Eur/usd - page 41
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Spain Ends Two-Year Recession Amid Effort to Add Jobs
Spain emerged from a two-year recession in the third quarter, strengthening Prime Minister Mariano Rajoy’s efforts to repair the nation’s finances and reduce the 26 percent jobless rate.
Gross domestic product expanded 0.1 percent from the second quarter, when it shrank 0.1 percent, and fell 1.2 percent from a year ago, the Madrid-based Bank of Spain estimated in its monthly bulletin today. The data, which are preliminary, matched the median estimate of 37 economists in a Bloomberg News monthly survey.
Spain is crawling out of its second recession since 2008 as foreign investors are returning to the nation’s bond and stock markets. Signs of export-led economic growth may bolster Rajoy, half-way through his four-year term, as he tries to convince Spaniards that his unpopular austerity policies will allow the nation to leave the sovereign debt crisis behind it.
“We are optimistic on the euro periphery as a whole and Spain in particular,” said Robert Wood, an economist at Berenberg Bank, which forecasts growth of as much as 1.4 percent in 2014. “The country has made big structural changes, it’s been engaged in a lot of deficit reduction, business sentiment is improving and unemployment is probably close to a peak.”
Foreign Sales
Rajoy said today the recovery from the crisis, which destroyed 3.8 million jobs from the peak of the debt-fueled boom, would be “slow and gradual.”
Growth was driven by overseas sales as domestic demand fell 0.3 percent, the Bank of Spain said today. The decline in investment slowed and private consumption grew 0.1 percent from the previous quarter, when it was unchanged.
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Spanish Unemployment Falls as Economy Emerges From Recession
Spain’s unemployment rate fell for a second quarter in the three months through September as the economy emerged from a recession lasting more than two years.
The jobless rate declined to 26 percent from 26.3 percent in the second quarter, the National Statistics Institute in Madrid said in an e-mailed statement today. That compares with a median estimate of 26.1 percent in a Bloomberg News survey of seven economists.
Spain’s economy grew for the first time in two years in the third quarter, the central bank estimated yesterday, exiting the second recession since 2008. Prime Minister Mariano Rajoy, half-way through his term, is pledging job creation starting next year as he tries to convince the 56 percent of young Spaniards who are out of work that they have a future in Spain.
The economy is starting to recover as foreign investors buy into the nation’s stock and bond markets, sending the main Ibex 35 index up 21 percent this year. The spread between Spain’s 10-year borrowing costs and Germany’s has narrowed to less than half its peak in July 2012.
Rajoy’s government, led by the pro-business People’s Party, has overhauled labor rules to make it easier to lower wages and cheaper to fire staff. The legislation allowed Solaria Energia & Medio Ambiente, a solar-panel maker, to cut wages by 16 percent in a deal announced this month. As wage costs decline, companies including Ford Motor Co. are increasing production in Spain.
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Euro pares gains after PMI data, off 2-year high vs dollar
The euro was steady against the dollar on Thursday after disappointing euro zone data pulled it away from a two-year high struck earlier in the session.
Purchasing managers' surveys for the euro zone showed the pace of growth in business activity eased unexpectedly this month, suggesting the region's recovery may be less solid than previously thought.
The euro was last steady at $1.3772, having earlier risen as high as $1.3824, its strongest since November 2011, with traders saying it extended gains after surpassing a reported options barrier at $1.38 and as upbeat China data lifted riskier currencies.
Expectations that the U.S. Federal Reserve will maintain its stimulus programme into next year also weighed on the dollar.
"The market is still focused on the Fed, but the disappointing tone of the euro zone data will suggest that the euro is looking toppy up here and this should keep euro/dollar in check," said Jane Foley senior currency strategist at Rabobank.
She said Thursday's peak of $1.3824 could now act as stiff resistance for the euro.
Beyond there, further resistance stood at the Nov. 4 high of $1.3870. A break above there would leave it on course to test the psychological $1.40 level.
A purchasing managers' survey (PMI) on Chinese manufacturing activity hit a seven-month high in October, buoyed by strong new orders and raising optimism that the world's second-biggest economy may be recovering from a slow patch. This lifted riskier currencies such as the euro as well as the Australian dollar.
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Euro holds near 2-year highs vs. dollar
The euro was trading close to two-year highs against the dollar on Thursday as expectations that the Federal Reserve will delay plans to start tapering stimulus outweighed soft euro zone data.
EUR/USD hit 1.3825 during U.S. morning trade, the highest since November 2011; the pair subsequently consolidated at 1.3802, 0.17% higher for the day.
The pair was likely to find support at 1.3740 and resistance at 1.3850.
The dollar remained under pressure after data earlier in the week showing that U.S. jobs growth slowed in September cemented expectations that the U.S. central bank would continue the current pace of its asset purchase program well into next year.
The euro eased back from session highs after data on euro zone manufacturing and services activity indicated that the recovery in the region remains sluggish.
The preliminary reading of the euro zone’s manufacturing purchasing managers’ index ticked up to 51.3 in October from a final reading of 51.1 in September, slightly below expectations for a reading of 51.4.
The euro zone services PMI fell to 50.9 this month from 52.2 in September.
Germany’s manufacturing PMI edged up to 51.5 from a final reading of 51.1 in September, but the services PMI declined to a three-month low of 52.3.
The dollar had little reaction after data released on Thursday showed that the number of people who filed for unemployment assistance in the U.S. fell less-than-expected last week.
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Citi forecasts Greek devastation, unstoppable debt spirals in Italy and Portugal
If Citigroup is right, the slight rebound in Europe over the summer will not be enough to stop Club Med going from bad to worse, with a string of soft defaults/restructurings.
I pass their latest forecasts on to readers. I do not endorse them.
Italy will bounce along in near-permanent recession with growth of 0.1pc in 2014, zero in 2015, and 0.2pc in 2016. The debt will punch above 140pc of GDP, beyond the point of no return for a country with no economic growth or sovereign currency.
"We do not expect the public debt ratio will enter a downtrend in coming years, and we suspect that some form of debt restructuring (maturity lengthening and/or coupon reductions) may be likely eventually," said the bank.
Portugal is in an even worse state, with growth of: 0.6pc, 0.0pc, 1.0pc, over the next three years, with debt hitting 149pc of GDP by 2015, and unemployment rising again to 18.3pc:
Greece continues to be a catastrophe. The alleged stabilisation will prove to be a false dawn. The economy will contract by a further 2.9pc in 2014, and 1.4pc in 2015, pushing unemployment to 32.4pc, and the debt to 201pc of GDP.
Spain will not default or need debt restructuring, which looks to me like a change in forecast. However, growth will be just 0.1pc next year, 0.3pc in 2015, and 0.7pc in 2016, not enough to stop unemployment rising yet further to 27.9pc.
Ireland will make it. The country is highly competitive and has little in common with the others.
If Citigroup is broadly correct, Europe faces a lost decade that is far worse than anything suffered by Japan, which will render the region marginal in coming world affairs, and is likely to have non-linear political consequences. The lesson of the 1930s is that you have to discredit both the moderate Left and Right in turn before voters turn to extreme parties en masse.
I cannot see how perma-slump and rising unemployment can continue through to 2017 without patience snapping. But such judgements are entirely political, and therefore intuitive. You have to speak the languages of these countries and know them very well to have any useful insights.
Citi's team is headed by ardent euro-federalist Willem Buiter, and most of his team are from eurozone countries, so this is not an Anglo-Saxon report.
Of course, there is always the possibility that they are completely wrong. They had better be wrong.
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Spain joins bumpy European recovery
Spain's economy is beginning to emerge from years of gloom even as eurozone data show how bumpy the region's recovery is likely to be.
Unemployment in the eurozone's fourth-biggest economy fell in the third quarter, according to figures published Thursday. That followed a report from the Bank of Spain Wednesday predicting a return to economic growth in the quarter after a recession lasting two years.
The government is due to publish its latest GDP numbers next week.
Improvement in Spain's jobs market is crucial to a broader recovery and Thursday's figures show the country's unemployment rate fell to its lowest level in a year.
But with just under 26% of the workforce -- and more than half of all young people -- still without a job, it remains painfully high.
Spain was hit hard by the financial crisis after a housing bubble burst and many of its banks required hefty bailouts.
Saddled with high debt and borrowing costs, it began a program of austerity to control its budget deficit and structural reforms aimed at improving productivity. Exports have recovered as a result, helping drive the return to growth, but economists say the country has some way to go.
Ben May from Capital Economics said Spain's prospects had improved considerably over the past year but domestic demand remained weak.
"Spain is not out of the woods just yet," said May. He expects GDP will shrink by about 0.5% in 2014.
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Draghi Melt-Up Makes Europe Emerge From Germany to Greece
The biggest European rally in 19 months is leaving virtually no stock behind, pushing up equity prices from Frankfurt to Athens as investors plow money into the region at the fastest rate since 2002.
The Euro Stoxx 50 Index (SX5E) has climbed 21 percent since reaching its 2013 low on June 24, with every constituent but three advancing, according to data compiled by Bloomberg. Banks, automakers and phone firms are leading gains on prospects earnings will expand as the region’s financial system heals and its longest recession ever ends.
Lured by the lowest valuations compared with the rest of the world and the best returns relative to emerging economies in more than a decade, mutual fund clients have sent fresh cash to European money managers for 15 straight weeks. European Central Bank President Mario Draghi is underpinning markets with a pledge to protect the euro even as a recovery takes hold in everything from manufacturing to Spanish gross domestic product.
“By Draghi standing up and saying what he said out loud, it was the first time that a politician of relevance in Europe was prepared to react and be ahead of events,” said David Moss, a portfolio manager at F&C Asset Management in London, which oversees $149 billion. “The economy has stopped being a headwind. The underlying prospects are not great by any strength of the imagination, but are much better.”
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German Ifo Business Climate disappoints at 107.4
The German Ifo Business Climate dropped to 107.4 points. It was expected to advance from 107.7 to 108.2 points in October. IFO Expectations were expected to rise from 104.2 to 104.5 points. The IFO Current Assessment component was predicted to tick up from 111.4 to 111.6 points but slid to 111.3 points. IFO is Germany’s No. 1 think tank. The results are a small disappointment.
EUR/USD was trading on high ground at around 1.3825 before the release and is now slightly lower.
The ZEW economic sentiment was already released, and it showed a stronger rise than expected. Markit’s purchasing managers’ indicators for Germany disappointed. Markets are looking for the euro’s new direction after the recent rise.
In addition, the euro-zone released a few more indicators: M3 Money Supply was expected to stay at a growth rate of 2.3%. Private loans were predicted to fall by 1.9% after a drop of 2% last month.
Italian retail sales carried expectations for a rise of 0.2%.
EUR/USD enjoys levels last seen in November 2011. The pair made the big breakout on top of the weak US Non-Farm Payrolls. The new high for this cycle is 1.3832. Resistance appears at 1.3870, 1.3960 and then 1.40.
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Italian, Spanish yields rise on euro zone recovery concerns
Italian and Spanish yields rose on Friday, drifting further away from this week's five-month lows, after Germany's below-forecast Ifo business sentiment survey raised concern about the euro zone economic recovery.
The business morale index unexpectedly fell for the first time in six months in October.
The report follows weaker-than-expected manufacturing and services sector surveys in the euro zone and the United States on Thursday.
Demand for riskier assets has also been hurt by expectations that a two-week U.S. government shutdown this month will hit growth in the world's biggest economy.
Italian 10-year yields rose 8 bps to 4.22 percent, off Wednesday's five-month lows of 4.085 percent.
Equivalent Spanish yields were up 2 basis points at 4.16 percent, having hit a five-month low of 4.107 percent early on Thursday, according to Reuters data.
"The data set was a little bit disappointing overall so its not surprising that periphery spreads are widening a little," said Ralf Umlauf, an analyst at Helaba Landesbank Hessen-Thueringen in Frankfurt.
"But we still believe there will be an economic upturn in the coming months and quarter in the euro zone but it's a slow dynamic so (peripheral yield) spreads only have limited potential for tightening."
German Bund futures rose 19 ticks to settle at 141.06, keeping Thursday's two-month high of 141.22 in sight.
The reaction to the weaker recent data was muted as investors also weighed the possibility of central bank action.
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Currency Woes Batter Europe's Industrial Giants
Europe's biggest industrial groups, pained for years by the continent's flagging economy, have a new headache: wildly fluctuating currencies in emerging markets.
Many companies sought growth outside of Europe during the downturn, particularly in the developing world. But a number of emerging economies are now suffering slowdowns of their own that in turn have undermined their currencies, denting the bottom lines of some of Europe's biggest corporations.
At the same time, the euro has strengthened against the currencies of major markets such as the U.S. and Japan, despite indications that Europe is only slowly recovering from its slump. On Friday, an unexpected drop in German business sentiment and data showing weak euro-zone bank lending were signs that Europe's economy remains fragile.
Since the end of June, the euro is up 17% against the Indonesian rupiah, 9.6% against the Indian rupee, 5.4% against the South African rand, 4.5% against the Brazilian real and 1.7% against the Russian ruble. In the same stretch, it is also up 6% against the dollar and 3% against the yen.
The euro's year-over-year gains are also dramatic, including a 17% jump against Brazil's currency and an 8.5% rise against the ruble from last year's third quarter.
These foreign-exchange trends are slamming some of Europe's biggest exporters, as revenue reaped abroad converts into fewer euros. This week, German chemicals supplier BASF AG BAS.XE +1.32% and French auto maker Renault SA RNO.FR -3.16% blamed the weaker real, rupee and rupiah for weighing on third-quarter revenue. And executives say the pain isn't likely to abate soon.
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