MacroScope

Q3 rebound but at cost of price cutting?

By Mike Peacock
August 1, 2014

A woman walks past a shop in Madrid

Manufacturing PMI surveys across the euro zone and for Britain are due. The emerging pattern is of an improving third quarter after a generally poor second three months of the year.

The UK economy continues to romp ahead – growing by 0.8 percent in the second quarter – but on the continent there are signs of a new slowdown. The Bundesbank now forecasts no Q2 growth at all in Germany and though the euro zone flash PMI, released a week ago, showed the currency area rebounding in July, that largely came at the cost of companies cutting prices further, thereby pushing inflation lower still.

France continues to languish but Spain is one brightening spot, posting 0.6 percent quarterly growth in Q2, not stellar but healthy and adding to 0.4 percent growth in Q1.

Geece is also showing glimmers of life, albeit from a very low base. The country’s leading economic think tank predicts the economy should grow 0.7 percent this year, pulling clear of a six-year recession, but its soaring unemployment rate is likely to drop less than hoped. Moody’s may upgrade Greece’s sovereign rating which currently stands at Caa3, or at least raise the outlook, when it delivers a rating review later.

China’s factories posted their strongest growth in at least 1-1/2 years in July as new orders surged to multi-month highs, two PMI surveys showed, adding to evidence that the economy is gaining momentum after a spate of state stimulus measures.

A three-day ceasefire between Israel and Palestinian militant groups in the Gaza Strip, brokered by U.S. Secretary of State John Kerry and U.N. Secretary-General Ban Ki-moon, came into effect at 0500 GMT.

Negotiators are due to travel to Cairo to discuss a longer-term solution after an official in Prime Minister Benjamin Netanyahu’s office said Israel had accepted the U.S./U.N. proposal and a spokesman for Hamas said all Palestinian factions would abide by the truce.

Despite the protestations of Russia’s largest banks yesterday that EU/U.S. sanctions would not stop them serving their customers successfully, the market is not so sure. Sberbank, Russia’s largest bank, was trading down 1 percent early on Friday, dragging the broader stock market down. Sberbank’s shares have now dropped nearly 19 percent since early June.

Alexei Navalny, a prominent critic of Russian President Vladimir Putin, goes on trial in a Moscow court on charges of stealing  more than 30 million roubles ($833,000) from two companies, one of them an affiliate of French cosmetics firm Yves Rocher. Navalny, who denies any guilt, is already serving a five-year suspended sentence on a separate 2013 theft charge and his allies accuse the Kremlin of using courts against him in a wider crackdown on dissent.

India’s demands for concessions on agricultural stockpiling have led to the collapse of the first major global trade reform pact in two decades under the aegis of the World Trade Organisation. That was the same stumbling block trade ministers failed to overcome last December. Most diplomats had expected the pact to be passed this week which, according to some estimates, would $1 trillion and 21 million jobs to the world economy.

The reason you haven’t heard much wailing and gnashing of teeth about this is that the world’s biggest trading blocs have already moved on to build massive bilateral deals – the EU./U.S., the U.S. and Pacific Rim, the EU/Canada to name a few.
What is more, the United States, European Union, Australia, Japan and Norway have already discussed a plan to exclude India from the agreement and push ahead, officials involved in the talks said.

Royal Bank of Scotland has broken its silence on the looming vote on Scottish independence, saying secession could materially impact its business, hitting the group’s costs and significantly harming its credit rating. Other financial institutions have previously dropped hints about the possibility of moving headquarters out of an independent Scotland.

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