Tag: Euro area
May
Euro area: Less recession but still recession
As expected, Euro-area GDP shrank by less in Q1 (-0.2%) than in Q4 of last year, but it still shrank and the weakness was widespread through the common currency area (see table below for data on the larger countries): German …
German GDP in Q1: Weaker than expected, not only due to cold weather
The message in today’s numbers on German GDP is very clear: Europe’s largest economy is by no means immune to the euro crisis despite very low interest rates and a seemingly robust labour market. The data: German GDP increased by just …
Buy, buy, buy
Going for carry continues to be the name of the game, while the consideration of the credit risks involved seems once again to be a secondary concern. The risks of a bond bubble are no doubt in the air, but this trend has not run its course.
Good news from German industry
There clearly was more good news than bad in today’s and yesterday’s numbers for orders and production in German industry. As it accounts for a third of the Euro-area’s industry and for almost half when only looking at capital goods production, it is also good news …
New forecasts for ECB, market rates and the EUR/USD
We now expect the ECB to keep rates unchanged at the current level until the beginning of 2015. Risks are clearly skewed towards another rate cut in the near term. Speculation in a deposit rate cut could take market rates to new lows in the near term and we have revised the market rates forecasts lower on all horizons. Lower EUR rates have implications for the EUR/USD forecast in the longer run, and we have decided to lower the end-2014.
ECB cuts rates and has an open mind
The ECB cut its refi rate by 25 bp to 0.5% as most expected. With the interest rate cuts the ECB do seem to be delivering something when not being able to deliver what it actually wants to, ie support to SMEs. Still, Draghi also seems more open than previously to further easing steps even after today’s decision to cut interest rates, which will support risk appetite in financial markets.
Cheføkonomens hjørne: Vi sidder stadig fast i sumpen
Som en anden Baron Von Münchhausen bliver Europa nødt til at trække sig selv op af sumpen ved håret. Det var indledningssvadaen fra den tyske præsident for den Europæiske Investeringsbank, Werner Hoyer, på en international finanskonference, som jeg deltog på …
Low Euro-area inflation – good news or bad?
The Euro-area flash estimate for inflation in April fell to 1.2%! This follows a reading of 1.7% in March and we have looked a bit deeper into a few questions: Temporary or permanent? Good news or bad? ECB reaction or not?
April
Growth vs. austerity in the German electoral debate – any difference between CDU and SPD?
Germany is often seen as the country most pushing Southern Europe into a highly restrictive fiscal policy, while at the same time denying any meaningful stimulus at home. Could that change under an SPD-led German government after the election on 22 September? Yes, but only under certain conditions.
Spain and Greece soon outpacing France and the Netherlands?
It is a well-known fact that the outlook for individual Euro-zone countries is far from uniform. However, it is a misperception that all the northern countries would be doing better than the southern European ones.
ECB preview: No rate cut
Markets have once again started pricing in some risk of a rate cut and a majority of analysts now expect a refi rate cut from the ECB already at the meeting this week. We stick to our call and find it most likely that the ECB will keep rates on hold and instead come up with new measures to support bank lending to Small and Medium-sized Enterprises (SMEs).
Ray of light in Euro-zone credit numbers
If you torture the data long enough, it will confess. One can find hope in today’s Euro-zone credit numbers for March, though if you are pessimistic, the data offers a lot for you as well.
Can negative be positive?
The concept of negative nominal interest rates has usually been considered something possible only as a short-term market aberration. Not anymore. Could negative interest rates really save us?
Today’s PMIs will not prompt an ECB rate cut
We believe the ECB sees additional interest rate cuts beyond the current level as more or less ineffective. That is the reason, in our view, that interest rates were not cut already in December. However, key figures have surprised to the downside and we believe the ECB will have to act if the bank believes the economic outlook has weakened further or if it is unable to come up with an SME “support package” even if it believes the effect will be limited. An unchanged PMI reading today does not make a big difference in our opinion.
Welcome to the world of wild mood swings
Big market moves have caught a lot of attention in the past few days. Where is the world going?
Deflation and the ECB
That the inflation rate in Greece fell below zero in March for the first time in 45 years gets quite a lot of media attention. The deflation ghost is out of the bottle again – is it really? Or has it …
Taking the pulse of the German economy
The German economy seems on track for slow growth in GDP of around ¼% q/q in Q1. While that is not too bad compared to many other Euro-area countries, it’s not what one could call a locomotive for Europe.
Draghi turns more dovish
Draghi turned more dovish at today’s ECB press conference. Another rate cut has become more likely, but still depend on incoming data in the near term.
Slovenia – vulnerable but very different from Cyprus
While investor have reason to worry about Slovenia, comparisons to Cyprus seem hugely exaggerated.
ECB preview – still too early for Draghi to signal near-term rate cut
We expect no changes in key policy rates and no new non-standard measures from the ECB at Thursday’s meeting. Lots of questions about Cyprus, but Draghi will probably not give any answers. Market reaction could be slightly negative again.
March
Cyprus and the law of unintended consequences
I tried to put a bit of “Ordnung” in my thoughts about European crisis management after Cyprus. Here is what came out: Crisis management was slow and chaotic Confidence in banks might have been shattered by the idea to bail-in …
Be careful what you wish for
The EU appears to have fast-tracked its plans for bank resolution in earnest, at least based on the comments from the Eurogroup President Dijsselbloem. Such plans are another blow for the funding outlook of banks, and risk escalating the euro crisis again.
This deal sends more constructive signals – credibility still hurt
A deal on Cyprus was finally reached this morning. Unlike the earlier agreement that basically sent the message that all depositors in troubled banks should immediately withdraw their money, the terms of this agreement actually send a more constructive message. Still, days of wrangling and bad suggestions earlier have hurt the credibility of Euro-zone decision-makers further.
Wealthy Germany – and even more wealthy Italy and Spain
Private households in Spain and Italy are much more wealthy than German households. This is one of the results of a study that the Bundesbank published yesterday. Interesting finding and interesting timing given all the discussions about who should and who can bear the burden of adjustment in Europe.
Italy heading towards a AAA rating?
The recent report by the ratings agency Standard & Poor’s shows most countries studied have actually already made a lot of progress in addressing their increasing age-related spending compared to 2010, even though a lot of work remains. One of the most striking aspects of the report is the progress seen in Italy, which could see its rating rise notably going forward.
Cyprus votes no before voting yes
The Cypriot parliament yesterday rejected the proposed bailout including the controversial levy on bank deposits, putting the future path of Cyprus very much in question again. However, as the alternative for the bailout for the country looks much worse than the terms of the aid package, Cyprus will most likely have to accept the terms in the end.
Initial thoughts on the Cyprus deal
A EUR 10bn bailout for Cyprus was agreed on Saturday. Today, the Cypriot parliament will have to pass the most controversial part of the bailout. In our view, the bailout does not change the overall picture for the Euro area here and now even if the final bailout terms include a haircut on deposits that was supposed to be insured. However, the current deal clearly increases the longer-term risks for the Euro area.
Strong Irish bond launch tells us much more than the weak Italian auctions
Despite today's weak auctions, the risk of an Italian auction actually failing looks remote. In fact, one should not give too much weight to the performance of individual auctions. Italian troubles will be reflected first on secondary markets, not on weak auction demand. The strong Irish 10-year bond launch carries a stronger message.
Europe’s next protest movement – this time in Germany
Protest movements can achieve strong election results and render forming a government difficult, creating uncertainty on financial markets. This is one of the lessons to draw from the Italian election. Now in Germany a protest movement has been founded, the …
ECB keeps rates unchanged, but rate cut risks remain
The ECB decided to keep interest rates unchanged at today’s meeting. Draghi’s statement was more or less unchanged in its wording compared with the statement a month ago. Draghi remains dovish but more weakness is needed to make the ECB cut rates.
Italy update: Uncertainty here to stay
Italy update: Uncertainty here to stay One week after the elections in Italy ended without clear majorities, we give an update from a markets, a political and an economic perspective as well as on our ideas on how it might …
Latvia: On track to adopt the euro in 2014
The government of Latvia today submitted a request to the European Commission and the European Central Bank to evaluate the eligibility of Latvia to become a member of the euro area. This is another formal step on the road to …
ECB preview: No help for Italy
We expect no changes in key policy rates and no new non-standard measures from the ECB at Thursday’s meeting. The new staff projections for growth and inflation will be roughly unchanged. There will be no help for Italy from the ECB.
February
Italian politics in a dead end – any way out?
The one thing that seems clear after the Italian election is that nothing is clear at all and uncertainty will linger on. As Bersani put it: Italy is in "a very delicate situation."
Italy: First impression from election results – could have come much worse
Polling stations in Italy are now closed and we are getting the first exit poll results. Financial markets were haunted by the idea that Silvio Berlusconi might collect enough votes to stage his third comeback or Beppo Grillo’s anti-establishment Five …
Not such a big rush this time
The ECB announced today 356 banks would return a total of EUR 61bn of the 3-year money they took from the central bank in the second 3-year LTRO early last year. The numbers illustrate that a considerably amount of excess liquidity will remain in the system for a long time, keeping overnight rates close to current levels. The banking system in general will heal only slowly.
Not so fast
Regulators have been forced to backtrack on many of their most ambitious reforms lately, due to fears that big reforms could really hit the markets and the real economy very negatively. This trend now also continues regarding the planned margin requirements for derivatives, while more “fine tuning” of the planned reforms no doubt lies ahead before any actual implementation.
Now for the second big one
The other bigger one-time repayment of ECB 3-year loans will take place next week, when the second 3-year LTRO will have its first repayment date. The repayment interest is likely to come below the EUR 137bn seen in the first operation. That said, as we have seen a notable correction lower in short interest rates since the first repayments, risks are tilted towards higher rates and a steeper money market curve ahead of Friday’s data.
The French patient gives most reason to worry
Euro area GDP fell by 0.6% q/q in Q4 of 2012, more than we expected. Indicators point towards a better outcome in Q1. The moderate recovery view for 2013 is based on the expectation of Germany picking up – which …
GDP day for the Euro area: a gloomy look back, but better days ahead
Both for the Euro area and Germany, the flash estimate for Q4 GDP due on Thursday 14 February will probably show a decline by around 0.4% q/q. However, the moderate recovery story is intact – and so is the view …
Economic Outlook Estonia. Olympic year – medals only for the strongest
In 2013, only strongest Euro area economies can demonstrate good growth on a global scale. Nordic recovery has been delayed. Estonian export driven growth to pick up only in 2014. New opportunities are found in record-low (real) interest rates.
Italian elections – what if Berlusconi wins?
Italian general elections, due 24-25 February, are nearing and hence we take the opportunity to sum up our views and add a scenario, where Berlusconi unexpectedly wins the lower house. The election is most likely to produce a favorable outcome …
Draghi optimistic but “monitoring closely”
The ECB left key policy rates unchanged as widely expected. Draghi struck an optimistic tone, but was maybe slightly more concerned about the LTRO repayments and EUR strength than most had expected.
Siesta no more
Political risk has been on the rise again in Spain and Italy lately, serving as the latest reminder that the risks inherent in these countries have by no means gone away. As the Spanish corruption scandal is far from resolved, while Italy is headed for uncertain parliamentary elections, market tremors will likely continue in the near future.
ECB preview: Is Draghi concerned about LTRO repayments and EUR strength?
I expect no change in rates, no new non-standard measures and no change in bias. Is the ECB concerned about large-scale LTRO repayments draining liquidity? Is the ECB concerned about the rise in short rates and strengthening of the EUR?
January
Strong EUR could prompt an ECB rate cut
Expectations of another ECB rate cut were taken out of the markets after the January ECB meeting when Draghi was perceived to be too upbeat on growth prospects to consider cutting interest rates again. Ironically, Draghi’s tone and the surprisingly large LTRO repayments may force the ECB to cut interest rates again!
Markets getting too far ahead of economies
Risk-on is likely to dominate in the very near-term but given the lack of fundamental improvements we expect to see a correction sometime during the spring.
Banks rush to repay the ECB – at least initially
The ECB announced that 278 banks will repay a total of EUR 137bn of the 3-year loans taken from the central bank. The amount paid was higher than many had expected, and has put upward pressure on rates. However, one should not draw the conclusion that monetary policy was about to see an abrupt tightening and that rates would be heading higher for good.
Tyskland på vej ud af krisen
Det vigtige IFO indeks, som måler stemningen i det tyske erhvervsliv steg i januar til 104,2 mod 102,4 i december. Fremgangen skyldtes både en markant stigning i forventningerne til de kommende måneder, såvel som en forbedring i opfattelsen af det …
Portugal is back
Portugal followed in the footsteps of Spain’s hugely successful bond launch yesterday, making a comeback to bond markets for the first time since its bailout from other Euro-zone countries and the IMF. The Portuguese bond sale was just the latest reminder that confidence towards the Euro zone is returning.
Macro Strategy – Watch EU consumer confidence and PMI
We will see a lot of PMI data, but behind these data points we take an increasing interest in consumer confidence. A trough in this measure will surely convince us even more of the European macro trough (see ‘Global Alpha’s Winter 2013 Roadshow’). Our model, see fig 1, is indicating a potential upside move, and we think a data print of -22 is in the cards. This could then base the trough in European consumer confidence, a much needed development indeed. Of course, we note that we are far away from the consensus, but we were so on the ZEW print as well… As such, we enter these data points with a risk-on momentum, long EURUSD and short Bund.
This is big
Spain saw an unprecedented flood of orders for its new 10-year benchmark, the strongest sign yet that the market conditions have seen a material improvement. Only the yield of around 5.4% serves as a reminder that Spain is still facing some problems – quite significant ones for that matter. With this kind of demand, Spain is making good progress in meeting its huge financing needs for the year.
LTRO repayments will be mostly good news
In our view, the key questions are: 1.Who will repay and how much? 2.Will short rates move higher if a lot of LTRO loans are repaid? 3.Is it a good or a bad sign if a lot of LTRO loans are repaid? 4.Is there a case for an ECB response? 5.What will happen to German bonds?
FI Strategy – LTRO and the early repayment option
On Friday, January 25, the ECB will announce the first amount to be repaid of the three year LTROs. We estimate EUR 200bn to be paid back during 2013, with limited market impact in the short term.
ECB to start buying soon?
When the ECB announced its Outright Monetary Transactions (OMT) programme last autumn, Spain was expected to take advantage of the programme rather quickly. The activation of the OMTs would have required an aid programme for Spain, which the country was reluctant to apply for. Could Ireland become the first direct beneficiary of the programme?
We don’t want your money
Banks will have the first chance to repay the 3-year money borrowed from the ECB on 30 January. Early repayments are likely to give rise to pricing of higher short rates and cause some jitters of tightening policy. Despite the repayments, plenty of excess liquidity will remain, keeping short rates very close to current levels.
Sweden: From basket case to showcase
Everybody knows that the economic situation in Southern Europe is dire. Occasionally, one gets the feeling that there is no way out. Now, one should not belittle the hardship that ordinary people in Greece, Spain and other countries go through; …
German economy contracts
The German statistics office said that the Q4 estimate was a 0.5% q/q contraction, making it the worst quarter since the disastrous 2009Q1.
And then there was one
The rating agency Standard & Poor’s affirmed Finland’s AAA rating, and changed the outlook for the rating from negative to stable yesterday. After the move, Finland is the only Euro-zone country to have a triple-A rating from all the three major rating agencies with a stable outlook. The move also signals how S&P has seen the effect of the Euro-zone debt crisis fade
Draghi keeps the door wide open for more easing, but it will require more weakness
The ECB decided to keep interest rates on hold today as most had expected. At the press conference, ECB President Draghi more or less repeated the statement from December, which in our view means that the door is wide open for more ECB easing, but it will require more economic weakness.
Spain to a flying start with its 2013 issuance
Spain sold a total of EUR 5.8bn of bonds today, which was more than the indicated EUR 4 to 5bn target range for the auctions. This represents just shy of 5% of the estimated total long-term borrowing requirement for the year. Today’s news was certainly positive for Spain, but one should not get too carried away. Spanish issuance needs going forward are daunting.
It’s not all gloom in Greece
Greece is starting to see some light at the end of the tunnel, even though the country still has a long way to go. Economic confidence has seen a sharp rebound in the past few months, and is now at its highest level since the country received its first bailout in early 2010. Even the outlook for Greece is thus not all gloomy.
Price level targeting – next ECB easing step
The next easing step from the ECB could be the introduction of a temporary price level target path.
Italian politics gets more messy
Berlusconi announced on Monday that his party, the People of Freedom (PdL), had formed an electoral pact with Lega Nord. This move increases the risk of a hung government and, in turn, a weak government, exactly what Italy does not need.
The fear of overregulation frightening the regulators themselves
The Basel Committee on Banking Supervision announced yesterday it had agreed to considerably loosen its new liquidity requirements. The relaxation of the rules illustrates the regulators are not particularly willing to risk another big hit to the economy due to heavy regulation.
ECB preview – no rate cut, but dovish tone
I do not expect any action from the ECB at this Thursday’s meeting. There is still a risk that the refi rate will be cut, though, and, if not, the door will be kept wide open for future rate cuts.
December
Some pigs can fly
What do Portugal, Ireland and Italy have in common? Their government bond markets have all produced a return of more than 20% in 2012. These numbers handily beat the around 4% return from German bonds. In fact, among larger Euro-zone countries, Germany has been the worst performer in 2012.
Many Euro-zone countries with sizable borrowing needs also in 2013
2012 is drawing to a close. Despite worries of the contrary, both Spain and Italy have been able to satisfy their borrowing needs via the bond market – albeit with quite a lot of help from the ECB. Still, the issuance picture suggests especially Spain will face notable challenges ahead.
Collateral rules make safest assets even richer
New rules concerning the collateral needed to back derivative positions as well as new liquidity requirements will have major consequences for financial markets in general. Even though the rules are not final yet, it seems increasingly clear that we will see increased demand for the highest-quality assets going forward.
Global Week Ahead – Focus on policy makers
Here is the Global Week Ahead. The publication covers next week’s major numbers and events.
Setback ahead for Italian bonds?
Italian bonds have seen almost stellar performance lately, with the year-to-date return from Italian bonds in general standing at close to 20%. Profit-taking and a correction higher in yields look likely at some point. Such a move may have started yesterday, as the future of the government was put in doubt.
Draghi turns slightly dovish
The overall impression of the press meeting is that that Draghi has turned slightly more dovish, but not enough to make a clear signal of an upcoming rate cut. However, the ECB has enough ammunition to cut interest rates in Q1, if the economy weakens more than currently expected.
November
Economic Outlook Global – Here comes the sun
UPDATE! Now with link to web presentation. Winter equinox marks the day when the days are shortest—and from then on days become longer. The same can be said of the global economic development. In spite of the growth in 2012 has been slightly weaker than expected we still see economic growth improving. We have lowered our growth forecasts for 2012 and 2013 marginally but upped our 2014 forecasts.
Agreement on Greece not exactly boosting credibility
Despite remaining uncertainties, it looks likely that Greece will receive its money. Equally likely, going forward Euro-zone countries will have to take further losses on their exposure to Greece, while the outlook for the country remains clouded to say the least. The cost of the numerous meetings on Greece has been a further erosion of credibility.
Euro-zone outlook not as gloomy as recent headlines suggest
Recent headlines regarding the development of Euro-zone confidence numbers have been too gloomy. Today’s confidence data offers more hope that at least slightly better times will be ahead for the Euro-zone. Even though there is no denying the fact that confidence remains low, every recovery has to start somewhere.
Spain with few funding problems – in the short term
The short-term funding outlook for Spain remains favourable, but big challenges are still ahead. Spain runs the widest primary deficit in the Euro zone, meaning the country needs to attract plenty of new money to fund the government. The market pressure for a bailout remains very limited – for now.
Still no Greek deal
The Eurogroup has failed to agree how to close the financing gap in the Greek bailout program! The Eurogroup will reconvene on Monday. The bottom line is that Greece will still get its money in due time. However, the Euro-area leaders have lost credibility by failing to reach a deal!
France: Next stop Waterloo?
France was downgraded to Aa1 by Moody's last night. Market reaction has been muted but France has major challenges. No immediate problems but we worry that too little is being done to generate growth in France.
Tide turning in Euro-zone credit ratings?
The rating agency Fitch revised its outlook on the Irish BBB+ rating from negative to stable yesterday. Apart for Estonia, this was the first positive rating move during the Euro-zone debt crisis. Is the wrath of the credit rating agencies now behind?
The Euro area is in recession
With GDP numbers showing contraction in Q3 the Euro area is in technical recession. The Q3 GDP numbers did surprise slightly on the upside posting a 0.1% drop during the quarter. we are comfortable with our current forecasts after today’s data, although risks are that the recovery will be slightly delayed.
Massive drop in Euro-area industrial production
Euro-area industrial production numbers for September showed the sixth largest monthly drop since 1990, but still positive growth on average in Q3 compared with Q2 and hence there is still some scope for a positive surprise in tomorrow’s GDP release.
Demographics suggest low for long
The European working age population will decline in coming decades. The pattern in Germany is similar to that of Japan, whose demographic problems are well known. The declining population is expected to lead to lower growth, which limits the scope of grow-ing out of the current debt burden. An ageing population also points to low interest rates.
Demografin pekar mot “low for long”
Europas befolkning i arbetsför ålder minskar kommande decennium. Utvecklingen i Tyskland liknar Japan, vars demografiska problem är väl kända. Den sjunkande befolk-ningen väntas leda till lägre tillväxt vilket bl.a. begränsar möjligheten att växa sig ur da-gens skuldbörda. En åldrande befolkningen talar också för låga räntor.
Monetary policy already tightening in the Euro zone
While the ECB has continued to introduce new measures to make its monetary policy more accommodative, in some respects policy has actually become tighter, and may continue to do so going forward. More specifically, the excess liquidity in the Euro-zone banking system has fallen quite clearly already from its highs.
Global Week Ahead – Time to avoid fiscal cliff
US fiscal risks, the Fed, Greece, US retail sales, Euro-area and Japanese GDP numbers, Swedish inflation and unemployment will be in focus next week.
Nothing new from the ECB
The ECB kept its key interest rates unchanged as widely expected. At the press conference, Mr Draghi more or less repeated his statement from the October meeting.
Do not forget all the progress made
Even though different countries have made a varying amount of progress, while the many times rather ambitious targets have often been missed, it would be a misconception that no positive development would have taken place. Especially if one looks at the development of the current account, most countries are not that far away from balance any more.
ECB in wait-and-see mode
The outlook has not changed and hence new easing measures are not justified at this point. If anything, the ECB could be considering new measures to improve monetary transmission in the periphery. We view tomorrow's meeting as market neutral.
Global Week Ahead – Focus turns to elections in the US (and in China)
Elections in US and in China will dominate headlines. Central bank meetings at the ECB and the Bank of England. First independent Danish rate hike in almost four years, weak Swedish production numbers and low Norwegian core inflation.
Slight upward revision to Euro-area PMIs
The final Euro-area PMI numbers were revised slightly up to 45.4 from 45.3 in the flash reading and still significantly lower than the 46.1 in September.
Upside risks to Euro-area Q3 GDP
Euro-area Q3 GDP might have been somewhat better than we previously expected, as hard data has been somewhat stronger than the survey data predicted.
October
Euro-zone banks not about to boost a recovery any time soon
The results from the ECB’s latest bank lending survey (Q3) only add to worries that credit growth is not going to support an economic recovery any time soon. The results thus add to downside risks for the economy. The dark clouds hanging over the Euro-zone economy are not going disappear any time soon.
Another successful bond sale for Italy
Italy’s successes continued on the bond market today with the launch of a new 5-year benchmark, which the country was able to sell with a yield of less than 4%. The near-term funding outlook for Italy thus looks rather comfortable, while in the longer-run major challenges remain.
Eurosceptic forces unable to capitalize in Finnish local elections
The Eurosceptic True Finns party failed to produce the kind of surge in popularity in yesterday’s Finnish local elections that was seen in the parliamentary elections of 2011. Even though the euro policies were not directly at poll, the results should de-crease the pressure for the government to change its euro policy. Finland remains very committed to its membership in the Euro zone.
Global Week Ahead – another week with a moderately optimistic risk sentiment
The ISM and the labour market report will be the last major economic news before the Presidential election on 6 November, and they will therefore attract more attention than usual. Our view on the most important key figures is broadly neutral compared to consensus estimates.
Market pressure on Spain eased further
Spanish bank deposits rose for the first time in six months in September, while foreign investors have reportedly been more active in Spanish bond auctions lately. Overall then, market pressure is not a particularly strong argument calling for a quick aid request by the Spanish government – political considerations currently play a bigger role.
Euro-area PMI challenge expectations of improving outlook
The Euro-area flash composite PMI dropped to 45.8 in October from 46.1 in September against expectations of a small rise. The numbers are moderately market negative.
Go for pick-up via maturity extensions in Finnish bonds
With short rates virtually at zero, the search for pick-up is definitely on. In this market, Finnish bonds present excellent opportunities, offering safety coupled with pick-up over German bonds without making big sacrifices in terms of credit quality.
Global Week Ahead – Positive bias to key figure surprises
The most important events this week will be the FOMC meeting and the Troika review of Greece. We expect the Riksbank to stay on hold.
Italian funding outlook brightened notably
Italy has really managed to get its wealthy household sector involved in funding the government. The country placed a massive EUR 18bn BTP Italia bond yesterday, a new 4-year government bond linked to Italian inflation. This was the biggest Italian bond issue ever.
EU Summit 1st day as expected – watch 12 Nov
The first day of the EU Summit ended with EU Heads of State agreeing to agree on the details of the new Single Supervision Mechanism (SSM) for banks by end-year with the aim of it being operational during 2013.
All EUR countries in violation of their own convergence criteria
Not a single Euro-zone country currently meets all the Maastricht criteria, i.e. the ones used to judge, whether an EU country is eligible to join the Euro zone. This does not set a particularly good example for the countries striving to join the euro – not that there would be that many of those at the moment.
Low expectations ahead of this week’s EU Summit
Not too long ago, I had high expectations for this week’s EU Summit
How would ECB bond purchases affect the level of interest rates?
The effect of the ECB’s bond purchases should be felt also outside the bond markets directly targeted by the interventions. The purchases should put in general downward pressure on the maturity segment targeted, but cause upward pressure in longer maturities (on average).
FX Comment: if anything – blame politics
China kicks off the week with better than expected foreign trade and money supply data released over the weekend, and will remain in focus this week...
Cheføkonomens hjørne: Gulerødder eller kaos
Efter et par fredfyldte feriemåneder er Grækenland igen i fokus på de finansielle markeder. Der er kun penge i kassen til og med november måned, og medmindre en aftale snart falder på plads med den såkaldte Trojka (EU, ECB og …
EU Heads of State still mostly talking
This week’s key event will be the EU Summit Thursday and Friday although it may not necessarily provide the news about Greece and Spain that the financial markets are waiting for.
Baltics: Euro-adoption still a goal
Our baseline scenario is that Latvia will join the euro area in 2014, although risks for later euro-adoption remain. Lithuania we see adopting the euro in 2015 at the earliest.
Spanish aid request a step closer
Pressure on Spain is mounting again, with S&P downgrading the country to the lowest investment grade rating, Moody’s likely to go a step further soon, while calls for independence in Catalonia are not exactly calming. Higher yields will likely be needed to persuade Spain to make an official aid request.
Global Week Ahead: Don’t hold your breath
After this week’s heavy calendar, next week will be notably calmer, especially in terms of economic data releases. Luckily, politics and corporate earnings reports will pick-up some of the slack. However, the most pressing questions are unlikely to be answered next week.
ECB staying put – time for the governments to act
The ECB seems rather comfortable with the current situation, and clearly sees it is up to the governments to take the next steps. The more important next step will be an aid request from Spain, but it might still take at least several weeks for such a request to surface.
Nordea WebTV: Euro-zone – signs of improvement
Despite the somewhat calmer market moods lately, the Eurozone debt crisis remains far from resolved. In this Nordea WebTV presentation Head of Global Research, Steen V. Grøndahl, discusses recent developments in the Euro-zone.
Tough questions, few answers
Both the ECB and the Bank of England will announce their latest monetary policy decisions tomorrow, but neither is expected to do much new at this stage. Draghi will probably dodge the toughest questions on the ECB’s announced bond purchase programme, while BoE is more likely to take the decision on expanding its bond purchases next month.
EUR: Moral hazard in the air
Moral hazard may be one reason to the declining uncertainty in the Markets which is to EUR support...
Where can we find more money for Greece?
There are several options to give Greece more time to reform its economy but trickier still is convincing the IMF the debt remains sustainable. In any case, it looks all but certain that Greek debt will need to be restructured again - sooner or later - meaning losses for the public-sector creditors.
September
Spanish banks need €59bn
UPDATED: Spanish banks need EUR 59.3bn. Less than expected but markets have been disappointed before. We believe this is a step in the right direction.
French budget relying too much on tax increases and economic growth
Overall, the composition of the French budget is disappointing. Relying mostly on tax increases does nothing to tackle the problems on the French public sector. In addition, tax increases are more harmful to the growth outlook of the French economy as well as its competitiveness.
Euro-zone inflation still stubbornly high
Despite expectations of limited price pressures, Euro-zone inflation surprisingly accelerated from 2.6% y/y to 2.7% vs. the Bloomberg consensus estimate of 2.4%. Even though inflation is not really the main thing on the ECB’s radar at the moment, especially the more hawkish members of the Governing Council will pay attention to these numbers.
Spanish budget only a small step in the right direction
Spain made important steps in presenting its 2013 budget yesterday, but a lot of work remains. More structural reforms need to be detailed, while the Spanish rating could be cut to junk by Moody’s as early as today. It still seems higher bond yields will be required to convince Spain to ask for more help.
EUR convertibility premium: confidence trumps everything
Spain delivered on its budget plan yesterday, so access to ESM and thereafter ECB funding seems closer now. The budget was positive news to EUR. The next positive thing will be Spain officially applying for aid which can come any time now.
Quo Vadis Europe? A Euro crisis presentation
Here part of the presentation from today's lunch session at EuroFinance
Fresh sentiment numbers point to deepening Euro-zone recession
There wasn't much good in today’s confidence numbers, strengthening the message that the Euro-zone situation may get worse before it improves. Still, we would not disregard the message given e.g. by the manufacturing PMI.
German auctions continue to struggle
Today's weak results highlight recent falls in German yields and volatility created by the news flow around Spain. The German auction procedure is experiencing weakness in the current environment and pressure is mounting for changes.
Spanish challenges mount again
Spain received a batch of bad news yesterday, which only underlines that the country still has a lot to do to bring confidence back for good. In light of yesterday’s news flow, it is certainly not hard to picture Spanish yields jumping again.
German confidence not bottomed out yet
Today’s fall in the Ifo index illustrates that the German economy also continues to face headwinds, and as one of the strongest Euro-zone economies, it is clear what weaker German numbers mean to other countries.
Spain in focus for one more Week Ahead
Spain will be in focus in the week ahead after an FT article today suggesting that the planed structural reforms announcement next week has been agreed upon with the Commission and hence could pave the way for an aid request. On the key figure front we expect no major surprises neither in the US nor in the Euro area.
Euro-zone manufacturing PMIs mostly good news
Confidence in the Euro zone remains depressed and implies weak economic performance will continue. That said, it is positive we saw more signs that confidence would have at least stabilized. Germany and France saw very divergent development.
G10 Weekly: When QE becomes futile
In this issue we take a stance on QE, which we think will end up being futile.
EUR fundamentals: the “glass-half-full” look
We have heard a lot about the risks of the EUR collapse this year. The problems haven't been solved yet, but some fundamentals are already changing for the better...
Global Week Ahead – Spain is biding its time
This Week Ahead brings fewer important events, but will surely have its moments. While the markets are still digesting the Fed and ECB announcements, Spain is watching the markets and biding its time.
Dutch voters give firm support for the euro
The Dutch elections showed not all governing parties end up as losers because of the euro crisis, which was encouraging also for the Euro zone as a whole. It still seems likely that the tough austerity line the Dutch have been favouring will be relaxed to some extent.
Euro-area crisis management is on track
(Updated 11:22 CET) The results of the Wild Wednesday in the Euro area are generally positive for the Euro area and for the markets, at least so far (Dutch election pending). The German Constitutional Court allowed German ratification of the ESM and the European Commission’s proposal for a Banking Union were by and large as widely expected.
Commision proposes common supervision for all Euro-area banks
The European Commission published its proposal for a Banking Union today. The big lines of the proposal are in line with general expectations. The political struggle is just beginning…
Germany to lose another ally?
The Netherlands is unlikely to turn against the euro as a result of Wednesday’s elections, but the next government may see more eye to eye with e.g. France than Germany. The German led austerity line may thus continue to lose support, implying austerity targets are likely to be loosened further.
Week ahead: huge event risk creating volatility
QE3 from Fed and Wild Wednesday in the Euro area next week
Is unlimited limited after all?
The likely amounts involved in the ECB’s OMT programme are unlikely to be huge, at least initially. However, it usually takes some time to win confidence back, meaning also the ECB will have to put some money behind its words.
ECB more or less as expected
The ECB keeps key interest rates on hold. ECB President Draghi announced some details of the ECB's new intervention mechanism called "Outright Monetary Transactions" (OMT) and easier collateral requirements.
Euro Area: Restore confidence to end recession
Here is a presentation of our new Economic Outlook for the Euro area – Restore Confidence to End Recession.
Two steps forward, one step back
Slide fest for the data hungry. Presentations on China, the US and the Euro-area following up on our latest Economic Outlook report.
Should we rather worry about failed German auctions?
In light of today’s terrible German 10-year auction, one could easily wonder whether it is German auctions and not Spanish and Italian ones that one should worry about. The EUR 5bn auction of a new 10-year German benchmark received only EUR 3.93bn worth of bids.
New financial forecast: On your mark, get set…
We are confident that i) ECB will follow Draghi’s lead and ii) this will cause risky assets to perform into the end of the year. However, we are not totally convinced this will be the ultimate game changer in the Euro-zone. Our latest macro forecasts point to a continued slow economic upswing. Bond yields are to stay low and the USD to strengthen.
Mildly disappointing ECB on Thursday
The ECB is likely to disappoint financial markets mildly at this week’s meeting. Still, looking ahead, I believe ECB interventions will come and will be decisive.
August
Submerging Markets?
Some companies are preparing to use their Emerging Markets strategy when selling in Europe. The warnings signs are flashing but is anyone listening?
Week ahead: ECB unlikely to live up to expectations
Will the ECB deliver? Hopes are high but expect somewhat of a disappointment as they won't reveal all.
Major event risks ahead for the Euro area
During the coming week's there are a number of major event risks on the Euro-area calendar. Here is a short presentation with my take on what to expect
Some reassurance from the successful Italian bond auctions
Today’s Italian bond auctions went rather well. It was reassuring that the country did not have any difficulties finding demand for its new 10-year benchmark, even though the upcoming ECB’s bond purchase programme is set to be targeted only on the short end of the curve.
Euro-zone bailout fund struggling to find demand
The EFSF barely received sufficient orders for its new EUR 3bn 10-year bond issue. This suggests, at least, the EFSF will have to pay a higher premium for future bond issues, which will also turn into higher funding costs for countries receiving financial aid.
Draghi on the future of the EUR
The ECB President Mario Draghi is one of four key Euro area leaders that have been given the task to come up with a vision for the future of the Euro area. A short article on the subject has just been released.
Buy Finnish 10-year bonds vs. the Netherlands
The Republic of Finland launched a new 10-year benchmark yesterday, marking the third new bond from Finland this year. Finnish bonds have many very valuable qualities in the current environment. We see more performance potential in Finnish 10-year bonds vs. the Netherlands.
Impression from Madrid (presentation)
Here is a presentation containing charts and comments supporting our general view on Spain
Pressure on Spain eases – at least temporarily
Spain received some good news today, as it was able to sell 3-month T-bills at a yield of less than 1%. Still, plenty of challenges remain, as illustrated by the continued outflow of Spanish bank deposits in July. Confidence towards Spain has not returned, and regaining it will take time.
Drop in German confidence implies challenges remain
Today’s fall in the Ifo index further illustrates that Germany cannot be an island within the Euro-zone debt crisis. Restoring confidence in it and the economy is crucial for the German economy as well. Until that happens, also the German economy will have a hard time performing.
New Financial Forecasts: Big Bertha about to fire…
We are lifting our short-term interest rate forecasts but keeping the 2013 forecasts. We’re in the midst of updating our macro forecasts and will introduce 2014 financial forecasts in a fortnight.
Week ahead: Economic data and a dovish Fed to support risk appetite
Next week’s macroeconomic releases and events are, in our view, generally likely to give further support to risk appetite in financial markets.
Week ahead: Looking for answers
Markets are waiting for cues to take new direction - cues about possible decisive ECB intervention and/or more evidence that the big economies are starting to recover modestly.
Estonia: Growth decelerating
As expected, the economy was mainly supported by domestic demand in Q2, while export demand remains fragile.
Chief Economist’s Corner: Super Mario nowhere near ‘game over’
It is not for nothing that Mario Draghi, President of the European Central Bank (ECB), is sometimes referred to as “Super Mario”. Just like the super hero in the computer games, he faces almost impossible tasks.
Estonia: Inflation eased as expected
We expect inflation to remain on a slowing trend over the remainder of the year.
Week ahead to be dominated by uncertainty
The dust has not yet settled after yesterday’s ECB press conference, where President Draghi dealt a blow to hopes that the central bank will quickly make huge bond purchases to address the Euro-area debt crisis.
ECB med kime til noe stort
Markedet reagerte negativt på gårsdagens budskap fra Den europeiske sentralbanken. De negative markedsreaksjonene må sees i lys av at Draghi selv hadde skapt høye forventninger og at markedsaktørene gjentatte ganger er blitt skuffet over uferdige annonserte redningstiltak.
ECB hints intervention, but gives few details
(Last update 16:12) The ECB is ready to buy bonds directly in the markets. The details remain unclear. Moreover the ECB is likely to cut interest rates in September.
July
ECB intervention possible
Some actions are possible at Thursday's ECB meeting, but a high degree of political uncertainty makes us believe that verbal support is what we will get. Intervention hints are possible.
No signs of a credit crunch, but still weak loan demand
ECB’s lending survey and the Ifo reading point to weaker growth momentum in the Euro area and support the view that the ECB will cut interest rates again.
Euro PMI stabilises
The flash Euro-area PMI stabilised in July. The numbers are bad but the situation did not worsen in July compared with June, which means that the ECB is likely to keep interest rates on hold at the August meeting.
New Financial Forecasts
We have updated our financial forecasts. We keep our forecasts unchanged calling for a further gradual weakening of the common currency and bond yields to move basically sideways.
Summertime – and the living is easy
As the holiday season sets into full swing, European leaders have their work cut out for them. And there are no easy solutions. Question is, can they stay the course? I fear they might not be able to.
Finland not about to leave the euro
Concerns that Finland will soon leave the euro are largely misplaced. The government remains very committed to the euro and not even the opposition parties are calling for an exit. Still, Finland will continue to play hard ball in future crisis management operations.
Better risk appetite alone not enough to lift yields
In the past weeks, bonds perceived to be the safest have performed at the same time as equities have. Despite the small pick-up on risk appetite, the safest bonds are likely to perform well also going forward, as the huge liquidity coupled with uncertainty about the future of the Euro-zone will continue to provide support.
Spanish bank recapitalisations may proceed
An agreement has been reached on the collateral Finland was demanding as a prerequisite for participating in the aid package for Spanish banks. It is all but certain that the Finnish parliament will approve its participation in the aid package, which would enable agreement on the first EUR 30bn to be provided.
Better to lose some of your money for sure than to take a little more risk?
Belgium joined the growing group of countries able to sell T-bills at negative rates today, another illustration of what the huge liquidity coupled with a zero per cent ECB deposit facility rate does.
Better to lose some of your money for sure than to take a little more risk?
Belgium joined the growing group of countries able to sell T-bills at negative rates today, another illustration of what the huge liquidity coupled with a zero per cent ECB deposit facility rate does.
Finnish stance makes fighting the debt crisis harder
A Finnish poll found 66% of people are against taking on further financial liabilities in the Euro-zone debt crisis, even if it leads to stability. With more negative opinions, compromises in the fight against debt become increasingly hard.
The plunge in the ECB’s deposit facility usage does not really tell us anything new
The usage of the deposit facility does not tell us anything about lending to the real economy in the short term. The money cannot disappear from the banking system: as long as banks borrow more from the ECB than is needed to fulfill the reserve requirements of the banking system, there will also be excess liquidity.
Difficult to sell your bonds? Why not force the wealthy to buy them
A German think-tank suggests forcing the wealthiest to buy government bonds, calculating it could lower German debt up to 9%. The idea is worth a closer look for Southern European countries but it doesn't solve long-term issues of where to find growth and balancing government budgets.
Some good news for Spain – but much remains unclear
The Eurogroup made only small progress detailing decisions from the June summit. Spain will have more time to reach its deficit targets and recapitalisation plans are taking shape. But a lack of detail and differing interpretations will cause uncertainty.
New Financial Forecasts
We have updated our financial forecasts. We are keeping our outlook basically unchanged, expecting choppy trading over summer.
Month ahead: A hot summer no doubt beckons once again
Summertime has more often than not seen plenty of market action in the past few years, and we do not expect this time to be an exception.
ECB’s 25bp rate cut unlikely to be the final easing step
The ECB's easing measures are not likely to be over yet. However, it sees limits to what it can do, so Euro-zone governments need to do a big part of the heavy lifting, with the ECB making sure that its monetary policy helps the process.
Global frygt aftager; USD/JPY på vej mod kurs 85
Det er vores vurdering, at med overraskende positive resultater fra EU topmødet i sidste uge, og bedre økonomiske nøgletal til efteråret, da vil USD/JPY om kort tid indlede en tendens med kursstigning og slutte året nær niveauet 85.
A small tightening step from the ECB before more easing
We expect the ECB to cut the refi-rate by 25 bp at the meeting tomorrow but perhaps more interesting we also expect to see a cut in the deposit rate to 0.10%.
How to plug the budget hole: Order drivers to buy breathalyser kits
France has passed a law making it illegal to drive without having a breathalyser test on you. Yet another way to fill the coffers perhaps as France needs a whopping extra €43bn to reach government deficit targets by 2013.
Fresh European PMI data a small ray of hope
The UK manufacturing PMI surprisingly jumped and handsomely beat the consensus expectations. This was a welcome sign amidst generally disappointing economic data lately, but does not change the view that BoE give another dose of easy money on Thursday.
June
Quo Vadis Europe? Scenarios and thoughts on the future of the Euro-zone
European leaders are at a cross-road. Decisions need to be made. We give a brief run-down of some possible ways forward.
Week ahead: more weak data but do not worry – central banks are rushing to help
After all eyes being in Euro-zone events lately, next week’s heavy US data certainly has potential to catch the attention again.
Concrete measures instead of just words needed to really boost Spanish and Italian bonds
All in all, there was notable progress at the Euro-zone summit, and the boost to sentiment should last longer than two hours this time. However, a lot of details remain in the dark.
Italy-Germany: 3-2
The Euro area is moving ahead with the common banking supervisor, direct lending to banks and supportive buying in the markets. Positive but not a game changer.
ECB already doing more
The calls for the ECB to do more have become ever louder lately, while the central bank has tried to play down expectations of more bond purchases or further extra-long refinancing operations. Nevertheless, at the same time the central bank has been increasing its support via its more conventional refinancing operations.
New Financial Forecasts
We have made minor adjustments to our financial forecasts. The storyline is more or less unchanged.
Impressions from Madrid
I have been in Madrid looking for the other side of the story on Spain. Is the situation really as bad as we and the markets think and if not, why? I am surprised that the people I met were not more negative.
More evidence of Euro area recession increases chance of ECB rate cut
Today’s business surveys add to the evidence that the Euro area economy is heading back into recession and that the downturn is affecting the core economies as well as the periphery. This clearly supports our call for an ECB rate cut in July.
Quo vadis Europe?
Europe continues to look for solutions and coming up short. Germany cannot do it alone so perhaps time to think about those Bunds.
New financial forecasts from Nordea – The Greek end-game
Greek elections and contagion risks still the major story. We are keeping our forecasts basically unchanged.
May
Let’s replace austerity with growth…
Everybody wants to switch from austerity to a growth agenda. But guess what? That costs money.. and who's going to pay?
April
The Fed to offer little ammo to bond bulls
Next week’s calendar looks quite interesting, with the main focus in the US on the 2-day Fed meeting concluding on Wednesday.
A lot on the calendar next week, but positive surprises still scarce
We do not expect next week’s economic data offerings to convey a particularly encouraging message. Here is what we expect from the week ahead.
November
Chief Economist’s Corner – Who will foot the bill now?
Just like the Jasmine revolution has overthrown regime after regime in the Arab world, the sovereign debt crisis is weeding out in European politics.
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