MADRID | The Corner | Chairman at Bundesbank and member of the ECB’s Government Council Jens Weidmann warned -again- that more ECB measures to solve low inflation are difficult and could face legal limits. As markets await for Mr Draghi’s appearance on Thursday, ECB’s Benoit Coeure insisted in a Bloomberg TV interview they won’t “rush to a new decision without knowing.”
LONDON | By Jim McCormick and Keith Parker (Barclays) | At the start of the year, we analyzed the risks of a prolonged bout of deflation in the euro area (Japan-style deflation in Europe getting harder to dismiss). Our broad conclusion was that the risks of deflation in the euro area were probably not materially different from the risks Japan faced in the mid 1990s. Perhaps more important, we felt investors should picture 1996-97 Japan when assessing the risks of euro area deflation today.
Maury N. Harris, Drew T. Matus, et al. (UBS) | The National Retail Federation (NRF) has released its estimates for a 4.1% y/y rise in holiday sales—among the stronger growth forecasts in recent years. Although sales have fallen short of NRF expectations in each of the last two years, trends in income and confidence suggest better for this year. Falling energy prices also help.
By Jian Chang (Barclays) | The PBoC announced after the market close on Friday it was lowering the benchmark interest rates, effective 22 November 2014. The cut will be asymmetric, with the 1y lending rate down by 40bp to 5.6% and the 1y deposit rate down by 25bp to 2.75% (Figures 1 and 2). Meanwhile, the central bank further advanced its interest rate liberalization agenda. Banks can offer deposit rates at 20% above the benchmark rate, up from 10% currently (the upward flexibility was first introduced in June 2012, also along with a 25bp cut in the deposit rate). The bank also removed the benchmark guidance for the 5y savings rate.
MADRID | The Corner | It seems Mario Draghi is preparing the markets and the ECB’s Government Council for further action as soon as next December. Investors are reluctant to trust Mr Draghi’s words, but they seem to be more confident lately. However, this “affair” will come to an end if the ECB does not take effective measures. According to market watchers at Link Securities, markets will closely monitor the ECB’s Government Council meeting, which will be crucial for investors to maintain their trust in the European institution.
By Miriam L. Campanella via Caixin | The supply of U.S. dollars in the global economy is set to shrink, and the yuan could fill the void if Chinese leaders and international monetary institutions are prepared to act
MADRID | The Corner | Internal demand is recovering within the euro area, activity is getting back on track and experts believe that companies are about to start investing, hiring more workers and boosting consumption. However, credit flow, the production gap and unemployment are still major challenges. Analysts at Cortal Consors think that Spain and Portugal are the Eurozone countries most at risk of a “prolonged period of low inflation or mild deflation.”
MADRID | Álex García.
MADRID | The Corner | The European Central Bank published the legal act for purchases of asset-backed securities, setting it up to start buying the debt as soon as this Friday. Proponents say the measure “could boost the shaky eurozone recovery by reducing borrowing costs for businesses, households and governments.” According to market watchers at Link Securities, Mario Draghi will reiterate the intention of adopting new measures to boost the economic growth in the Eurozone.
ATHENS | By Jens Bastian at The Agora | Greece finally exited its six-year long recession in the third quarter of 2014. The Hellenic Statistical Authority ELSTAT said that the economy grew by 0.7 percent in the third quarter (compared to the same quarter in 2013). The positive third quarter reading is the first after 24 consecutive quarters of negative GDP performance dating back to Q3 2008. Still, the economic damage from this recession is staggering. It will take years – perhaps even decades – to bring Greece’s real economy back to the levels last achieved in 2007.