Eur/usd - page 15
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German Economy Gained Momentum In Q2, Economy Ministry Says
German economic activity is likely to have increased notably in the second quarter, supported by private consumption and investment in building construction, the country's Economy Ministry said in a report on Friday.
The industrial sector has overcome its weakness with factory orders and sentiment indicators pointing to a continuation of a modest positive development, the ministry said.
Private consumption remained an important pillar of the economy, and this is very well supported by rising income and strong labor market situation.
The ministry expects the impact of net exports on growth to remain subdued. The investment in capital equipment has stabilized, the report added.
However, the ministry noted that the economy still faced headwinds from difficult environment in Europe.
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Portugal Q2 Trade Deficit Narrows
Portugal's trade deficit in the second quarter narrowed from the same period last year, data released by Statistics Portugal showed on Friday.
The visible trade deficit fell to EUR 2.01 billion in the three months to June from EUR 2.43 billion in the second quarter of 2012. Exports grew 6.3 percent, while imports rose 2.1 percent.
For the month of June, exports declined 1.2 percent year-on-year in June, reversing a 5.1 percent rise in recorded in the previous month. Imports increased 0.9 percent, recovering from a 3.1 percent decline in May.
Month-on-month, exports plunged 7.7 percent in June, following a 3.7 percent rise in May. Imports dropped 6.1 percent versus 1.0 percent rise in May.
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EUR/USD drops on soft French output data
The euro softened against the dollar on Friday after French industrial output figures disappointed investors and renewed concerns that the euro zone economy faces pot holes on its road to recovery.
In U.S. trading on Friday, EUR/USD was down 0.28% at 1.3342, up from a session low of 1.3333 and off from a high of 1.3391.
The pair was likely to find support at 1.3233, Monday's low, and resistance at 1.3399, Thursday's high.
France reported earlier that the country's industrial production dropped 1.4% in June, disappointing expectations for a 0.1% rise. May's figure was revised to a 0.3% contraction from a previously estimated 0.4% decline.
The numbers weakened the euro, while the dollar saw some support on market sentiments that Federal Reserve monetary stimulus that weaken the greenback to spur recovery will begin to taper in either September or December.
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Greek spot checks find half of firms cheating on tax
The most recent spot checks by Greek authorities found that almost half of the companies examined were committing some kind of tax offence.
Out of 1,465 spot checks carried out between 25 July and 5 August, 731 firms were found to be breaking the rules.
Greece has been under pressure from the European Union and International Monetary Fund to improve tax collection and crack down on fraud.
But despite government efforts, tax fraud remains a serious problem.
Authorities have been carrying out spot checks which are often based on tip-offs, complaints or are follow-up checks which is why the rate of detection is so high.
The islands of Evia and Skyros had the highest rate of detection, with 85% of firms checked found to be non-compliant.
On Mykonos, Santorini and Crete - popular with tourists - 56% of businesses checked had been breaking tax rules.
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Europe Week Ahead: EZ-, German-, French GDP, German Zew, UK BoE Minutes, -CPI
Next week the main focus will be on preliminary Eurozone GDP growth data for Q213. Following a stronger-than-expected expansion in industrial production in France and Germany, we have revised our forecast for Eurozone GDP growth from flat to mildly positive (+0.2% QoQ and -0.8% YoY), thereby marking the end of six quarters’ recession. German GDP likely expanded by a healthy 0.6% QoQafter activity in Q1 (0.1% QoQ) was depressed by bad weather conditions in particular in the construction sector. We even see upside risks to our forecast from a strong acceleration in German industrial production (2.6% QoQ), which was underpinned by stronger factory orders both from the domestic economy and abroad. A rebound in net trade, which contributed poorly to growth in Q1, likely gave additional impetus to growth helped by the global recovery and slowing recession in peripheral countries. Indeed, Spanish and Italian GDP printed higher-than-expected GDP growth numbers of -0.1% QoQ and -0.2% QoQ respectively. Finally, French GDP is expected to have rebounded by 0.2% QoQ in Q2 after -0.2% QoQ in Q1, in line with the INSEE estimate. Growth in the industrial sector was relatively strong (+1.4% QoQ) but it was likely offset to a major extent by a contraction in the services sector where confidence fell further below its historical average. Going forward the INSEE expects flat GDP in Q3 followed by 0.1% QoQ in Q413.
The German ZEW expectations index is expected to bounce back in August (to 38.0 from 36.3) and the assessment of current situation to improve (from 10.6 to 11.5)on the back of better-than-expected dataflow (strong industrial production and factory orders for June and July PMI surveys in particular).
UK CPI inflation is expected to ease only slightly in July, from 2.9% YoY to 2.8% YoY, the index remaining flat on the month.Similarly core inflation is expected to decline from 2.3% YoY to 2.2% YoY. Our forecasts point to a gradual decline in CPI inflation towards 2.4% by the end of the year. RPI inflation is expected at 3.2% YoY in July (0.0% MoM).
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Italian Parliament Approves Growth Package
The Italian parliament has granted final approval for a slew of measures proposed by the government to help the economy emerge from the ongoing recession, reports said. The package involves steps to limit bureaucracy, reorganize financial resources and improve the civil justice system.
The rescue package, which was introduced by premier Enrico Letta in June, has undergone a series debates in the parliament before being approved.
The program envisages massive investments in public works projects, including the augmentation of the rail and road networks and the education infrastructure.
Italian authorities have been struggling to revive the crisis-stricken economy, which is stuck in one of the longest recessions in its history, as the debt crisis in the euro area continues to weigh on economic activity across the region.
Earlier this week, the government said that Italy's long-drown recession eased in the second quarter, with the gross domestic product declining at the slowest pace in nearly two years.
Last month, the Bank of Italy had cut its GDP forecast, suggesting that Italy may heading for a more severe recession than expected. The central bank forecasts the economy to contract 1.9 percent in 2013, compared to 1 percent slump forecast earlier.
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EUR/USD Forecast August 12-16
EUR/USD had a positive week, breaking long term resistance. Will it continue marching forward? German ZEW Economic Sentiment and GDP releases are the main events on our calendar. Here is an outlook for the main events of the week and an updated technical analysis for EUR/USD.
Strong data was released for the Eurozone’s locomotive, Germany; trade surplus topped market expectations industrial output soared 2.4%. The GDP expectations are now very high. Will Germany keep the euro on high ground? In the US, positive signs and taper talk hardly stopped the fall of the dollar.Let’s Start
Updates:
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Spain's Banking System Is Doomed To Collapse
The question on my mind today is "When will the Spanish banking system collapse?" Spain's exposure to Portuguese sovereign debt and unrealized losses on real estate loans are two reasons a collapse in inevitable.
The Spanish banking system passed a so-called "stress test" in 2012, but sovereign government bonds are are not included in the evaluation.
We saw how well that worked with Greece (over and over again), and with Cyprus as well. It was Cypriot exposure to Greek bonds that collapsed the Cypriot banking system.
With that backdrop, please consider Will Portugal Bring Down the Spanish Banking Sector?
At its peak in the second quarter of 2008, France’s exposure to Greece totaled $86 billion. That exposure has since plummeted, partly because French banks took advantage of the ECB’s Securities Market Programme (SMP) during 2010-11 to fob off Greek bonds, effectively forcing a eurozone mutualization of the debt. SMP was terminated in September 2012.
What is much less widely known is that Spanish bank exposure to Portugal today, as shown in our Geo-Graphic, is higher than French bank exposure to Greece in early 2010, despite the fact that the Spanish banking sector is only 40% the size of the French. Spanish bank stress tests in 2012 suggested that the capital hole was more manageable than widely feared, but those tests looked only at the domestic lending books; foreign assets were excluded.
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Quarterly growth slows in soon-to-be eurozone member Latvia
Soon-to-be eurozone member Latvia saw its growth slow in the second quarter of the year but remained among the EU's top performing economies, official data showed Friday.
Gross domestic product (GDP) rose by a seasonally-adjusted 0.5 percent in the second quarter, down from the 1.4 percent rate in the previous three-month period, Statistics Latvia said.
"This shows that economic growth has started losing its steam gradually, most likely owing to weak investments and slower export growth," Swedbank economist Lija Strasuna said in a statement.
The largest gains were seen in the service and construction sectors, the statistics office said.
On an annual comparison, the economy grew by a seasonally-unadjusted 3.8 percent in the second quarter compared to the same period last year, up from 3.6 percent in the first quarter of 2013.
Latvia was the EU's fastest-growing economy in both 2011 and last year, posting GDP growth of more than five percent each year.
The finance ministry predicts 4.2 percent growth in 2013.
The nation of two million people will begin using the euro as its currency on January 1, 2014 after the EU gave it final approval in July.
It will be the 18th member of the eurozone and its second ex-Soviet state, after Baltic neighbour Estonia joined in 2011.
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Summer Doldrums Increase German Finance Costs
Do not rule out Germany paying its highest 10-year funding costs in a year and a half next week. They will be the only Euro country coming to the bond market with an issue slap bang in the middle of the Euro-annual summer holidays.
Credit rating agency Fitch reaffirmed Germany’s triple-A credit status earlier this week, citing some “overachievements” by Merkel’s right-wing coalition government on the fiscal front. They also happened to mention that various risks related to the Euro-zone crises directly had actually eased.
Improving Euro data has allowed their own bond yields to back up; it’s now becoming more of a global phenomena. Even the Fed’s plan to potentially reduce the size of its bond buying requirements (tapering) is also putting upward pressure on global bond yields. However, at the short end of most Central Banks yield curve, yields remain relatively low, supported by accommodating monetary policies being offered by most major central banks. The ECB’s ‘forward guidance’ stance will continue to anchor short-term yields.
Germany will offer €4b of the current benchmark 10-year, +1.5% May 2023 Bund. This will be the last time that they will tap this particular issue. The new 10-year Bund will be introduced next month. At today’s current levels the German government will be paying up – the secondary market is trading at +1.69%. Because of the holiday season that’s in it, both dealers and investors will be expecting some give and slippage due to the potential lack of interest – besides dealers like the issuer to pay up!
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