story in 2015. The US added
2.65 million jobs over the year and the unemployment rate fell from 5.7% to
5.0%, which is close to most estimates of full employment. If forecasts are
correct and growth is above 2% in 2016, then the unemployment rate should
continue to fall. The performance of the labour market is even more remarkable
given lacklustre real GDP growth. The data suggest that potential growth is
considerably slower than most estimates. If potential growth were 2%, then the
unemployment rate should have increased during a year of sub-2% growth. In
fact, since the unemployment rate dropped so much, the likelihood is potential
growth is closer to 1% than 2%, a sobering fact with negative long-term
consequences for economic performance and policymaking. To help appreciation of
that difference, the economy would double in size every 35 years at 2% growth
and only every 70 years at 1% growth. In other words, productivity growth looks
stagnant, which means that there's little room for real wage gains. In
addition, lower potential growth means the economy will flirt with the zero
lower bound on nominal interest rates whenever there's a downturn. All of these
implications-slow potential growth, weak productivity growth, and monetary
policy that's constrained by the zero lower bound-are negatives that will
probably continue in 2016.
If the labour market was the highlight of the macro story in 2015, then
inflation was the worst. For most of the year, total consumer price inflation
bounced around a little above zero and core inflation was stuck at 1.3%. The
reasons for low inflation are no mystery. Total inflation is being held down
primarily by the huge decline in consumer energy prices and core inflation is
weak because of the pass-through of lower prices for energy and imports. These
are shocks to the price level so inflation should eventually pick up, but this
is taking longer than expected because energy prices continue to fall and the
US dollar keeps appreciating, thereby lowering import prices. The outlook for
inflation in 2016 resembles the outlook for inflation at the beginning of 2015,
calling for a slow pick up in headline and core. However, that's contingent on
energy prices and the USD finding some equilibrium.
In terms of policy, the Federal Reserve raised rates in December, ending months
of speculation about the timing of lift-off. The debate immediately turned to
the pace of monetary policy normalisation, with the policymakers promising
"gradual increases" in rates while the market is sceptical that the economy can
withstand any further removal of accommodation. The gulf between a dovish Fed
and an even more dovish market will play out over the course of the year.
Fiscal policy has merited almost no attention in the last few years, apart from
the periodic scares about the debt ceiling and government shutdown. However, at
the end of the year Congress agreed on a budget that should add a few tenths to
real GDP over the next two years. Looking forward, the Presidential election
looms in November. Although the market's attention is focused elsewhere at the
moment, there will be a keen interest in the election by the summer when a more
liberal Democratic party faces off against a more conservative Republican
party. The country is deeply divided and there will be volatility no matter
the outcome of the election.
EMU
2015 started with the ECB announcement in January of a new €1.1 trillion bond
purchasing programme, known as "APP" (Asset Purchase Programme), a new monetary
policy instrument that had been partly anticipated by financial markets at the
end of 2014. The programme, consisting of both sovereign and sub-national debt
purchases, came as a complement to the private assets bought since the end of
2014, with a total volume of €60bn per month. Although the ECB Quantitative
Easing ("QE") programme was implemented successfully and real GDP growth
climbed to approximately 1.5% in 2015 from 0.9% in 2014, the economic recovery
continued to be fragile, as the impulse from QE diminished during the year,
resulting in inadequate stimulus to withstand the intensifying headwinds
stemming especially from the slowdown in global demand. Indeed, activity growth
slowed from an annualised rate of 2.2% q/q in Q1, to 1.6% q/q in Q2 and 1.2% q/
q in Q3. Although the labour market recovered further over the year, with the
unemployment rate declining by one percentage point to 10.5% at the end of
2015, the adjustment remains slow, very heterogeneous across countries and far
from enough to fill the still large output gap, as shown by the still very
subdued wage dynamics. At the same time, price developments continued to
undershoot both the ECB and market expectations, with HICP inflation averaging
a very low 0.0% in 2015, much lower than the ECB predicted at the beginning of
the year. This disappointing outcome, which risks structurally de-anchoring
inflation expectations, stemmed especially from lower commodity prices,
although core inflation also remained extremely tame, lower than 1%. As a
result, the ECB objective of returning to its target of "below but close to 2%"
in the medium term remains in jeopardy and the risks of fully-fledged deflation
have not gone. As such, the ECB policy decision to ease monetary conditions
only slightly in December and disappoint greatly financial markets expectations
which they had previously raised could prove very detrimental for the economic
prospects of the Eurozone. Indeed, following the decision, financial conditions
tightened, inflation and inflation expectations fell, and the economic data
disappointed.
Politically, the summer months proved highly volatile with Greece's
anti-austerity Prime Minister Alexis Tsipras calling a referendum as the
highly-indebted country came very close to exiting the Eurozone. While a third
bailout programme of €85bn was agreed in a last minute deal, the implementation
of reforms and debt-relief discussions are likely to remain difficult.
Moreover, political tensions are rising. The consequences of the immigration
crisis, which has hit even the otherwise rock solid leadership of Chancellor
Merkel, has seen increasing support for nationalist and populist parties in
various countries of the common area.
Looking forward, the prospects for the Eurozone in 2016 look more challenging
than in 2015. Indeed, on the one hand, the above mentioned tightening of
financial conditions induced by the December ECB policy decision, albeit
moderate, came at a moment when renewed easing was needed so as to provide
fresh impulse to the quantitative easing manoeuvre, amid the challenges posed
by the risks of deflation, a slower and riskier global environment and a still
challenging and far from complete process of de-leveraging. Risks that the
December ECB macroeconomic projections of
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