MacroScope

Euro falling but no impact on inflation yet

Lithuanian 1 euro coins are pictured in the Lithuanian Mint in Vilnius

Euro zone inflation figures are due and after Germany’s rate held steady at 0.8 percent the figure for the currency bloc as a whole could marginally exceed forecasts and hold at 0.4 percent.

One upside for the currency bloc is the falling euro which has broken below its 2013 lows and is down almost nine percent from the peak it hit against the dollar in May. With U.S. money printing about to end next month and speculation intensifying about the timing of a first interest rate rise from Washington, there are good reasons to think that this trend could continue.

If it does, it would push the prices of imports up while making it easier for euro zone countries to sell abroad which should have an upward impact on both growth and inflation. The impact won’t be instant, however, as today’s figures will demonstrate.

Either way, there is no chance of the European Central Bank doing anything new at its monthly meeting on Thursday having pushed through a range of new measures last time.

We’ve had an early flurry of data. German retail sales jumped 2.5 percent in August, more than reversing a 1.1 percent fall in July.

After “get in the hole!”, Europe remains in a hole

Team Europe golfers pour champagne over captain Paul McGinley as they celebrate retaining the Ryder Cup at Gleneagles

Who says Europe is broken? The Ryder Cup stays here again and even Nigel Farage, leader of Britain’s anti-EU party, said he wanted Europe’s golfers to win.

The euro zone is not winning the economic competition however, despite the European Central Bank’s best efforts (it should be noted that only 3 of the 12 Ryder Cup team come from euro zone countries).

Prior to the ECB’s monthly policy meeting on Thursday, we get German inflation for September data today.

Britain to join the fray

A pair of U.S. Air Force F-15E Strike Eagles fly over northern Iraq

The British parliament will vote today on whether UK forces should join U.S.-led air attacks against Islamic State militants. Any action will be confined to Iraq, which has asked for help, not Syria where IS also controls swathes of territory. Prime Minister David Cameron has promised a separate vote on that if it comes to it.

Unlike last year when action to stop Syria’s Bashar al-Assad using chemical weapons against his own people was voted down, all the main parties appear to be broadly in support, probably swayed by the beheading of captives by the Sunni militants.

There shouldn’t be much difficulty arguing that the group poses a threat to Britain and its interests. Iraq’s prime minister said overnight that Baghdad had “credible” intelligence that Islamic State militants plan to attack subway systems in Paris and the United States. The attacks, he said, were plotted from inside Iraq.

Brazil set to release long-overdue jobless rate just as election race heats up

Workers at a General Motors vehicle factory listen during a meeting to discuss their reactions to an announcement of plans to put some 1,000 workers on paid leave, in Sao Jose dos CamposBrazil’s unemployment rate has been a mystery for months: a strike in the country’s statistics agency, ironically enough, disrupted its main job market survey. The numbers will finally come out in a few hours, less than two weeks before a tight presidential election, and will help voters understand just how bad the recently-confirmed recession has been.

IBGE’s August unemployment report is important not only because it can tilt Brazil’s election balance in favor of current President Dilma Rousseff or her opponent Marina Silva, but also because it will determine the starting point of the labor market for a much-anticipated adjustment in Brazil’s economic policy. Some kind of shift is expected after the October election regardless of who wins, to keep debt under control and avoid losing the investment grade in coming years.

Looking at market estimates, one can expect anything, apparently. The range of forecasts in a Reuters poll was about three times as wide as in previous months, going from 4.5 percent, near a record low, to 5.8 percent, which would be the highest for August in three years. Either the recession has spared the job market so far, in good news for re-election candidate Rousseff, or it is now a reality for thousands of workers across Latin America’s largest economy.

Britain back on board for action in Iraq

An Iraqi SWAT trooper covers his ears as he fires a mortar bomb during clashes with Islamic State militants, north of Muqdadiyah

U.S. air strikes in Syria continued overnight with a monitoring group saying at least 14 Islamic State fighters were killed.

Having sat out so far, Britain said it would join strikes against militants but only in Iraq for now – which has asked for such help – not Syria. IS holds swathes of land in both countries.

Parliament is to reconvene on Friday and, unlike last year when action to stop Bashar al-Assad using chemical weapons against his own people was voted down, all the main parties are now broadly in support. Prime Minister David Cameron’s cabinet will meet today to finalise what they will put to parliament tomorrow.

A long haul

U.S. Navy handout shows EA-6B Prowler attached to the Garudas of Electronic Attack Squadron 134 landing aboard the aircraft carrier USS George H.W. Bush after conducting strike missions against Islamic State targets, in the Gulf

Having largely sailed through this year’s choppy (to say the least) geopolitical waters, markets are a little discomfited by U.S. air strikes in Syria targeting Islamic State militants … though only a little.

The U.S. military said Monday’s onslaught was just the start, suggesting it could take years to “degrade and destroy” the group, as Washington puts it. It remains to be seen how effective air attacks alone, which have been conducted in Iraq for some time already, will be in that regard.

Many of the potential protagonists will be at the United Nations General Assembly in New York where President Barack Obama will try to rally more nations behind his drive to take on IS.

TLTRO effect is the ECB’s Waiting for Godot

AWhen banks are offered hundreds of billions of euros worth of what is essentially free money and they don’t take everything they can get, something has gone seriously wrong.

The European Central Bank’s latest offer of cheap cash to banks — only this time tied to loans they provide to private sector businesses rather than with no strings attached — has gotten off to a weak start.

That suggests not only that temporary liquidity for lending may be the wrong approach to boost a flat-lining euro zone economy that is barely generating any inflation, but it also underscores the much more serious lack of demand in the economy.

Middle East war takes another step

Shi'ite fighters from Mahde Army launch rockets during heavy fighting against Islamic state members at Bo Hassan village, near Tikrit

The United States and some Gulf allies have launched air strikes inside Syria against Islamic State militants.

A combination of fighter, bomber and Tomahawk attack missiles sounds like a formidable barrage so if intelligence about where the militants are is good, a significant blow could have been dealt.

Washington said Saudi Arabia, UAE, Jordan, Bahrain and Qatar were involved though their precise role is unclear. It made no mention of European involvement and Britain has said it was not part of it.

Europe looks again to Draghi

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Surprisingly low take-up at last week’s first round of cheap four-year loans by the European Central Bank begs a number of questions – How low is demand for credit and what does that say about the state of the economy? Are banks cowed by the upcoming stress tests? Does this make an eventual leap to QE more likely?

The ECB is playing up the prospects of a second round in December after the stress tests are finished. But having pledged to add the best part of 1 trillion euros to its balance sheet to rev up the euro zone economy, it can’t have been happy to see only 83 billion euros of loans taken. ECB President Mario Draghi testifies at the European Parliament today.

After narrowly winning a confidence vote in the National Assembly in a manner that doesn’t exactly give him momentum, French Prime Minister Manuel Valls travels to Germany to compare notes on economic reform.

Not really that close

Scotland's First Minister Alex Salmond speaks at the "Yes" Campaign headquarters in Edinburgh, Scotland

So what was all the fuss about?

A first rough draft of history would suggest the one opinion poll that gave the independents a lead nearly two weeks ago scared the Bejesus not only out of the British establishment but a significant chunk of Scottish voters too.

Prime Minister David Cameron has addressed the nation, promising to deliver new powers to Edinburgh to a very tight timetable, drafting laws in January in order to have it done after the 2015 general election.

He also promised more devolution for Northern Ireland, Wales and England, which is tantamount to a fiendishly complicated constitutional overhaul. It is not clear that the opposition Labour party is on the same page.