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.
MADRID | By Francisco López | Are there reasons for such optimism after Draghi’s words in Jackson Hole? Yes, but only if Draghi dares to execute a program of sovereign debt purchases immediately. It happens that not all experts are clear that it will be the case. Especially, because the package of measures adopted by the ECB in June has still not been implemented: two TLTROs auctions and the Asset-Backed Securities (ABS) program. Would it not be better to wait to check the effects of these measures?
MADRID | The Corner | Peripheral equities and bonds have been strongly favored by Draghi’s speech last Friday at Jackson Hole with intense improvements in sovereign credits from Portugal, Spain and Italy, which have reached record lows. In particular, Spain’s 10-year bonds yields are at 2.12% under the 2.38% of comparable U.S. Treasuries and especially today the Spanish Treasury has reduced sharply the interest rates of three- and nine-months bills in an auction of € 3,500 million at historical lows, without entering in negative territory like on the secondary market. Nevertheless, UBS strategists are starting to change their bullish view on peripheral Europe basing on market and fundamental arguments.
MADRID | The Corner | Spain’s GDP expanded by 0.6% in the 2Q of 2014 over the previous quarter, the fastest pace in the Eurozone after Latvia’s growth (+1%). With Portugal (+0.6%) and Netherlands (+0.5%), Spain becomes one of the best economic performers in the eurozone during this quarter. Moreover, according to the figures published today by Eurostat, the Euro area has stalled in the 2Q, especially as a result of the contraction of Germany, the Italian fall into recession and France’s stagnation. Meanwhile, the Greek economy contracted by 0.2%, the lowest drop since 3Q 2008 and it could show that the country is meeting its full year growth target of 0.6% for 2014.
MADRID | By J. J. Fdez-Figares (LINK) | European stocks closed yesterday again with notable declines -with the exception of the Swiss- pressured by a complicated geopolitical scenario, while the macroeconomic figures in the region continue to disappoint. Thus, European stock markets began the day in negative tone after economic sanctions agreed by Russia against the European countries and with the speculation that the country will send troops to Ukraine. The Spanish index Ibex 35 goes through the worst beginning of August since 2011.
MADRID | The Corner | New Commissioner for Economic and Monetary Affairs Jyrki Katainen –Finnish, as his predecessor Olli Rehn- has pledged pure orthodoxy about the European Stability Pact. In an interview with German daily Die Welt, Finland’s former Prime Minister and now one of the most powerful men in the EU ruled out speculations about creative interpretations of the fiscal framework. Mr Katainen is the same who, during the worst moment of the crisis (Aug 2012), asked Greece and Spain for collateral in exchange for aid and reckoned that some peripherals were introducing major structural reforms that were “simply not being recognized in the market.”
MADRID | The Corner | After France and Italy’s (second and third most important countries in the single currency bloc) poor industrial production data of -1.9% (vs previous -0.51%) and +1.4% (vs previous +0.2) respectively, expert at Barclays Alberto Vigil wonders why analysts are so sure that there will be an acceleration in the 2S14.
*The green line is the Eurozone’s GDP, whereas the other two are Italy’s and France’s industrial production.
MADRID | By Francisco López | The ECB President announced with fanfare last month a battery of measures to revive the credit in the EZ. The problem is that the open bar announced by Draghi won’t have an impact on loans until 2015 and, meanwhile, credit fall continues to accelerate in some peripheral countries, especially in Spain and Italy. There are those who believe that the latest data could force Mr Draghi to approve a direct debt purchase program before year’s end.
MADRID | The Corner | On July 1 the new Italian fiscal reform will begin and the tax rate on capital gains will go up from 20% to 26%. Both private and institutional investors are selling before that date so as to rebuy again after and get a +2% after tax return. The FTSEMIB stands below the levels recorded after Mr Renzi’s victory and at the same levels registered before Mr Draghi’s last intervention. The index is behaving worse than the Spanish Ibex 35, and –if this trend continues, next week will be the moment to resume positions.
LONDON | Cagdas Aksy at Barclays | A model framework, which takes into account economic/fiscal fundamentals and risk aversion factors, indicates a fair value level of about 200bp for 10y Italy and Spain vs Germany. The high debt problem for most peripheral countries is something that will take many years to reverse and the ECB’s commitment through OMT and potential QE can contain these concerns to a large extent, as long as it maintains its credibility. Under this more optimistic scenario, fair value moves down to 90-100bp. After 350-400bp of tightening over the past two years, 10y core periphery spreads are 30-40bp away from stretched levels.