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from MacroScope:
Mixed evidence from Germany
German trade data, already out, showed both exports and imports rose more than expected in April – up a sharp 2.3 and 1.9 percent respectively. That suggests that its fabled industrial base is in reasonable shape but also that domestic demand is holding up, possibly helped by some above-inflation pay deals. The figures represent a significant bounce from the first quarter when Europe’s largest economy just managed to eke out some growth.
Let’s not get carried away, though. Germany’s PMI survey earlier this week showed a slight decline in export orders in May and the Bundesbank has just released its latest set of economic forecasts, cutting its 2013 growth forecast to 0.3 percent, adding that risks are largely skewed to the downside. It expects a healthy bounce in growth in the second quarter then a marked throttling back.
Trade figures from France, Britain and Portugal give an opportunity to see if there is any “rebalancing” going on within Europe – the argument being that the euro zone in particular can only thrive if Germany’s massive surpluses shrink a little just as the high debt countries try to pare their deficits. That requires Europe’s largest economy to buy a little more from its currency area peers. The German data showed imports from states in the single currency bloc up 5.4 percent year-on-year in April so maybe there are glimmers of movement.
German industrial output, due later this morning, will be another important snapshot after industry orders dropped sharply in April. Elsewhere, Spanish industry output data, which showed the slowest fall in 19 months in March, will indicate whether a deep recession is close to hitting bottom. Spain has enacted painful cuts and reforms but the resultant easing of its labour laws has helped its export base, and inward investment, pick up.
from Full Focus:
Imaging austerity: Rafael Marchante
As Portugal enters a third year of recession, Lisbon-based photographer Rafael Marchante reflects on covering the country's hidden and silent crisis.
from Photographers Blog:
Portugal’s love affair with canned fish
Lisbon, Portugal
By Jose Manuel Ribeiro
Canned fish: poor people's food, gourmet cuisine, souvenir or just healthy fast food?
It was late when I arrived home, tired and starving. I opened the kitchen cupboard looking for some late-night lazy-man food, and there, they were: my friendly and colorful fish cans.
from MacroScope:
Why euro zone bond yield ‘convergence’ may be something to fear
Are European bond investors looking for love in all the wrong places?
The premium bankers demand to hold various types of euro zone debt over that of Germany has recently come down. In normal circumstances, this might suggest markets are no longer discriminating between the risks associated with different member countries’ bonds. But analysts say the recent convergence is based on a precarious belief of ECB action rather than any real improvement in economic fundamentals.
Spain and Italy still offer a comfortable premium over Germany. But a narrowing in yield spreads that is being driven by a fall in the funding costs of Spain and Italy, rather than by a rise in German yields, gives reason for pause.
from MacroScope:
German ghost of inflations past haunting European stability: Posen
"Reality is sticky." That was the core of Adam Posen's message to German policymakers on their home turf, at a recent conference in Berlin.
What did the former UK Monetary Policy Committee member mean? Quite simply, that the types of structural economic changes that Germany has been pushing on the euro zone are not only destructive but also bound to fail, at least if history is any guide.
from Breakingviews:
Euro zone daren’t flunk Lisbon’s solidarity test
By Neil Unmack
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Euro zone finance ministers took the risk of sending the Cypriot economy back to the stone age, with a tough bank restructuring and conservative approach on how much debt the country could take on. They now have a chance to show their sensitive side by giving Portugal and Ireland an extension on their bailout loans. They should seize it: playing hardball again would be self-defeating.
from MacroScope:
Euro zone week ahead
Italy will continue to cast a long shadow and has clearly opened a chink in the euro zone’s armour. It looks like the best investors can expect is populist Beppe Grillo supporting some measures put forward by a minority, centre-left government but refusing any sort of formal alliance. That sounds like a recipe for the sort of instability that could have investors running a mile. The markets’ best case was for outgoing technocrat prime minister Monti to support the centre-left in coalition, thereby guaranteeing continuation of economic reforms. But he just didn’t get enough votes. Fresh elections are probably the nightmare scenario given the unpredictability of what could result.
The story of the last five months has been the bond-buying safety net cast by the European Central Bank which took the sting out of the currency bloc’s debt crisis. But now it has an Achilles’ Heel. The ECB has stated it will only buy the bonds of a country on certain policy conditions. An unwilling or unstable Italian government may be unable to meet those conditions so in theory the ECB should stand back. But what if the euro zone’s third biggest economy comes under serious market attack? Without ECB support the whole bloc would be thrown back into crisis and yet if it does intervene, some ECB policymakers and German lawmakers will throw their hands up in horror, potentially calling the whole programme in to question.
from MacroScope:
Euro zone triptych
Three big events today which will tell us a lot about the euro zone and its struggle to pull out of economic malaise despite the European Central Bank having removed break-up risk from the table.
1. The European Commission will issue fresh economic forecasts which will presumably illuminate the lack of any sign of recovery outside Germany. Just as starkly, they will show how far off-track the likes of Spain, France and Portugal are from meeting their deficit targets this year. All three have, explicitly or implicitly, admitted as much and expect Brussels to give them more leeway. That looks inevitable (though not until April) but it would be interesting to hear the German view. We’ve already had Slovakia, Austria and Finland crying foul about France getting cut some slack. El Pais claims to have seen the Commission figures and says Spain’s deficit will will come in at 6.7 percent of GDP this year, way above a goal of 4.5 percent. The deficit will stay high at 7.2 percent in 2014, the point so far at which Madrid is supposed to reach the EU ceiling of three percent.
from Global Investing:
Weekly Radar: Managing expectations
With a week to go in January, global stock markets are up 3.8 percent – gently nudging higher after the new year burst and with a continued evaporation of volatility gauges toward new 5-year lows. That’s all warranted by a reappraisal of the global economy as well as murmurs about longer-term strategic shifts back to under-owned and cheaper equities. But, as ever, you can never draw a straight line. If we were to get this sort of move every month this year, then total returns for the year on the MCSI global index would be 50 percent – not impossible I guess, but highly unlikely. So, at some stage the market will pause, hestitate or even take a step back. Is now the time just three weeks into the year?
Well lots of the much-feared headwinds have not materialized. The looming US budget ceiling showdown keeps getting put back – it’s now May by the way, even if another mini-cliff of sorts is due in March -- but you get can-kicking picture here already. The US earnings season looks fairly benign so far, even given the outsize reaction to Apple after hours on Wednesday. European sovereign funding worries have proven wide of the mark to date too as money floods to Spain and even Portugal again. And Chinese data confirms a decent cyclical rebound there at least from Q3's trough. All seems like pretty smooth sailing – aside perhaps from the UK’s slightly perplexing decision to add rather than ease uncertainty about its economic future. So what can go wrong? Well there’s still an event calendar to keep an eye on – next month’s Italian elections for example. But even that’s stretching it as a major bogeyman the likely outcome.
from MacroScope:
What Greece’s latest debt deal might mean for Ireland and Portugal
Another week, another Greek debt deal. Third time’s a charm, EU and Greek politicians assure us. Under the agreement, Greece's international lenders agreed to reduce Greece's debt load by 40 billion euros, cutting it to 124 percent of gross domestic product by 2020 through a package of steps.
Marc Chandler, head of currency strategy at Brown Brothers Harriman, points out “an under-appreciated twist to the plot”: the Greek deal has potential implications for other bailed out European states like Portugal and Ireland.
