European Economy

7

Is Brexit the next global shock?

Via VOX: The race to replace outgoing British Prime Minister Theresa May has officially begun. Ten candidates are now vying to be the next leader of the Conservative Party and the future prime minister of the United Kingdom. Whoever wins the crowded contest will be faced with the daunting task of trying to finalize the UK’s break up with

3

Credit Suisse: Europe is sinking

More great stuff from the excellent Damien Boey today: European growth has slowed sharply in recent quarters. In 4Q, GDP expanded by a meagre 0.2%. This followed another meek 0.2% growth reading in 3Q. Year-ended growth has slowed to 1.2% in 2018 from 2.7% in 2017. Compositionally, there are reasons to be concerned as well.

2

Hard Brexit looking more likely

by Chris Becker A little primer first to get you up to date on the mess that is Brexit – from The Economist:   Amid the farcical scenes within the Parliament, overnight a hard Brexit – i.e no deal, just get on with it – looks more and more likely. From the ABC: European Union

3

Super Mario gooses the Euro

by Chris Becker ECB President Mario Draghi pushed the Euro off the cliff early this morning AEDST with his post-meeting press conference comments: “The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and

19

Is Germany about to enter recession?

by Chris Becker One of the most closely watched economic prints on the calendar, the monthly German ZEW Survey, was released on Wednesday. The continued Brexit imbroglio is obviously weighing on the dominant European economy, as does Trump’s Jacksonian trade policies which has seen the “current condition”  factor flop to a new four year low,

119

May’s Brexit vote fails

by Chris Becker The Brexit parliamentary vote has come and gone overnight and it’s bad news for Theresa May. From the BBC: Prime Minister Theresa May’s Brexit deal has been rejected by 230 votes – the largest defeat for a sitting government in history. MPs voted by 432 votes to 202 to reject the deal,

7

Brexit vote is coming

by Chris Becker Well it’s a red letter day for the UK as Parliament votes on PM Theresa May’s Brexit deal tonight, AEDT time. The fear, doubt and uncertainty (FUD) brigades are out in force while the continent goes from a Gallic shrug to a stern Prussian frown over the fracas. From the BBC: Theresa

37

Is the Brexit long tail wagging?

by Chris Becker As we grind ever closer to the end of March, the no-deal/deal imbroglio within the UK Parliament over Brexit is devolving, with even Japanese PM Shinzo Abe putting his two bits in: The World does not want a no-deal Brexit, the Japanese Prime Minister said as he gave his “total support” to Theresa

13

German powerhouse sputters

by Chris Becker Overshadowed by the ongoing US-China trade talks, Brexit shenigans and the Trump wall “crisis”, there’s real reason to be concerned for the global trade machine with the latest German industrial production numbers overnight shocking everyone: From FT: Fears of a prolonged slowdown in the eurozone grew on Tuesday after a sharp fall

14

Blame Brexit on the Euro

by Chris Becker At the end of March this year, or in less than 90 days, the UK is set to leave the European Union. The EU and UK’s Prime Minister Theresa May have struck a deal, but it needs to be voted on in Parliament before such a deal is ratified. The exit from

20

Sell gold! Or why the US dollar is not going to weaken

Via Bloomie: The U.S. dollar may be poised to decline, according to Goldman Sachs Group Inc. Comments from Federal Reserve Chairman Jerome Powell on Friday boosted the chances that the central bank will pause interest-rate increases, strategists at Goldman wrote in a note Saturday. Powell cited the events of 2016, when rates were kept unchanged through

4

ECB turns cautious

Via Westpac: At the December ECB meeting, the Governing Council confirmed the end of net asset purchases and repeated the forward guidance that key policy rates will remain on hold “at least through the summer of 2019, and in any case for as long as necessary”. In addition, they gave forward guidance on their reinvestment

9

Inside Brexit chaos

Via Capital Economics: While US readers were settling in for Thanksgiving dinners, those of us on the other side of the pond were left to pick over the remains of a Brexit deal that looks dead on arrival. Our UK economists have covered the various twists and turns in detail and copies of the various

24

OBOR Dan done dirt cheap

Via The Australian comes more unsettling revelations about Dan Andrews’ China foray: A staffer in Daniel Andrews’s office has been linked to China’s United Front organisation, which co-ordinates Beijing’s overseas influence operations, amid growing criticism of the Victoria Premier’s decision to sign up to Beijing’s Belt and Road Initiative. The Australian can reveal Mr Andrews’s adviser

8

Is Italy about to blow up?

Via Mark Cudmore at Bloomie: If Italy is going to avoid a full-blown euro zone debt crisis that’s capable of causing turmoil in global financial markets, communication will be key. Much of the investor complacency toward the threat from Italy’s debt crisis is the fallacy that worse scenarios have been survived elsewhere before. Let’s be

20

A stronger Germany to rise out of Brexit and Trump

by Chris Becker A hallmark of NATO, the European Union and US foreign policy in Europe has been about containing the economic and political behemoth of Germany whilst defending the Western half of the continent from external threats. In the post WW2 era this has worked, save for the creation of the Euro which effectively

3

Draghi: My endless dove

Elliot Clarke at Westpac: In July, President Draghi held closely to the tone and narrative conveyed at the June meeting. Of note in the press conference were a number of key points on: the path for policy; the consequence for the Euro; and the need for fiscal authorities to aid the economy, the latter representing

10

German government close to collapse

Via the FT: Horst Seehofer, the German interior minister, has set Angela Merkel an ultimatum, saying he would resign unless the chancellor acceded to his demands for tougher controls on the German border. It was the latest development in a conflict that could threatens to shatter the alliance between Mr Seehofer’s Bavarian CSU party and

11

Italy 1 versus Germany 0

And I’m not talking about soccer, via the FT: Italy’s new populist government demanded the EU rip up its system for dealing with migrants at a mini-summit in Brussels on Sunday that laid bare divisions in the bloc over migration policy and piled pressure on German chancellor Angela Merkel. Dubbed the “summit to save Merkel”,

2

Capital flight seizes Italy

Via FTAlphaville: Following a turbulent week a fortnight ago, markets have calmed and were further assuaged by new finance minister, Giovanni Tria, saying on Sunday that “we are not discussing any proposal to exit the euro. The government is determined to avoid the materialisation of market conditions that push us towards an exit in any way.” However

2

Westpac: Europe’s gunna slow

Oh yes, from Elliot Clarke at Westpac: The past week has, yet again, emphasised the fragile nature of European politics and the Continent’s growth narrative. While the jolt higher in Italian yields was dramatic, this is really only a sideshow to the real issue: the continued absence of governments capable of reform, and the difficulties

1

Italy fixed, boom on!

Markets! EUR soared last night: AUD too: EMs not so much: Gold ignored it all: Oil rebounded, helped by a US gulf hurricane: Base metals yawned: Big miners recovered some: EM stocks too: Junk held on: Treasuries got flogged: And bunds: Everyone loves Italian debt: And US stocks soared though Europe is unconvinced: What changed?

17

Inside Italy’s exploding spreads

Via Damien Boey at Credit Suisse: More chaos in Italian politics and bond markets Italy’s prime minister-designate Conte has given up on his mandate to form a populist coalition government after talks with President Mattarella collapsed. The likelihood is that fresh elections will need to be held later this year. In response to the news,

5

Goodbye European boom

Via Damien Boey at Credit Suisse: Europe is slowing Recent European data have surprised materially to the downside. For example, German industrial production and retail sales likely shrunk by around 0.9-1% in 1Q, after growing very strongly in 2017. Also, sentiment indicators have fallen sharply off historically high levels. We are not surprised by these

2

European growth has peaked

Here’s the chart to lead us off: That’s what a tearaway currency will do to you. Now other components of European boomlet are on the turn, via Westpac: With the benefit of hindsight, we believe that 2017 will be seen as this cycle’s peak year for Euro Area growth. Against the 2.5% year-average outcome for