Is the Eurogroup actually calling the end of the Eurozone crisis?

Feb 18 • Morning Roll Call • 2495 Views • Comments Off on Is the Eurogroup actually calling the end of the Eurozone crisis?

shutterstock_118401106Monday was a relatively quiet day for high impact news events and or fundamental policy decisions due in the main to the bank holiday in the USA, but that hasn’t deterred us from scouring the various wires in order to being you up to date with the key information that’ll move our FX markets, major indices and commodities…

Italian PM Change Highlights Political Volatility – Fitch Ratings

The resignation of Prime Minister Enrico Letta and his replacement by Democratic Party (PD) leader Matteo Renzi underscores the volatility of Italian politics, Fitch Ratings says. Renzi will be Italy’s fourth prime minister since November 2011. Uncertainty about the durability of governments and their capacity for structural reform and fiscal consolidation is one reason for the Negative Outlook on Italy’s ‘BBB+’ rating. This is the latest episode of political volatility since last February’s inconclusive parliamentary elections (increased political uncertainty, combined with the depth of Italy’s recession, prompted our downgrade to ‘BBB+’.

Italian bonds close to 8-yr low

Matteo Renzi was named Italy’s next prime minister. Renzi had already had good economic news. Italian bond yields fell close to an 8-yr low on Monday morning following a decision to lift its credit outlook by the rating agency Moody’s. Italy’s credit rating was raised to stable from negative by Moody’s after markets closed on Friday.

Dietmar Hornung, associate managing director at Moodys in Frankfurt, told Bloomberg that the agency saw;

Significant resilience in the governments financial strength with more stability across Europe providing a tailwind.

Larry Summers, former US Treasury secretary and adviser to Barack Obama, said inequality is putting the US on its way to becoming a “Downton Abbey economy”

The share of income going to the top 1 per cent of earners has increased sharply. A rising share of output is going to profits. Real wages are stagnant. Family incomes have not risen as fast as productivity. The cumulative effect of all these developments is that the US may well be on the way to becoming a Downton Abbey economy. It is very likely that these issues will be with us long after the cyclical conditions have normalised and budget deficits have at last been addressed.

President Barack Obama is right to be concerned. Those who condemn him for tearing down the wealthy and engaging in un-American populism are, to put it politely, lacking in historical perspective. Presidents from Franklin Roosevelt to Harry Truman railed against the excesses of a privileged few in finance and business. All were reacting in their own way to a phenomenon that Bill Clinton has described best: Although Americas rich got richer, the country did not, the stock market tripled but wages went down.

European energy demand down 8%

European energy consumption fell by 8% between 2006 and 2012, according to data released Monday morning by Eurostat. The five largest consumers of energy were Germany, France, the UK, Italy and Spain, accounting for almost two thirds of total consumption and three quarters of the reduction in energy. Some of the biggest falls in consumption took place in countries hardest hit by the economic crisis: Portugal’s energy consumption dropped by 15.2% over the period, and Greece by 14.4%.

Deflation a threat to the Eurozone

The risk that the Eurozone could be entering a period of deflation remains a clear and present danger, statistics show that Greek consumer prices continued to fall in January. Prices fell by 1.2% in January on the previous month according to El.Stat, although the pace of deflation slackened reduced. In November Greek deflation was its worst ever since records began in 1960 and prices have now dropped steadily for 11 months in a row.

Three ex-employees of Barclays charged over Libor fraud

The Serious Fraud Office has started criminal proceedings against three former employees of Barclays Bank for alleged manipulation of Libor interest rates. In 2012 Barclays was fined a record £290m for fixing Libor and admitted its actions “fell well short of standards”. Former chief executive Bob Diamond was even moved to give up his bonus.

So the euro-crisis is over?

European Central Bank governing council member Ewald Nowotny said the ECB’s bond buying programme is “not that relevant” anymore because of the improved economic situation 18 months after ECB president Mario Draghi made that big promise to do “whatever it takes” to save the euro.

On the ECB’s bond-buying programme, known as Outright Monetary Transactions, he said it was less significant than it was. His bullet points were:

* The OMT programme is not that relevant anymore because there has been a substantial improvement in the European situation.
* No expectations in the market of a break-up in the euro zone.
* On interest rates, he said the bank needed more information about inflation and growth before taking a decision.
* Rates were left on hold earlier this month.
* On the Eurozone recovery, the Eurozone still faces downside risks, mainly from turmoil in financial markets, disinflation and the slow pace of implementation of structural reforms.
* It’s good news that we see improvements in the real economy and how this connects to inflation rates is something that still needs to be discussed.

International inspectors are to return to Greece in the coming days, Eurogroup President Jeroen Dijsselbloen has said

In a press conference following the Eurogroup meeting he said he was confident of getting an agreement from Eurozone ministers in March on direct bank recapitalisation via the European Stability Mechanism. Meanwhile Olli Rehn, European Commissioner for Economic and Monetary Affairs, also spoke on the subject of Greece. He said the country’s fiscal outcome for 2013 might be better than expected, although this would have to wait for verification from Eurostat.

Market overview at 10:00 PM UK time February 17th

USA bourses were closed on Monday. Euro STOXX closed flat on the day, CAC down 0.11%, DAX down 0.06%, FTSE up 1.09%.

Looking towards the market open on Tuesday at the time of writing (UK time 10:30 PM Monday feb 17th) the DJIA equity index future is up 0.17%, SPX up 0.13% and the NASDAQ up 0.17%. Euro STOXX is up 0.13%, DAX up 0.11%, CAC down 0.08% and the UK FTSE is up 1.05%.

NYMEX WTI oil rose 0.62% on the day at $100.92 per barrel. NYMEX nat gas finished up 4.55% on the day at $5.45 per therm. COMEX gold finished the day up 0.79% at $1328.90, silver on COMEX up 1.84% at $21.82 per ounce. Gold advanced to the highest in more than three months as speculation the U.S. economic recovery will slow spurred demand for a haven. Silver headed for the longest rally in more than four decades.

Forex focus

The yen declined 0.2 percent to 139.67 per euro at late afternoon London time. It slipped 0.1 percent to 101.90 per dollar, after gaining 0.8 percent in the past three days. The 18-nation shared currency strengthened 0.1 percent to $1.3707. The yen fell as a report showed Japan’s economy expanded less than analysts forecast, boosting speculation the nation’s central bank will add to its stimulus plan that tends to weaken the currency.

The pound climbed to as high as $1.6823 today, the strongest level since November 2009, after appreciating 2.1 percent last week. It touched a one-year high of 81.58 pence per euro, adding to last week’s 1.6 percent advance, the biggest since April. Bank of England Governor Mark Carney is proving adept at winning the confidence of currency traders.

Bonds briefing

Italy’s 10-year yield fell six basis points, or 0.06 percentage points, to 3.63 percent late afternoon London time after declining to 3.61 percent, the lowest level since January 2006. The 4.5 percent bond due in March 2024 rose 0.515, or 5.15 euros per 1,000-euro ($1,371) face amount, to 107.565. Italy’s government bonds rose with those of Spain and Portugal amid optimism prime-minister-designate Matteo Renzi will be able to form a government to accelerate economic reform. Spain’s 10-year yield fell four basis points to 3.55 percent after dropping to 3.51 percent, the lowest level since March 2006. The rate on similar-maturity Portuguese bonds declined as much as 13 basis points to 4.82 percent, the least since June 2010.

Fundamental policy events and high impact news events for February 18th

Tuesday witnesses Australia’s monetary policy meeting minutes published. China’s foreign directive investment is expected in at a similar level to previous, up 5.3%. Attention then turns to Japan’s monetary policy statement and Japan’s bank of Japan press conference.

Europe’s current account is expected in at €19.8 bn, Italy’s trade balance is expected to come in up €2.79 bn positive. Attention then turns to the UK as the key CPI inflation figure is expected in at a consistent 2%. PPI is expected to be down 0.4%, with RPI expected in at 2.7%. House price inflation, according to the ONS stats, is expected to show house prices rising by 5.8% year on year.

German ZEW sentiment index is predicted in at 61.3, with economic sentiment for Europe at 73.8. During Tuesday the ECOFIN meetings will take place throughout the day.

Attention then switches to North America with Canada’s foreign securities purchases at circa $10 bn for the month. In the USA the Empire manufacturing index is published, expected in at 9.9. The NAHB housing index is expected in at 56.

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