European Economy


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


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


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


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


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”,


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


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


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?


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,


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


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


More on a dovish ECB

Via Westpac: ECB President Draghi and the Governing Council were both subtle and direct in March, both with respect to their own economy and evolving global conditions. Beginning first with the Euro Area, having repeatedly revised up their growth expectations, the Governing Council took their first official step towards tightening policy by dropping the reference 


Assessing Italexit risk

The polls are not kind to Italian support for the EURO: However, Scope Ratings is sanguine: An important concern of many market participants is the euro exit debate in Italy, pushed by the platforms of euro-sceptic groups like M5S and Lega. According to a Eurobarometer poll released in November, only 34% of Italians said they


ECB signalling an end to QE?

The European Central Bank (ECB) released their latest policy outlook last night and it set a fire under the Euro as the language within had gotten decidely more bullish. From Bloomberg: In the account of its December meeting, the Governing Council said there was a “widely shared” view among officials that communication would need to


Australian dollar hit as immigration kills Merkel coalition

Via The Guardian: Exploratory talks to form Germany’s next coalition government were on the verge of collapse on Sunday night after the four parties involved missed their own deadline to resolve differences on migration and energy policy. Chancellor Angela Merkel has been trying to forge a coalition between her Christian Democratic Union (CDU), its Bavarian


Eurozone chock full of slack

Via Westpac’s today Elliot Clarke: The second estimate for Euro Area GDP confirmed a 0.6% gain for the September quarter. Following March’s 0.6% and June’s 0.7%, that leaves annual growth materially above-trend at 2.5%yr. However, what got the market’s attention was not this headline result, but rather the acceleration in growth in Germany. There, annual


Catalonia not so good

Via Deutsche: Why is the referendum illegal? The Spanish Constitution states that Spain cannot be broken up. The Article 2 in the preliminary part of the Constitution states: ” The Constitution is based on the indissoluble unity of the Spanish Nation, the common and indivisible homeland of all Spaniards”. The Spanish Constitutional Court suspended the


Does Catalonia matter?

It had better not because it is leaving Spain: Catalonia will move on Monday to declare independence from Spain after holding a banned referendum, pushing the European Union nation toward a rupture that threatens the foundations of its young democracy. Catalan President Carles Puigdemont said he favored mediation to find a way out of the


Germany rocked as ghosts of Nazism haunt Merkel

The German election has gone much as expected but is still shocking markets, via the BBC German Chancellor Angela Merkel has been re-elected for a fourth term while nationalists have made a historic breakthrough in federal elections, exit polls suggest. Support for her conservative CDU/CSU alliance has dwindled but the bloc will remain the largest


Europe’s globalists tackle the immigration class war

A few months ago, French president Emmanuel Macron launched a new policy platform to protect France’s lowest paid from foreign competition: Emmanuel Macron warned Europe must accept the UK was crashing out of the bloc because of worries about foreign workers undercutting wages. The intervention is a striking departure from EU rhetoric since Britain’s Brexit vote a year


A peak inside the Eurozone recovery

Via Macquarie: The business cycle in the Eurozone We forecast growth in the Eurozone to be 2.1% YoY this year, the highest since 2001. Lagging the US recovery by 3-4 years, we expect Eurozone growth to remain above trend. As with the US, as the rate of employment growth fades, so will consumption and overall


Rise in isolationism caused by drop in education

by Chris Becker An interesting study on the motivations and causes behind the shock Brexit vote which suggests a lack of higher education. Not surprising given it was also lower education levels that were “crucial” to Trump winning the Presidency. Its much easier to appeal to emotion than logic, particularly when it comes to isolationism.


Poor old Japan: Low unemployment, less crowded, cheaper housing

By Leith van Onselen For more than a decade, the Productivity Commission has debunked the common myth that immigration can overcome population ageing. For example: PC (2005): “Despite popular thinking to the contrary, immigration policy is also not a feasible countermeasure [to an ageing population]. It affects population numbers more than the age structure”. PC


The French election market playbook

There are really four key scenarios that can occur in this Sundays (Monday morning for us Aussie’s) French election and they could really shape the performance of markets like EUR/USD (and EUR crosses), France 40 cash and more indirect markets such as the ASX 200, FTSE 100 cash and gold. Firstly, it’s important to understand