Eurozone: Macroeconomic conditions are improving - BBH

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 5, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Research Team at BBH, suggests that after rebounding from the 2009 contraction, the Eurozone experienced a double-dip as growth faltered in 2012 through Q1 2013 but the growth has been improving since Q2 2013.

    Key Quotes

    “The modest pace of activity of 0.3-0.4% looks set to continue. Credit conditions are improving, and lending to households and businesses are increasing, albeit slowly. The asset purchase plan was extended in December and the deposit rate cut to minus 30 bp.

    The main news from the euro area yesterday was December manufacturing PMI. For the Eurozone, manufacturing activity rose to a 20-month high of 53.2 from 52.8 in November and the flash reading of 53.1. For the first time since April 2014, all Eurozone members reported above the 50 boom/bust level, including Greece (50.2 from 48.1). Forward looking indicators, like new orders and new export business increased.

    Of note, the German reading improved to 53.2 from the 53.0 flash reading. It is the best since August. France was disappointing at 51.4 from the 51.6 flash. Still, it is the best since March 2014. Italy’s manufacturing PMI rose to 55.6 from 54.9 in November, the highest since 2011. Rounding out the big four, Spain’s reading slipped to 53.0 from 53.1. The market had expected improvement toward 53.6.

    Yet, political uncertainty in Portugal and especially Spain (including Catalonia) may weigh on sentiment.

    The base effect of 2014 drop in energy prices and the weakness of the euro are likely to begin seeping into measures of consumer prices. The year-over-year rate for the EMU may have doubled in December to 0.4%. It matches the highs from July and October 2014, which would be the fastest pace since June 2014. The core rate is expected to have ticked up to 1.0% pace from 0.9%.

    In addition to the refugee/asylum seekers challenge for Europe, there a several other issues that may unsettle investors. First, last month's national elections in Spain have failed to produce a majority government or even a minority government, for that matter.

    Portugal's central bank made a controversial move at the end of last year. It inflicted losses on some senior bond issues (5 of 52), as it attempts to strengthen the balance sheet of a recently reconstructed bank (Novo Banco) after the ECB's stress test uncovered a gap.

    The Bank Resolution and Recovery Directive (BRRD) will begin being implemented now. It serves two objectives. It protects taxpayers overall investors and creditors. To be sure, taxpayers are still ultimately on the hook, but the pecking order has been strengthened. In addition, the BRRD does this in a harmonized way. It serves as another part of the emerging banking union.

    Since the volte-face by Greek Prime Minister Tsipras last summer, the implementation of the aid program has gone rather smoothly.”
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