Germany continues to producer a fiscal surplus
This was never in doubt.
Here’s the report from Fitch.
Archives of “eurozone” tag
rssEconomic data coming up in the European session
Eurozone October final inflation reading in focus today
Happy Friday, everyone! Hope you’re all doing well as we look to get things going in the session ahead. Risk trades are in a better mood today with some recovery seen in yen pairs and gold is also lower to start the day.
Meanwhile, equities have nudged higher while bond yields are also faring better as the Trump administration talk up hopes of a trade deal.
Looking ahead, there is little on the economic calendar in Europe to really shift the dial so we may be in for a more quiet one barring any major headlines to cross the wires.
1000 GMT – Eurozone October final CPI figures
The preliminary report can be found here. As this is the final release, it isn’t expected to have much – if any – impact on markets as a whole.
1000 GMT – Eurozone September trade balance data
Prior release can be found here. An indication of trade conditions in the euro area region but the data is a bit lagging as this pertains to Q3 economic performance.
1000 GMT – Italy October final CPI figures
The preliminary report can be found here. Focus is on the overall Eurozone release so the report here will matter little, and even more so since this is the final release.
That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading!
Its European Central Bank policy meeting day – preview
ECB monetary policy decision is coming later on Thursday 12 September 2019
- announcement due at 1145gmt
- ECB President Draghi’s press conference (his last one!) is at 1230 GMT
Various previews have been posted in past days, I’ll collate them all for easy reference a little later. But for now, BNZ have a handy summary:
- consensus among economists is for a 10bp cut to the ECB’s deposit rate and the announcement of a resumption to QE, with the median estimate for a €30b per month pace of bond buying.
- The market prices 14bps of rate cuts in for this meeting, implying an almost 50% chance that the ECB could cut by 20bps.
- The ECB is widely expected to accompany any rate cut with the adoption of a “tiering” system for bank reserves, whereby some portion of banks’ reserves will be exempted from the negative deposit rate, in order to mitigate the negative financial impact on the banking sector.
- The bond market’s focus is likely to be on whether the ECB restarts its QE programme and, if so, what the size of such a programme might be. Despite the recent rise in European and global rates, expectations for the ECB are still high (as evidenced by a 30 year German yield of 0%) and were it to disappoint market expectations on QE, the risk is for an extension in the recent bond sell-off.
The question is not if but how much will the ECB deliver this week – Danske Bank
The firm outlines its expectations ahead of the ECB meeting this week
Analysts at the firm say that “the question is not if the ECB will announce new initiatives but how much it will deliver” instead. I think that’s an argument that everyone already has figured out by now. So, let’s see what they are expecting:
“We expect the ECB to announce (1) a 20bp cut in the deposit rate (other key rates unchanged) and that the extended forward guidance (‘at present or lower…well past the horizon of net asset purchases’) will remain; (2) a 12-month QE restart of €45-60bn per month, albeit also acknowledging the downside risks given the recent hawkish communications from a few Governing Council members; and (3) a tiering system.”
At this stage, a cut to the ECB deposit facility rate, a tiering system and a change in forward guidance message is all but guaranteed. The big question is whether or not we will see the reintroduction of QE this week.
Wall Street drops on earnings as euro swings on ECB rhetoric
The S&P 500 retreated from a record high on Thursday as adverse reactions to a handful of corporate results weighed on the market and as the latest assessment of monetary policy rhetoric from the European Central Bank triggered a volatile session for the euro.
The US equities benchmark was down 0.5 per cent owing to poorly-received results from a number of technology and industrial companies.
American Airlines shed 8.4 per cent after saying it expected a larger hit to pre-tax earningsfrom the grounding of Boeing’s 737 Max jets. Southwest Airlines said it expected cost pressures from the grounding to weigh on results in the second half and decided it would cease operations out of Newark Liberty International airport, which helps serve the New York City area, although its shares managed to reverse early declines to finish roughly flat.
Rivals Delta Air Lines and United Airlines were both lower. Boeing remained under pressure, down nearly 4 per cent, after flagging on Wednesday it might have to cease production of the jet that was involved in two fatal crashes earlier this year.
Facebook and Tesla were down 2 per cent and nearly 14 per cent, respectively, after reporting results following Wednesday’s closing bell.
The leg down in US equities also came as investors digested better than expected US economic data that raised concerns that Federal Reserve policymakers may not be as dovish as markets expect at next week’s investor meeting.
There was much interest in the ECB, though. As President Mario Draghi gave his regular press conference after leaving interest rates on hold, investors measured his words against hopes for a return to economic stimulus in the region, which had pointed to more bond-buying as soon as September.
It sent the euro on a volatile run, and a rally for the region’s government bonds also faded, drawing yields higher as the trading day developed. Stocks also dropped back from highs, although banking shares remained in demand.
The shared currency bounced up off two-year lows after Mr Draghi spoke to reporters, and was about flat at $1.1144.
European stocks were also unsettled, with the extent of the ECB’s concern at an economic slowdown outweighing the hopes for fresh stimulus. Frankfurt’s Xetra Dax stood out, falling back by 1.3 per cent, surrendering earlier gains that took it up as much as 0.6 per cent for the session.
Highlights in the Week Ahead
Three events that will capture the market’s attention next week: The consequences of the Japanese election, the first look at US Q1 GDP, and the ECB meeting. The central banks of Turkey and Russia also meet. Both are expected to cut interest rates, following rate cuts in the middle of last week by South Korea, Indonesia, and South Africa.
Japan goes to the polls on July 21 to elect the upper chamber of the Diet. There is little doubt that the LDP-Komeito coalition will retain its majority. The real issue is whether it keeps its 2/3 super-majority, which allows it to pursue constitutional changes. The economy itself is struggling, and the sales tax increase in October is unpopular. In addition, news of a (~JPY20 mln or $185k) gap between pension payouts and the cost of a 30-year retirement is seen as due to longevity more than low returns savings but does not sit well in either case. The opposition is weak and divided, and there is much pride attached to hosting the Rugby World Cup in September and the Olympics next year.
The recent Tankan Survey showed sentiment among large manufacturers stood at three-year lows at the end of June. The government reported a larger than expected year-over-year decline in exports–for the seventh consecutive month. The Bank of Japan has reduced its bond purchases with little fanfare, while its equity purchases dominate the ETF space. There is no exit strategy in sight. Indeed, it seems more likely that it steps up its JGB purchases again if the government debt finances a supplemental budget to blunt the effect of the sales tax increase. Before the weekend, Japan reported that its core measure of CPI, which excludes fresh food, fell to 0.5% in June, a two-year low.
Regardless of the results of the election, just getting it over will impact the agenda. The US-Japanese trade talks will turn more serious. At first, the US seemed to want a comprehensive agreement, but now it appears it wants to show positive results. Due to Japanese trade agreements under the TPP and the EU, US farmers are at a commercial disadvantage. It has not been clear what Japan wants in exchange, but some have suggested reduced tariffs on auto parts. Abe interest is projecting Japan’s power dovetails with Trump’s push that greater burden-sharing, including protecting oil tankers in the Gulf.
Perhaps with the election behind him, Prime Minister Abe will be in a better position to have a rapprochement with South Korea. The issue has been escalating since Moon Jae-in took office in 2017 and distanced his administration from the 2015 agreement about Japan’s apology and compensation. At the start of this year, Korea’s high court allowed the seizure of the assets of a Japanese corporation for compensation for forced labor.
The shape of Abe’s response, a licensing process for South Korea companies who buy semiconductor and display materials from Japan on national security grounds, may have been influenced by the US precedent. In fact, it was likely that the US was notified beforehand. Although the US helped broker earlier agreements between its two allies, like one in 1965, the US has shown little interest in mediating. Abe could still ratchet the pressure up a notch as early as next month by removing South Korea from its list of countries with privileged access to Japan’s exports. This would broaden Japan’s impact and notably include auto parts.
What has Christine Lagarde said about ECB policies?
Lagarde’s thoughts on ECB policies
Bloomberg has a nice recap of all of Lagarde’s comments on ECB policies like QE and negative rates.
“Many of the right decisions have been taken. Most recently, initiatives by major central banks — the European Central Bank’s OMT bond-purchasing program, QE3 by the U.S. Federal Reserve, the Bank of Japan’s expanded Asset Purchase Program — are big policy signals in the right direction.” – Sept 24, 2012.
The entire collection is dovish. The risk is that those comments are part of her job at the IMF.
One thought that’s doing the rounds is that Lagarde’s real job at the ECB will be to push eurobonds forward and eventually the United States of Europe. That’s a compelling argument because closer ties is something she’s always pushed for and it would be part of the mandate implicitly coming from Macron and Merkel.
“Our goal should be clear: Restarting convergence and ensuring the fruits of economic growth are shared broadly across the EU. This will help restore faith in the European project.” – Feb 14, 2019.
Markets Pause Ahead of the Weekend
Overview: The global capital markets are trading quietly ahead of the weekend. Equity markets are mostly narrowly mixed. Chinese shares extended their run, and the major benchmarks were up 4%+ on the week. Japan, Australia, South Korea, and India saw gains pared. European equities were edging higher, and the Dow Jones Stoxx 600 is holding on to around a 2% gain for the week. After closing at record highs yesterday, the S&P 500 is trading a little heavier in the electronic activity. News that the US was ready to strike Iranian radar and missile batteries but called it off at the last moment rattled investors. Japanese, Europe, and US 10-year benchmark yields firmed slightly, while Australia and New Zealand 10-year yields eased to new record lows. The dollar itself is also mixed, though the Dollar Index is trading a little below its 200-day moving average (~96.65) in the European morning. The Turkish lira and South African rand are leading most of the emerging market currencies lower. Gold briefly extended its gains above $1400 for the first time since 2013 before pulling back in Europe. It is poised for its largest weekly gain (~3.5%) in three years.
Asia Pacific
Japan reported softer price pressures and a June flash manufacturing PMI that remained below the 50 boom/bust level. Headline CPI slipped to 0.7% in May from 0.9% in April as economists expected. The core rate, which excludes fresh food, eased to 0.8% from 0.9%. When fresh food and energy are excluded–more like the US and Europe core measures–prices were up 0.5% from a year ago rather than 0.6% as was the case in April. The flash manufacturing PMI fell to 49.5 from 49.8 and reported the first drop in new orders since June 2016. Output remained firm, and the order backlog is being absorbed, setting the stage for a potentially difficult Q3. A bright spot may be services. The tertiary index for April jumped 0.9% after a 0.5% decline in March. This is the largest increase since last October. There are no policy implications from today’s reports. The bar to BOJ action appears a bit higher than in the US and Europe.
Greece won’t last beyond November without aid, says PM
Greek Prime Minister Antonis Samaras has signalled that his country could not survive beyond November if it isn’t granted the next tranche of bailout aid.
Samaras highlighted that the most important thing for Greece is liquidity and underlined the necessity of the international financing.
When questioned in the Handelsblatt interview how long Athens could survive without additional help he answered: “Until the end of November, then the cash box will be empty.”
Samaras also felt that the European Central Bank (ECB) could help out by accepting lower interest rates on Greek bonds and rolling over the debt at maturity. However, ECB President Mario Draghi ruled out the idea, because he considers it to be “monetary financing”.
In an International Herald Tribune conference held in Paris, Samaras also warned that a Greek exit from the euro would be “disastrous” for the Eurozone and could slash the Greek standard of living by up to 70%.
German Finance Minister Wolfgang Schäuble gave some show of support stating that countries with problems should be allowed more time to reform but he did lash out at Greece by stating that all the other Eurozone states had made good progress on their austerity measures. He did however admit that Athens is in a “difficult situation”.
Sarkozy Threatens To Pull France Out Of Euro
If you were wondering why the market is spooked by rumors that Germany may be returning to the DM, here is actual fact that French President is on the verge of reinstating the franc. And with that, the euro is nothing more than a political toy for Merkel, Sarkozy and whoever the current non-indicted head of the Italian government is, to achieve their political goals. The currency is now dead. Parity coming within a few weeks.
From The Guardian:
The markets were initially unsettled by news that the French president had threatened to pull France out of the eurozone. The startling threat was made at a Brussels summit of EU leaders last Friday, at which the deal to bail out Greece was agreed. according to a report in El País newspaper quoting Spanish Prime Minister José Luis Rodríguez Zapatero.
Zapatero revealed details of the French threat at a closed-doors meeting of leaders from his Spanish socialist party on Wednesday.
Sarkozy demanded “a compromise from everyone to support Greece … or France would reconsider its position in the euro,” according to one source cited by El País.
“Sarkozy went as far as banging his fist on the table and threatening to leave the euro,” said one unnamed Socialist leader who was at the meeting with Zapatero. “That obliged Angela Merkel to bend and reach an agreement.”
A different source who was at the meeting with Zapatero told El País that “France, Italy and Spain formed a common front against German and Sarkozy threatened Merkel with a break in the traditional Franco-German axis.”
El País also quotes Sarkozy as having said, according to another of those who met Zapatero, that “if at time like this, with all that is happening, Europe is not capable of a united response, then the euro makes no sense”.
Well, an epiphany 10 years late is still better than no epiphany. And, of course as many will say, he who panics first, just may salvage something. Which for most American citizens still infatuated with their currency, may mean very bad news.