Tag: European monetary union
The looming asset quality review by the ECB, year-end effects and the search for liquidity, an economy losing momentum and the big narrowing in spreads seen lately all favour taking profit before the end of the year. Intra-Euro-zone spreads are set to widen in the weeks to come, while banks will feel pressure vs other sectors.
Finnish bonds continue to be supported by their strong credit status. The Finnish banking sector is healthy, something that will gather added attention due to the ECB’s comprehensive assessment on banks. Especially switches out of shorter Austrian, German and Finnish bonds into the 5-year auction bond look attractive.
Spain found close to EUR 11bn of interest for its new 30-year benchmark, a strong signal of how receptive the European bond market is and a testament of all the progress Spain has already made in reforming its economy. As long as the government has the patience to stay on the reform path, the outlook for Spain can improve further, and Spanish bond yields to fall.
Finnish economy has not had it particularly easy lately, and there is no denying the fact that also Finland is in dire need of structural reforms to tackle the challenges ahead. That said, Finland remains well-positioned relative to most other Euro-zone economies and still has good prerequisites to reform the economy.
Central banks have become very keen to give concrete forward guidance to markets lately. The Fed has of course been doing it for several years already, but the ECB and the Bank of England started doing it only recently. The …
History is no guarantee of how the future will play out, but it usually acts as a valuable guide. As people in many parts of Europe and the US head to the beach, it is useful to take a look, how financial markets have been behaving in the past. It turns out August has actually been a very good month for bonds.
Today’s Euro-zone PMI data and the ECB lending survey provided fresh evidence the area is making good progress in finally defeating recession. The data is bad news for bonds in the short term, but any move higher in rates should be seen as a buying opportunity rather than the start of a more permanent uptrend in yields.
The Fed is finally starting to get its message through: tapering does not mean imminent policy tightening. Markets are not that allergic to all tapering talk anymore, while economic data will receive added attention going forward. In the Euro zone, political risks are on the increase again.
Political risks have clearly risen in several Euro-zone countries, materially raising the odds that in at least one country, the risks materialize. Bond markets should become more susceptible to such risks in the near future, warranting cautiousness towards the bonds of the weaker Euro-zone countries over the summer.
Inflation is quickly becoming a topic again – not because of concerns the huge stimulus measures pursued by central banks would be creating inflation, but because the falling inflation rates are raising questions of whether central banks are doing enough. Bonds should thrive in an environment of falling inflation.
The recent sell-off in rates is likely to be reversed, which will increase the search for pick-up again. Such behavior would benefit Finnish bonds as well, making Tuesday’s Finnish bond auctions look more attractive.
The recent sell-off in interest rates is looking increasingly overblown, especially in Europe. We look for a notable move back lower in rates, with the Fed meeting next week being a potential trigger. Long positions especially in the short end of the EUR curve thus look quite attractive.
The recent considerable rise in rates looks to have taken place too fast, as concerns that the Fed would be close to scaling down stimulus measures have been driving markets. In Europe, not that much has changed and taking advantage of the higher carry available looks much more attractive again.
The Germans take pride in their Bundesbank and its history of guaranteeing price stability, a very sensitive topic in Germany. Lately, however, the monetary policy choices of the ECB have caused quite a lot of irritation among many Germans. Such irritation will only grow going forward.
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.
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 …
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.
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.
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?
Big market moves have caught a lot of attention in the past few days. Where is the world going?
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 …
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.
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.
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.
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.
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 …
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 …
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.
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.
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.
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.
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.
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.
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.
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?
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The analysis explores four eurozone break-up scenarios: i) Greece leaves the euro, ii) several countries in difficulties leave, iii) Finland exits on its own accord, and lastly iv) the entire eurozone splits up into two or breaks up altogether. We take no stand on whether the eurozone will remain as it is, or will it change or break up totally.
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.
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.
Not too long ago, I had high expectations for this week’s EU Summit
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).
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 …
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.
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.
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.
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.
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.
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.
Nordea Economic and Market Outlook: Our latest take on Nordic and Global financial markets and economies.
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.
Mission Impossible for the Euro-zone? A new party in Austria wants to drop the Euro. Could they inspire others?
More details from the ECB on OMT, September employment report and ISM manufacturing survey from the US, minutes of the FOMC meeting, UK PMI figures and the Bank of England rate decision.
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.
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.
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.
Here part of the presentation from today's lunch session at EuroFinance
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.
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.
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.
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 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.
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.
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...
Within the next three months the Danish central bank will make its first independent rate hike since 2008.
Within the next three months the Danish central bank will make its first independent rate hike since 2008.
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.
(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.
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…
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.
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.
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.
Here is a presentation of our new Economic Outlook for the Euro area – Restore Confidence to End Recession.
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.
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.
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
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.
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.
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.
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.
Here is a presentation containing charts and comments supporting our general view on Spain
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.
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.
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.
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.
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.
(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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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.
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.
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.
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.
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.
Today’s Spanish auctions did not do much to change the overall picture. It was of course positive that the country sold the maximum amount intended, EUR 3bn, while the bid-to-cover ratios were healthy, but this was largely in line with what we have seen lately anyway.
Jeg har netop publiceret en sommerartikel om betydningen af EU-topmødets resultater for danske virksomheder, og ikke mindst hvad vi alle skal være opmærksom på, som virkeligt vil kunne få optimismen tilbage… og væk med frygten for tab af hele kapitalen (”return of capital”).
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%.
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.
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.
After all eyes being in Euro-zone events lately, next week’s heavy US data certainly has potential to catch the attention again.
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.
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.
The Republic of Finland has decided to extend its bond curve out to the 30-year sector, following the introduction of 15-year bonds in 2009. This presents a rare chance for investors, as Finland remains one of the very few AAA-rated EUR government issuers left.
We have made minor adjustments to our financial forecasts. The storyline is more or less unchanged.
There are no important key figures next week. Two major events can change sentiment: the Troika mission will land in Athens on Monday and the EU Summit Thursday and Friday
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.
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.
Now the tough part begins: re-negotiating the terms of the Greek stability programme. The two sides are likely to be miles apart in their demands to begin with.
Despite the recent move higher in yields, there are still a number of factors supporting bonds. In the current uncertain environment, there is going to be a need for a safety asset.
The statement from the G20 leaders contained a lot of good intentions again, but whether they will lead to any concrete implementation remains to be seen.
The German ZEW survey of financial experts showed sentiment plunging from 10.8 to -16.9 in June. But there are a couple of reasons why we would not over-interpret the message of the survey.
UPDATED - Hollande can rule supreme after winning a majority for his socialists party. That was the easy part... now he has to deliver on all of his promises.
One should not expect any major risk rallies or bond sell-offs on the back of the Greek elections, we already saw notable corrections in markets ahead of the elections.
The pro-bailout parties secured enough seats to form a government at Sunday’s election. That is a relief to the markets, but does not solve the debt crisis.
Most of next week will most likely be spent digesting the Greek elections results and (the chance of) possible stimulus measures, and few interesting entries in the calendar.
Europe continues to look for solutions and coming up short. Germany cannot do it alone so perhaps time to think about those Bunds.
Our baseline scenario is that Greece will remain in the Euro area, BUT that requires forming a government as a first step.
On Sunday Denmark meets Germany in a decisive game in the European Championship in Ukraine. It may well prove to be a nerve-wrecking affair, but seen in a bigger perspective the result of the game is of zero importance compared to the result of Sunday's general election in Greece.
The changing regulatory environment means that there is little reason for insurance companies to receive in interest rate swap longer than 20 years. Paying in ultra-long (forward-starting) swaps or buying payer swaptions appear good strategies.
With 17 countries trying to reach common decisions, differences in opinions are bound to arise. The Austrian Finance Minister Fekter let it slip in a television interview that also Italy might need financial help.
According to a senior Euro-zone official via Reuters, the Spanish banks could be recapitalized using EFSF bonds to avoid the problem of the preferred creditor status of the ESM. The bailout could later be shifted to ESM, but the extended loans would not become senior to other debt.
Greek elections and contagion risks still the major story. We are keeping our forecasts basically unchanged.
The Spanish bailout will probably give some relief to the markets in the near term, but it is likely to be limited because it will not end the debt crisis, the Greek elections are still looming, and Spain may need more help eventually and risks downgrades following the bailout.
Apart from the continued talks around when Spain will make the official request for aid to its banks, the Greek elections are definitely the main thing to follow.
According to Reuters, citing EU and German sources, Spain would request an aid package for recapitalizing its banks as early as tomorrow. Still, ahead of the Greek elections, the materialization of the aid package would likely lead to only another short-lived rally in risk assets.
Spanish bonds were definitely helped by today’s positive auction results. However, this does not illustrate increasing confidence that Spain would be able to tackle its problems on its own, but increasing hopes that Spanish banks will be recapitalized with the help of the European rescue funds.
Contrary to our expectations, the ECB kept interest unchanged at today’s meeting. We expect a rate cut in July.
Can the Euro area survive a Greek exit? Will Spain ask for an EU/IMF bailout? What actions will be taken at the 28-29 June EU summit and will it be enough to secure the survival of the common currency in the longer term?
We still find it most likely that Greece will remain in the Euro area, at least in the near term, but have to ask what happens if they do not?
The fate of the Spanish banking sector is one of the major risks facing the Euro zone at the moment. Spanish banks will likely need much more state help than Bankia alone requires, and this will be too much for the Spanish government to stomach.
Politicians have started to show a sense of urgency, but decisive measures will take years to implement. Still the EU summit on 28-29 June might give some rough sketch of a road map for further integration.
Behind all the negative headlines, Portugal has made a lot of progress in reforming its economy. It thus seems that Greece has been the exception in not following its terms rather than that all the economic reform programmes would be destined to fail.
We have adjusted our EURCHF forecasts, seeing it at 1.20 at the end of 2012, 1.22 by mid-2013 and 1.25 by the end of 2013.
After this week’s heavyweight US economic data, the spotlight is even stronger in the Euro zone again next week.
An increasingly clear picture is emerging of a US economy that has gained momentum and is slowly heading for a selfsustaining upswing, while Europe seems to be sliding into a deeper crisis than previously anticipated.
April data from the ECB revealed that Spanish banks actually decreased their government bond holdings by some EUR 3bn vs. average net purchases of some EUR 20bn in the prior three months. With a dark cloud hanging over the Euro zone at the moment, yields may need to rise notably to attract new investors to the markets.
Many have missed the upward move in short Spanish and Italian short yields lately. The rise in short rates is worrying both because it means that the country in question is facing high funding costs throughout the curve and since it signals increased shorter-term worries.
After another round of disappointing survey data we believe the time has come for the ECB to cut interest rates.
The cost for the Spanish government to aid its banking sector is mounting, while the weekend’s news of state aid to the troubled Bankia is unlikely to be the last piece of such news. In light of the development in many other countries, Spanish house prices still have a long way to fall, keeping the outlook for Spanish banks uncertain.
Today’s disappointing numbers point to a significant contraction in the Euro area in Q2 and shows that the Greek crisis is spreading to the German and French economies. Risk of rate cuts from the ECB during summer.
German yield levels already look very depressed relative to growth and inflation expectations. Still, at the moment the abundance of shorter-term worries prevails, and these worries are likely to push German yields even lower
All eyes remain on anecdotal news on how depositors in Greece and outside the country are reacting to the recent events. In terms of economic data releases, the main focus will be on flash PMIs for May.
New elections have been called in Greece and so we look at the timeline of what might happen in the coming months and the consequences if a solution to Greece's problems is not found.
With market strains increasing rapidly, the ECB remains the one with the capacity to react fast. After the ECB has acted first to try to bring some calmness to markets, something could happen on the government front as well.
Today's key figure relases showed a somewhat better growth performance for the Euro area as a whole than expected.
The Greek situation will continue to grab the headlines. Euro-zone Q1 GDP will likely confirm the zone has fallen into another recession, while US April retail sales growth likely weakened notably compared to March.
State Treasury Finland will re-open RFGB 1.875% Apr 2017 on Monday, 14 May 2012. With short rates virtually at zero, the search for pick-up in definitely on. We find maturity extensions from shorter German, Dutch and Finnish bonds into the 5-year Finnish auction bond attractive.
News that the Democratic Left have tentatively agreed to participate in a grand coalition offers hope of a new Greek government being announced this weekend.
According to the Financial Times, Spain could be offered an extra year to hit the 3% of GDP deficit target. This is likely a step in the process, where the strategy of front-loaded austerity measures is rethought and economic growth given a higher priority.
With German bonds enjoying strong momentum, yields could fall even further. The pricing of a risk of some sort of a Euro-zone break-up will likely increase on the back of the Greek situation, while the Spanish situation continues to be another source of uncertainty.
With 99% of the votes from Sunday’s general elections counted, the two “big” parties – the conservative New Democracy and the socialist PASOK – won 149 seats in the 300-seat parliament and hence lack two seats to form a majority coalition.
Markets are expected to set out with a negative tone towards risk today after the uncertain Greek election outcome and the very soft US employment report Friday. Hollande won in France, as expected.
Everybody wants to switch from austerity to a growth agenda. But guess what? That costs money.. and who's going to pay?
Our latest take on Nordic and Global financial markets and economies.
The ECB decided to keep interest rates unchanged at today's meeting and gave no new signals.
Additional crisis measures are not on the cards at the ECB meeting today – but we see an increasing risk of an additional rate cut if the expected recovery of the Euro area fails to materialise.
Today’s PMI numbers increase the concerns about growth in Italy and confirms the gradually worsening growth momentum in the Euro area in total
Italian and Spanish bond yields rose notably in March despite continued support from domestic banks. This does not bode well for the future, as the pace of purchases by banks is not at least set to increase.
Bond markets appear due for a correction, but we expect next week’s events and economic data only to add to the gloomy sentiment.
Yesterday’s move by Standard & Poor’s to downgrade Spain’s rating by two notches brought rating news back to the spotlight. More downgrades are likely in store, as austerity measures bite amidst an uncertain economic outlook.
The need for additional crisis measures from the ECB has diminished, but interest rate cuts have become more likely!
The big central banks have turned out to be much less inclined to QE than expected. We no longer expect QE from the Bank of England in May.
The fall of the Dutch government illustrates how hard introducing austerity measures is in the core countries as well. If even the core countries show reluctance to meet the budget limits set by the EU, bringing back confidence towards the currency union and its rules is certainly not going to succeed.
Presidential elections due on 22 April and 6 May. Conservative Sarkozy and Socialist Hollande are neck to neck for the first round, while Hollande looks like a winner for the run-off.
Today’s Spanish bond auctions received, again, more attention than probably warranted as the results do not really tell us that much new about the underlying demand.
Fresh data showed Spanish house prices falling by 2.9% q/q in the first quarter of the year. Until the housing market stabilizes, uncertainty is likely to prevail.
The G20 finance ministers will likely agree on increasing the resources of the IMF later this week. Such a decision, though not insignificant, is unlikely to change the course for markets.
The significance of today's successful Spanish T-bill sale should not be overplayed. The auction size was rather modest, though Spain did pay less for its 1-year funding compared to Italy last week. Thursday’s bond auctions will be more interesting.
We see rates continuing lower in the coming months and the EUR/USD unchanged around the current levels.
We see rates continuing lower in the coming months and the EUR/USD unchanged around the current levels.
Most news stories only report the jump in overall central bank borrowing by Spanish banks in March, but miss the increase in funds Spanish banks have in reserve to meet future funding needs. The funding position of Spanish banks – like that of the Spanish sovereign – is actually relatively good at the moment.
Even though the recent rise in Italian yields is worrying, the threat of an immediate funding crisis remains limited. Still, the pressure on Italian bonds is likely to continue in the near future.
The huge liquidity sloshing around is boosting the safest asset classes again, while Spanish and Italian bonds remain under pressure. This is likely to continue, until we see some better economic data again.
Notable flight-to-safety demand has taken place today ahead of the Easter holidays. Even though the drivers are real, one should not over interpret the moves seen on thin markets ahead of a long weekend, with also tomorrow's US employment report creating uncertainty.
Steady as he goes was the keyword for the ECB meeting today. All interest rates were left unchanged and the ECB did not announce any new liquidity operations.
Today’s Spanish auction results further illustrate that the support from the ECB’s 3-year refinancing operations is waning. Spanish yields will likely continue to lurch higher, leading to higher uncertainty about the Euro-zone situation again.
The differing collateral policies implemented by national Euro-zone central banks put banks in various parts of the Euro-zone in different positions. Such policies increase worries about the cohesion of the Euro zone.
The huge amount of excess liquidity in the Euro-zone banking system is still favouring a flatter curve, carry is positive for flatteners, while the curve tends to flatten, when short rates start to rise. The 2-5-year curve should still have flattening potential left.
Earlier today the Eurogroup announced that the total size of the Euro area's firewall will be raised from EUR 500 bn to EUR 700 bn. This is a welcome move - which should have a positive effect on markets as well - if they can be bothered to care now that the ECB has doped everyone with the two 3-year LTRO's.
Spanish yield spreads are rising ahead of the Spanish government’s presentation of a supplementary budget for 2012. We think the government can pull out of the crisis if the it keeps the momentum behind structural reforms and consolidation.
Spanish and Italian bond yields are likely to continue to creep higher, as the support from domestic bank buying fades. Such market action will likely increase general worries about the course of the debt crisis, keeping German bonds well-supported.
The ECB's bond purchases have been very modest recently. Arguably, bigger purchases would not even have been necessary lately. However, the Securities Markets Programme of the ECB has become more of a blunt weapon also in general, and has less potential to fight the debt crisis, if the need arises again.
The outlook for Dutch bonds looks much more clouded than that for their Finnish counterparts. Whereas Dutch bonds are burdened by political uncertainty, big deficits and another economic recession, Finland is making headway to balance its books.
The decline in composite PMI was driven by a 1.3 index point fall in manufacturing PMI to 47.7 in March.
Greece sold EUR 1.3n of 13-week T-bills at a yield of 4.25% today, down from 4.61% in February and the lowest since last May. However, confidence in the country is not about to return.
The recent sell-off in bonds has shown little signs of abating. One only needs to look back to the past couple of years to see that yields can see a substantial jump without major changes in central bank policy.
The main Euro-zone bailout fund launched a new 20-year benchmark at a cost closer to Belgium than France. Such funding levels do not exactly illustrate high confidence in the facility, while the high funding needs of the EFSF will put pressure on its funding costs to increase further going forward.
Despite its high debt, the Italian situation actually looks much better compared to Spain on many measures.
Despite its high debt, the Italian situation actually looks much better compared to Spain on many measures.
Today’s successful Italian bond auctions were another illustration of how the ECB’s 3-year liquidity injections have succeeded in changing the course for the government bond markets.
The ECB kept all interest rates unchanged at todays meeting. At the same time Draghi used the press conference to signal stable rates ahead, while further 3-year LTRO’s are off the table.
After the record breaking allotment of EUR 523 bn in the ECBs second 3-year Long Term Refinancing Operation, attention has once again turned to the build-up of Target 2 balances.
The scene is set for further “risk on” after the ECBs second 3-year Long Term Refinancing Operation (LTRO) resulted in allotments of EUR 529.5 bn.
Spain saw its T-bill yields plunge in an auction earlier this week. 3-month bills were sold at an average yield of 0.40%, whereas still in November the corresponding yield was 5.22%.
The ECB will release the results from its second 3-year operation next week and expectations have been set high that another huge liquidity injection would boost markets again.
Greece seems to be very close to a deal on a voluntary debt rescheduling, which could be announced later this week.
Three topics are worth mentioning about the EU summit Monday
France and Austria’s top AAA ratings fell victim of the sovereign debt crisis Friday night, when S&P downgraded nine of 16 Euro countries.
Making a case for why an improvement could be lurking beneath the fog of doom and gloom.
Taking the temperature of the cross currency basis swap market following the coordinated central bank actions to ease money market tensions.
German key figures are surprisingly on the upside.
Nordea's Chief Analyst on the euro area presents his view on the latest developments in the European debt crisis.
After much nail biting European leaders finally succeeded: The series of summits among EU countries led to a comprehensive agreement on how the debt crisis can be contained, and a new financial crisis can be avoided.
The Euro area debt crisis roils financial markets once again. Is a break up of the Euro area imminent or is the stand-off between Greece and Germany just another thorny step on the road? We take a look at consequences for financial markets.
In the late European session on Friday, the Spiegel story that Greece was considering leaving the Euro sent jitters through financial markets.
Central bank rescue to help only gradually. The past couple of months have clearly brought a turn for the worse in two respects.
Inflation and rate hike fears have backed down in the past month, but with the economy continuing on the recovery track we think the retracement is just temporary.