European Economy

1

ECB is no FED

Nordea with a worthwhile piece. Remember, where the EUR goes, AUD follows. — Risk sentiment remained fragile this week, with equities declining and credit spreads widening. In the Euro area, the risk of a 50bp rate hike has increased, but we are not convinced it will materialise. In the FX space, the GBP remains vulnerable.

9

European economy sucked into war black hole

Readers will know that my base case is for a global recession sooner rather than later as the world’s three major economies are shocked simultaneously by US rate hikes, European war and energy shocks, and the Chinese property crash plus OMICRON strife. It is clear that China is already in trouble. Now Europe is joining

37

What if Ukraine wins the war?

The Atlantic thinks it is: Talk of stalemate obscures the dynamic quality of war. The more you succeed, the more likely you are to succeed; the more you fail, the more likely you are to continue to fail. There is no publicly available evidence of the Russians being able to regroup and resupply on a large

5

The economic shock for Europe

Nordea with the note. — Due to the huge uncertainty prevailing we drafted three scenarios for the economic consequences of the Russian attack. While uncertainty is high, we think the bar is high for the ECB to fully abandon the plans of policy normalization. The negative impact of the Russian attack on both the Russian

25

Ukraine crisis over before it begins?

As various hysterics, led by “Psycho” Morrison, fearmonger over Ukraine, I am wondering this morning if the crisis isn’t already past its peak. Russia has invaded a small slide of Eastern Ukraine to “liberate” Russian-speaking peoples. Russia-backed separatists currently control less than half of the Luhansk/Donetsk region. It’s not clear which areas have been recognised

7

The Ukraine commodity shock

There will be a range of commodity impacts if Russia and Ukraine end up in open war. Oil and gas are the obvious ones as Russia-European pipelines are jeopardised. But there is also 34mt of iron ore to consider and a lot of wheat.    If there were to be an oil price spike then

54

Europe’s COVID surge accelerates as Omicron spreads

Going into the northern hemisphere winter without much tangible data of what the Omicron variant is doing to the population, plus surging protests against any measure to contain the pandemic, Europe is facing a crisis as case numbers surge past 350,000 per day. From Reuters: Over 15 countries in Europe have reported confirmed cases of

0

Lombard: Hammered China to pound Europe

More folks following the MB lead. TSLombard with the notes: Energy and property crises dominate the outlook The PPI soared to10.7% yoy in September and a further increase is likely this month to12-13%.In response to shortages of coal and electricity, the National Development and ReformCommission mandated important reforms in power pricing that, in Premier Li

5

ECB includes house prices in inflation measure

Will wonders never cease. Via Goldman: BOTTOM LINE: The Governing Council adopted a 2% inflation target in its strategy review and agreed that owner-occupied housing costs should be reflected in the HICP. Although the target is symmetric, the ECB signals tolerance to temporarily overshoot 2% inflation given the lower bound on interest rates, but does

1

Will German elections swing Europe to fiscal?

Nordea with the note. The short answer is nope: Germany will get a new Chancellor after the September elections and the course of German policies could change materially. The election result will have important consequences for financial markets as well. Germany has changed its stance on a number of important policy points amidst the Covid-19

0

ECB still a big, fat dove

Nordea with the note: There was broad support for the ECB to increase the pace of its bond purchases, but that support may wane, as the economic situation improves. We continue to see moderately higher Euro-area bond yields ahead. The monetary policy account from the ECB’s March meeting indicated that there were no strong objections to the central

0

What to expect from the ECB in 2021

Via Societe Generale: After a tumultuous first year, it looks like president Lagarde’s ECB is gradually finding its feet and defining its new modus operandi. Wisely, we believe the ECB will now be less sensitive to market pressure and inflation expectations, calling increasingly on fiscal policy to be engaged in determining future inflation.This also reflects

10

UK to prosper post-Brexit

Four and a half years after the vote, Britain is properly out of the European Union and moving into a new era. It will surely be a freer nation, but will it be a richer one? Anatole has argued that the UK faces a long period of sub-par growth that will leave it worse off.

6

China, Europe and US go at it

Via Bartho: Within the past fortnight, China has taken two steps that undermine the ability of the incoming Biden administration to build a western alliance to contain China’s growing and increasingly aggressive global assertiveness. On the final day of 2020, China signed an investment pact with the European Union despite pleas from Biden advisers to

2

What’s the impact of hard Brexit?

Via Goldman:   With less than three weeks to go until the end of the Brexit transition phase, significant sticking points remain in the EU-UK negotiations. Our base case remains that a “thin” free trade agreement (FTA) will be reached before the end of the year, which would ensure continued free trade in goods but

7

The zombification of Europe

Via FTAlphaville: As with Japan in the 1990s, years of low — and even negative — interest rates in the eurozone have led to suspicions that the region’s business landscape is harbouring a load of zombie firms. That is, companies that are being kept artificially alive by the repeated extension of credit. Many have tried

43

Sweden declares herd immunity a failure

Via News: With three words, Sweden’s King Carl Gustaf captured the panic engulfing his country as it backflips on a controversial herd immunity strategy and coronavirus case numbers explode. On Instagram, he wrote, simply: “Hold on tight!” The message is echoing around the Nordic breakaway nation which, up until now, has run a distinctly different race

62

New coronavrius strain ravages Europe

Via MedRxiv: Abstract A variant of SARS-CoV-2 emerged in early summer 2020, presumably in Spain, and has since spread to multiple European countries. The variant was first observed in Spain in June and has been at frequencies above 40% since July. Outside of Spain, the frequency of this variant has increased from very low values

2

Europe gets it together…temporarily

Via the excellent Damien Boey at Credit Suisse: Temporary fiscal union forming. The European Commission (EC) is launching an unprecedented fiscal package of €750 billion (5.6% of GDP) to deal with the fallout of COVID-19. Under the plan, €500 billion will be distributed to member states in the form of grants, while the remaining €250 billion will be available as loans, with the grants not

16

Eurozone cracks widen

Via Magellen: ‘il Boom’ is how Italians describe the ‘great transformation’ of Italy over the 1950s and 1960s when a poor country turned itself into a modern industrial powerhouse with a stable currency, the lira. During those decades, rural southern Italians flocked to the industrial north and their cheap labour helped turn Italy into an

5

Eurozone agonises over bonds

Via the BBC: The coronavirus pandemic has exposed deep divides in Europe, with EU member states arguing over how to tackle the economic fallout. Italy and Spain have accused northern nations – led by Germany and the Netherlands – of not doing enough. Spanish Prime Minister Pedro Sánchez has even warned that if the EU

1

It’s Eurobonds or bust this time

One of the components of MB’s ongoing COVID-19 base case, a second-round financial crisis, is a European banking bust. A part of that is loan losses for a very unprofitable sector. Another part is the so-far failed fiscal integration of the Eurozone, which presents massive fiscal stimulus risks, and bank bailout uncertainty as the COVID-19

18

Could the virus make the Eurozone?

Maybe. Via Bloomie: German Chancellor Angela Merkel said she’s ready to consider joint debt issuance to help contain the impact of the coronavirus, an opening that could transform the finances of the European Union. The idea was raised by Italian Prime Minister Giuseppe Conte on a video conference between the 27 EU leaders on Tuesday,

44

Australian dream: Italy suspends mortgage payments

Via FTAlphaville: In the first of what we imagine will be many targeted fiscal policies to alleviate the economic stress from the Coronavirus panic, news from quarantined Italy this Tuesday morning. Via the FT’s Miles Johnson: Italy’s deputy finance minister has said the government will suspend mortgage payments and other household bills across the entire country