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In Europe 16th October 2014

Stimulus, bitte!

MADRID | The Corner | The eurozone’s inflation slipped in September to its lowest level since October 2009 (0.3%), raising fears of an eventual third recession in six years. Prices have been now been in the ECB’s “danger zone” of below 1% for 12 consecutive months. And yet Germany, the biggest economy in the EZ,  is torn between deficit control and growth, relieved with a weak euro helping its exports but worried about the same depreciation policy leading to less pressure to implement reforms in countries like France.

 

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Markets 10th October 2014

Loan growth weak but signs of corporate lending pick-up (Barclays)

MADRID | The Corner | Weak loan growth continues in Europe, although there are signs of recovery in corporate lending in France, Italy, UK, Sweden and Belgium. Bank lending surveys point to improving mortgage demand in Italy and Spain; but some deterioration in the UK. For Corporates, banks are reporting some increase in expected corporate loan demand into the year end, most notably in France and Spain, Barclays analysts commented on Friday.

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In Europe 9th October 2014

Eurozone: fundamental flaws

MADRID | By JP Marín Arrese | Potential mismatches between overall demand and supply can provide rather upsetting lessons. As Keynes proved, sticking to stability policies in a recession only widens the gap as slackening demand and production drag each other down in an endless spiraling circle. Moreover, he cast serious doubts on the strategy of combining loose monetary policy with balanced budgets  for putting the economy back on track. His liquidity trap theory mirrors Draghi’s current warnings on the ECB’s limits in coping with a huge GDP gap.

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Markets 8th October 2014

ECB will push for DTA to be replaced by core capital

MADRID | The Corner | The ECB doesn’t like the idea of allowing banks to use Deferred Tax Assets (DTA) to boost their capital buffers, a practice that was meant to be phased out under new European Union rules. The central lender fears that losses would be imposed on taxpayers should entities run into trouble in the coming years, as the WSJ reported. Even if the ECB doesn’t have the power to change that, and is not likely to make any move before the upcoming stress tests, it might push for DTA to be replaced by core capital. 

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Markets 8th October 2014

FSB: tougher loss-absorbency homework for too-big-to-fail banks

MADRID | The Corner | The Financial stability board (FSB) is advocating an increase in regulatory demands of systemic banks: the so-called “too big to fail”. The details will be presented at tomorrow’s G20 meeting, but will effectively mean that more capital and liabilities can automatically be written off in a crisis. The basic requirement will be set at 15-20% of risk-weighted assets by 2019, although the final number will be higher (even more than 25% in certain cases) since lenders have to meet “other regulatory capital buffers,” according to the document, dated Sept. 21, quoted by Bloomberg.

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Markets 4th October 2014

ECB: More questions than answers

MADRID | The Corner | The ECB disappointed all those who were keen to gain more concrete information on how it wants to expand its balance sheet over the coming months. Instead, Mr Draghi pointed out that inflation expectations, not balance sheet size, remain the ultimate yardstick of current and future ECB action. “We think this is the right communications strategy as we had become concerned that the ECB would set fairly explicit balance sheet targets that it might struggle to attain. The ECB offered a more cautious assessment of the growth and inflation outlook and left the door open for additional unconventional measures. Nevertheless, our base case scenario remains that sovereign QE will not be triggered,” UBS analysts commented.

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In Europe 25th September 2014

Euro area: A chartbook of key economic indicators

LONDON | The Corner | According to experts at Barclays, the significant depreciation of EUR/USD (Fig 1) has been a key data event in the past few months. However, the sharp fall in oil prices has partially offset this positive effect on inflation, which has remained at 0.4% y/y in August. The inflation data remain crucial for the ECB, which has repeatedly emphasised that there is unanimous commitment to use all available tools to prevent a period of prolonged low inflation. We now expect QE on sovereign bonds, most likely by Q1 15.

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Markets 24th September 2014

Markets hurt in the wake of poor EZ figures

MADRID | By Francisco López | Economic confidence dropped again in September to mid-2009 levels highlighting a worsening of the economic malaise in the Eurozone (EZ). The PMI Index fell 1.1 points to 85 points, well below the long term average (100points).

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In Europe 23rd September 2014

Change of pace in Europe: Spain, Portugal, Ireland and Belgium will lead growth between 2015 and 2016

MADRID | By Julia Pastor | ECB’s Mario Draghi brought put the bleak panorama that the Eurozone’s economy is facing on the table, and we saw it again reflected in the not-so-promising September manufacturing PMI. The index came in at 50.5 compared to 50.7 in the prior month, whereas EZ Services PMI accelerated at 52.8 for September versus 53.1 in August. Even the composite index plummeted to its lowest fee in the last nine months and reached 52.3. In Germany, both manufacturing and services indexes have also decreased; while in France only manufacturing improved, although it is still contracting.