Forex - German Ifo business climate falls to 22-month low in October - General

thenews 2014.10.27 08:15 #1781

German Ifo business climate falls to 22-month low in October

German business confidence deteriorated to the lowest level in almost two years in October, dampening optimism over the health of the euro zone’s largest economy, industry data showed on Monday.

In a report, the German research institute, Ifo said its Business Climate Index fell to a seasonally adjusted 103.2 this month, below forecasts for 104.3 and down from a reading of 104.7 in September.

The Current Assessment Index declined to 108.4 in October, disappointing expectations for a reading of 110.0 and down from 110.5 in September.

The Business Expectations Index, which measures attitudes toward business prospects over the next six months, dropped to 98.3 this month from 99.3 in September, missing forecasts for 98.9.

The monthly index is based on a survey of around 7,000 German firms in the manufacturing, construction, wholesale and retail sectors.

EUR/USD was trading at 1.2689 from around 1.2695 ahead of the release of the data, while EUR/GBP was at 0.7878 from 0.7882 earlier.

Meanwhile, European stock markets were mostly lower. Germany's DAX fell 0.15%, the DJ Euro Stoxx 50 shed 0.3%, France’s CAC 40 slumped 0.3%, while London’s FTSE 100 dipped 0.1%.

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thenews 2014.10.27 10:10 #1782

There Is One Huge Thing Missing From The ECB's Stress Tests

On Sunday, the European Central Bank released the results of "stress tests" performed on 130 eurozone banks.

Twenty-five banks failed.

There's a bit of a split on whether or not these results were good.

But there is no divide on whether or not the ECB considered one key scenario: deflation.

Analysts at Societe Generale said the results show that in an adverse scenario that occurs in 2016, only 7 billion euros of capital would be needed. And given that these stress tests involved banks holding more than 20 trillion euros in deposits, they don't think this is a huge deal.

Others aren't so sure, including economist Philippe Legrain who called the results, "Yet another eurozone bank whitewash."

In a blog post Legrain, who wrote a book on the eurozone crisis titled, "European Spring: Why Our Economies and Politics are in a Mess — and How to Put Them Right," wrote in a blog post on Sunday that the stress test's capital need assumptions are "ludicrously overoptimistic."

But aside from how you choose to argue some of the ECB's assumptions, the central bank said, point blank, that it did not consider a situation where prices fall across the eurozone.

In a press conference following the results, the ECB's Vítor Constâncio said, "The scenario of deflation is not there because indeed we don't consider that deflation is going to happen."

Constâncio added, "But let me highlight that nevertheless, whereas the baseline scenario which is in the stress test has inflation at 1.6 in 2016, in the adverse it comes down to 0.3. So this drop in inflation is indeed factored in, in the exercise and is a very significant drop. So it cannot be said that we did not consider the impact of a scenario of very low inflation. Indeed, we did it in comparison with the baseline."

But the problem is that we are already seeing falling inflation across the eurozone, with prices rising just 0.3% across the economic bloc in September.

And what's more, deflation has already been a reality for many of the bloc's economies.

The Telegraph's Ambrose Evans-Pritchard noted on Twitter that in the last six months we've seen deflation in Spain, Italy, Greece, and Portugal.

And as a whole, the euro area saw prices rise just 0.3% year-over-year in September, according to data from Eurostat, down from increases of between 0.7% and 0.9% a little less than a year ago.

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