lunedì 21 novembre 2011

The Week Ahead In The Eurozone: PMI Indices, German IFO And Spanish Election

In the Eurozone over next week fresh evidences that the economy may fall in recession in Q4 ’11 and further weaken in Q1 ’12 are expected from the PMI indices for November. Having fallen to 47.1 and to 46.4 respectively in October, both the PMI manufacturing and the PMI services may further decline in November: continue on seekingalpha...

giovedì 17 novembre 2011

A Look Into The Depths Of Europe's Recession

The ZEW index released on Tuesday 15th confirmed that the outlook for the German economy – and as a consequence of the whole of the Euro zone economy - may further deteriorate in the next few months. The most important economic indication in the next few days (continue on seekingalpha)

mercoledì 26 ottobre 2011

Can The U.S. Consumer Save The World And The Equity Markets?

Economic data for September (for the data and projections I used this calendar) released over the last few weeks came out better than expected, signaling the U.S. economic activity rebounded after the weakness over the summer...continue on seekingalpha

giovedì 20 ottobre 2011

Bank Of England Policy Could Weaken The Sterling

The Bank of England released today the minutes of the monetary policy committee meeting of October 5 and 6, in which a GBP 75 billion increase (to GBP 275 billion) of the asset purchase program was decided. The minutes confirmed that the BoE sees the risk that inflation (continue...)

sabato 15 ottobre 2011

The Week Ahead: European Summit And U.S. Economic Data

In the eurozone, the focus will be on the October 23rd European leader summit that is expected to deliver a strong solution of the eurozone financial crisis. The expectations became strong (continue on seekingalpha)

giovedì 13 ottobre 2011

Fed: no other money untill recession. Or a further decline of the equity market...

The minutes of the 20 September monetary policy meeting - in which the Operation Twist was decided - indicated the FOMC members had different views on the best profile for the monetary policy. While 3 members out of 10 opposed the decision to implement the Operation Twist, two members preferred a stronger policy action, increasing speculation that the Fed may decide a QE3 in one of the next monetary policy meeting (the next one is on November 1-2).
Conclusion: in our view the minutes of the Fed did not give any indication of a further easing of monetary policy at the tail end of the year. The Fomc may decide to implement a QE3 program only in the case the economic outlook would deteriorate strongly and the possibilities of recession further increase. However, the better than expected data released since early October (ISM manufacturing – ISM non-manufacturing – employment report) indicated that the economic outlook in the short term may be better than expected (many economist revised upward their Q3’s GDP estimates after these data were released). For these reasons we do not see a QE3 plan in the short term.

mercoledì 12 ottobre 2011

UK unemployment rate and Euro zone industrial production

The UK unemployment rate rose to the highest in 17 years in August (from 7.9% to 8.1%) with the number of unemployed increased to 2.57 million, the most since 1994. In the Euro zone the industrial production rose by 1.2% m/m (after +1.1% m/m in July) and 5.3% y/y in August. The data benefited from the the increase of industrial production in Italy (4.3% m/m) and France (+0.6% m/m) that offset the decline in Germany (-1% m/m).                         
Conclusion: the increase of the unemployment rate is a clear sign of the weakenig of the UK economy and strenghtned the view of the BoE that the UK economy needed an easing of monetary policy as soon as in October despite the high level of inflation. Following the aneamic rate of growth in Q2 (0.1% q/q), the UK economy may fall short of economists expectations also in Q3 (the NIESR today predicted a 0.5% q/q growth in Q3).
The Euro zone industrial production data indicated that the Euro zone outlook in the short term may be better than expected. However, with the main business confidence indices in a downward trend, we expect the rebound over the summer to be temporary and the financial crisis over the summer to weigh on the data starting from September.

martedì 11 ottobre 2011

Q3's earning season starts in the USA

With the release of Alcoa’s (AA) Q3 results on Tuesday 11, the Q3’s earning session will have its traditional kick off:. After being caught by economic news and the debt crisis in the eurozone, the investors’ attention is likely to return in the next few weeks on corporate profits. continue on seekingalpha

lunedì 10 ottobre 2011

The week ahead: focus on the Euro zone

On Sunday Chancellor Merkel and President Sarkozy said they will announce a comprehensive package of measures to stabilise the euro zone, including the recapitalisation of European banks if they need it, ahead of the November 3/4 G20 meeting. They did not provide any detail on the plan and promised to give them by the end of October. The main issues coming from the press conference are: 1) not giving any detail on the plan, Merkel and Sarkozy did not eliminate concerns that that the two governments had yet managed to resolve their differences on which entity will in charge to recapitalize the banks; 2) getting the other 15 member states to agree can prove challenging. The next key date is the 23 October EU Council when further elements to address the situation in Greece, the bank recapitalisation and the enhanced efficiency of stabilisation tools (EFSF) will be discussed.
The Slovakian Parliament will vote on Tuesday 11th on the approval of the EFSF. The latest headlines over the weekend suggest the governing coalition has still not found a compromise and will meet on Monday again. With Slovakia being the last country to vote for the approval of the EFSF, the plan is very likely to have a positive vote.
On Tuesday 11 the Italian Government will sell EUR7bn of 1 year BOT and EUR2.5bn of 3 months BOT. On Thursday 13 the Italian Government will 5/7/10/14 year BTP. In the latest long term government bond auction on September 29, Italy solo bonds due in 2022 to yield 5.86%, up from the 5.22% it paid Aug. With long term yields declined in early October, yields in the Thursday’s auction are likely to be lower than in September. The main issue is the level of the demand after Italy raised less than targeted in September: we do not expect a strong improvement in the demand as concerns on the Italian economic outlook remain elevated due to high public debt.
The Euro zone industrial production may decline by 0.7% m/m (after +1% m/m) in August after German industrial production declined by 1% m/m. The data would increase the possibilities that the Euro zone economy may fall in recession as soon as in Q4.
In the USA the focus over the week will be on the consumer spending outlook. Retail sales are likely to rebound by 0.4 m/m (0.0% m/m in August) and by 0.2 % m/m (+0.1% m/m in August) in September. The data would be in line with a 0.4% q/q increase of real consumer spending in Q3 ’11. The University of Michigan consumer confidence index may increase from 59.4 in September to 60 in October, remaining well below long-term average (90) and indicating a poor outlook for the consumer spending in Q4 ’11.
The minutes of the Fed 20 September monetary policy meeting are not likely to give any indication of a further easing of monetary policy in the next meetings.

mercoledì 5 ottobre 2011

PMI services below 50 in the Euro zone: risk of recession increasing

The PMI services indices released today all around the Euro zone came in worse than expected in September, signalling that the worsening of the economic outlook may be even stronger than projected. The Euro zone PMI fell from 51.5 to 48.8 - with a downward revision from the flash estimate of 49.1 - the lowest level since August '09. The index set below 50 - anticipating a contraction for the sector - both in Italy and in Germany while remained above 50 in France. The decline of the index below 50 in Germany is a sign that consumer spending may further weaken going forward, dampening the expectations that an improvement of German internal demand may sustain the economic activity and limiting the negative consequences on exports of the peripheral countries crisis. The Euro zone PMI services increased the chances that the Euro zone economy may fall into recession in Q4 '11.

giovedì 15 settembre 2011

USA: CPI higher than expected in August, Industrial production rose unexpectedly

Negative data came out today in the USA, with the expection of industrial production: 
1) Initial jobless claims rose in the week to September 10th from 417k (revised from) to 428k versus markets expectations at 411k. the 4 week moving average rose by 4k to 419.5k. The data signalled that labour market is likely to remain very week in September after the non-farm payrolls was unchanged in August;
2) The CPI rose more than expected in August: +0.4% m/m versus expectations at +0.2% m/m and the year-over-year change at 3.8% y/y vs +3.6% y/y in July. Moreover the CPI core rose by 0.2% m/m and +2% y/y (+1.8% y/y) in July - the highest since November 2008;
3) The Empire manufacturing index fell from -7.8 to -8.8, indicating a deteriorating of the manufacturing sector perspectives at year-end;          
4) industrial production rose by 0.2% m/m in August versus market expectations at 0.1% m/m. The most positive news is that manufacturing production climbed by 0.5% m/m, led by 2.6% m/m increase in auto production. 
Today's data increase the uncertainty on what the Fed would decide at the end of the next week monetary policy meeting. Indeed while the data on economic activity signalled a weakening of the economic outlook, inflationary pressures remains to high to see a strong easing of monetary policy, as we indicated yesterday in the article "Can The CPI Influence Monetary Policy Decisions?". While the possibility of an easing of monetary policy over the next week are at 50-50, we think that the impact on economic activity will be very low as long term interest are already at historically low level.

mercoledì 14 settembre 2011

Can The CPI Influence Monetary Policy Decisions?

The major central banks are widely expected to further ease monetary policy in the next few months amid the weakening of global economic growth: The Fed may implement a QE3 program, continue on seekingalpha...

martedì 6 settembre 2011

German factory orders lower than expected in July

Factory orders fell by 2.8% m/m in July, led by the 7.4% m/m decline in orders from abroad, while domestic orders rose by 3.6% m/m. Market expectations were for a decline by 1.5% m/m. Compared to the same period 1 year ago factory orders rose by 8.7%. The data is a clear indication that the weakening of international economy is having a negative impact on the German industrial sector, in line with the indications come from the IFO business index.

giovedì 25 agosto 2011

German IFO Business Confidence Index Shows Anything But Optimism

The German IFO business confidence index fell more than expected in August, from 112.9 to 108.7 - the lowest since July 2010. The market expectations were for a decline to 111. According to the historical relationship between the IFO business confidence index and the German industrial production (continue on seekingalpha)

mercoledì 27 luglio 2011

Sterling to Weaken vs. the Euro

In the UK, the GDP grew by 0.2% q/q and 0.7% y/y in Q2, in line with market expectations. The year over year change is the lowest since Q1 ’10. The statistics office estimated that excluding factors such as the Japanese earthquake...(continue on seekingalpha)

giovedì 16 giugno 2011

German Equity Markets Should Continue Outperforming in the Eurozone

In the following graphs, we show how the Dax index clearly overperformed other eurozone countries equity markets since 2003 when the Germany economy started to benefit from structural reform implemented in early 2000. Continue on seekingalpha...

martedì 14 giugno 2011

The Euro May Start a Downward Trend

Having touched a 5 weeks high on June 7th at 1.4696, the euro/U.S. dollar exchange rate tumbled in the following three days, falling below 1.44. Continue on seekingalpha...




giovedì 9 giugno 2011

Government Bonds: Not a Long-Term Buying Opportunity

Government bond yields were expected to rise over the spring as the QE2 program of the Fed came close to an end in June and inflationary pressures remained elevated amid high energy prices. continue on seekingalpha...

martedì 15 febbraio 2011

Are Japanese Equity Markets a Buying Opportunity?

The Japanese economy has had plenty of negative news recently, such as the Jan. 26 Standard & Poor's statement that it may downgrade the nation's current AA sovereign debt rating by one "notch,". continue on seekingalpha

mercoledì 9 febbraio 2011

Gold: End of a Trend or a Buying Opportunity?

Even with the rally of the last few days, gold prices still have had a negative performance year-to-date despite two elements that should give sustained prices: continue on seekingalpha




venerdì 4 febbraio 2011

Trichet Sounds More Dovish on Inflation: EUR/USD Set to Decline

As widely expected, the European Central Bank (ECB) left rates unchanged at 1% at the end of yesterday’s monetary policy meeting. Continue reading the article on seekingalpha

venerdì 28 gennaio 2011

Bank of England more hawkish

The Minutes of January 13th monetary policy meeting signaled that the tightening bias inside the Monetary Policy Committee has increased. Indeed, while the majority of the members voted to maintain unchanged both the bank rates at 0.5% and the asset purchase program at GBP200bn, Martin Weale joined Andrew Sentence in preferring a rate hike by 25bp to face inflationary pressures. Adam Posen confirmed its preference toward a further increase in the asset purchase program by GBP50bn. The minutes indicated that BoE’s concerns on inflationary pressures are increased in the last few weeks, especially as regards its consequences on inflation expectations. The inflation report due for release on mid-February will give more details on monetary policy outlook in the short term with publication of new BoE’s projection on CPI and GDP growth. Latest economic data indicated that U.K. economic outlook in 2011 may be worse than previously expected.

Indeed Q4 data released on Tuesday 25th indicated that UK GDP contracted by 0.5% q/q in Q4 ’10, coming in worse than market expectations for a 0.5% q/q increase. Compared to the same period 1 year ago GDP rose by 1.7% q/q versus market expectations for a 2.6% y/y increase. Output in the production industries increased 0.9% (0.5% q/q in Q3) while in the construction sector and in the service industries decreased 3.3% (following the 3.9% q/q increase in Q3) and 0.5% (+0.5% q/q in Q3) respectively. Business services and finance, construction and distribution, hotels and restaurants were the largest contributors to the negative growth this quarter (-0.2%).

The ONS estimated that bad weather is likely to be the main reason behind the contraction in GDP. Without this negative effect GDP may have remained flat in Q4. In every case the economic growth would have been weaker than expected by the consensus. With austerity measures beginning to have an impact on economic growth in Q1 ’11, the outlook for UK economy is likely to be weaker than previously projected increasing the possibility that the Bank of England will maintain rates unchanged in the foreseeable future despite higher than expected inflationary pressures in the last few months (3.7% y/y in December 2010). However the possibility that the BoE may decide to hike rates as early as in May are clearly increased after the release of January’s MPC’s minutes.

martedì 25 gennaio 2011

Why an ECB Rate Hike Is Not Imminent

Despite financial markets movement following the Trichet press conference (both the Euro exchange rate and the long-term German government bond yields rose) we do not see the ECB hiking rates anytime soon. This is the link to our article on seekingalpha.

The IFO index and German government bond yields

The increase in the IFO business confidence index is a negative sign for long-term German government bond yields. The link to the full article

venerdì 21 gennaio 2011

mercoledì 19 gennaio 2011

Bank of Canada maintain rate unchanged at 1%

As widely expected the Bank of Canada left rates unchanged at 1% at the end of yesterday’s monetary policy meeting. In the statement released at the end of the meeting the BoC slightly raised GDP estimates for both 2011 (from 2.3% to 2.4%) and 2012 (from 2.6% to 2.8%). The BoC also confirmed that the output gap will close by the end of 2012. The CB also indicated that “net exports are projected to contribute more to growth going forward, supported by stronger U.S. activity and global demand for commodities” but said that “the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance are restraining this recovery in net exports”. The BoC is not expected to resume a tightening monetary policy before the end of Q2 ’11.