European Economy


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


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


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


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


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


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 


Why would anyone buy Europe?

Last night DXY copped it: AUD was strong against all DMs, in part owing to the North Korean thaw: It was mixed against EMs: Gold jumped: Brent was stable: Base metals firmed: Big miners lifted: EM stocks too: And junk: Treasuries sold: And bunds: Stocks firmed: It’s all about Europe today and none of it


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