MacroScope

New EU takes shape

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The new EU aristocracy will be put in place this week with the European Parliament to confirm Jean-Claude Juncker as the next European Commission President today and then EU leaders gathering for a summit on Wednesday at which they will work out who gets the other top jobs in Brussels.

Although Juncker, who will make a statement to the parliament today which may shed some light on his policy priorities, is supposed to decide the 27 commissioner posts – one for each country – in reality this will be an almighty horse-trading operation.

Current best guesses – though they are just guesses – are that despite a willingness among some to play nice with the Brits, Prime Minister David Cameron may lose out again having voted against Juncker at a June summit. He is seeking one of the big economic portfolios; internal market, trade or competition.

Because Juncker, the former Luxembourg premier, is from the centre-right and western Europe, the leaders may look for socialists or women from northern, eastern or southern Europeans for the other two key posts of European Council President and foreign policy chief.

Denmark’s Helle Thorning-Schmidt keeps getting mentioned in dispatches for the former though her country is not in the euro zone while the foreign ministers of Italy and Poland are frontrunners for the latter.

U.S. hiring may be rebounding, but wage growth is not

AThe U.S. job market has finally turned a corner. What is remarkable is that it has taken so long.

Companies have finally begun taking on staff in consistently greater numbers, half a decade after the end of a deep recession brought on by one of the most punishing financial crises in history.

What companies haven’t been doing yet is offering consistently greater pay.

Deflating euro zone inflation expectations

EThe euro zone is not deflating, it’s just at risk of a too-prolonged period of low inflation, says European Central Bank President Mario Draghi.

Judging by recent evidence, it might be very prolonged, which is bad news for an economy struggling to shift out of low gear.

Inflation held steady at just 0.5 percent in June, well below the ECB’s 2.0 percent ceiling, stuck in what it calls the “danger zone” of below 1.0 percent for nine straight months.

Clock ticking

Amid all the furore over David Cameron’s failure to block Jean-Claude Juncker for the top EU job at a summit last week, the bloc’s leaders signed a free-trade pact with Ukraine and said they could impose more sanctions on Russia unless rebels de-escalate in the east of the country by Monday.

In turn, Ukraine president Poroshenko extended a ceasefire by government forces until 10 p.m. local time today.

The Russian economy would contract should the West introduce wide-ranging sectoral sanctions but that would not be a “dramatic” situation, Economy Minister Alexei Ulyukayev said over the weekend.

Weak UK inflation casts doubt on interest rate hike this year

 

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Bank of England Governor Mark Carney shocked markets last week, saying interest rates could rise sooner than expected.

At first glance, the latest UK inflation data suggest they might not.

Inflation has nearly halved to 1.5 percent in May from 2.9 percent last June. And wage inflation is much lower.

While still well above the euro zone, where inflation has tumbled to 0.5 percent, keeping alive the real risk of deflation, the latest UK inflation rate fell below even the lowest forecast in a Reuters poll.

Euro needs the Fed, or QE, for the next leg down

EIt has become increasingly clear it takes a lot more than words to sink the euro.

The European Central Bank cut rates as low as they will go on Thursday and announced another round of cheap cash for banks, hoping the euro, which has helped knock down inflation in the fragile euro zone economy, will fall.

Yet the ECB’s efforts yielded little more than a lukewarm response from markets, suggesting that the only thing that will get the euro to fall any further in the very near-term is a change in the outlook for U.S. rates, and through that, a stronger dollar.

India share bulls running mainly on hope, well ahead of peers

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Indian stocks have rallied sharply over the last two months, soaring to record highs, although the bull run that began with expectations that Narendra Modi will become the country’s next Prime Minister may soon run out of road.

India’s top equity index, the BSE Sensex, was trading over 24,850 on Tuesday, having shot up over 10 percent since mid-April alone, when polling began, despite economic growth languishing below 5 percent, along with high inflation and interest rates.

With growth at just 4.7 percent, only a marginal improvement from the 10 year low plumbed in the previous financial year, the market could struggle in coming months, especially if the economic data continue to disappoint.

Euro zone inflation data to set seal on ECB action

Euro zone inflation – due at 0900 GMT – is forecast to hold at a paltry 0.7 percent in May, in what European Central Bank President Mario Draghi has labelled the danger zone below 1.0 percent for the eighth successive month.

After German inflation fell to just 0.6 percent on the EU measure on Monday, well below forecasts, the bloc-wide figure could also undercut. We already know the Spanish and Italian inflation rates were just 0.2 and 0.4 percent respectively last month. If that comes to pass, any doubts about ECB action on Thursday, which are thin on the ground anyway, must surely be banished.

A clutch of senior sources have told Reuters the ECB was preparing a package of policy options for its meeting on Thursday, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms (SMEs).

Gas talks resume

Fresh talks between Russia, Ukraine and the European Commission in Berlin will aim to resolve a gas price dispute that Moscow has warned could make it cut off supplies next week.

Ukraine has said the price for 2014 should be agreed before it starts making any payments. Russia’s energy minister has said Moscow and the EU have proposed that Kiev pay Gazprom $2 billion, and another $500 million before June 7, as a precondition for a price discount and further talks.

Gazprom said on Thursday it had not yet received any payments from Ukraine on a debt which it says will have risen to about $5.2 billion by June 7 unless Ukraine begins to pay it off. Kiev has countered that Gazprom owes it around $1 billion for gas following Russia’s seizure of Crimea.

El Niño may not give Brazil much to worry about on food prices

File photo of loaded soybean truck for BRAZIL SOY.

Now that Brazilian food prices are finally settling down, it looks like El Niño will strike back in a couple of months to throw the world’s weather into disarray.

Bad news for Brazil’s Finance Minister, Guido Mantega?

Not necessarily.

It could just as easily be a blessing, economists say. The changes in climate patterns caused by warmer Pacific waters could actually be a boon for Brazilian soy and corn producers while not necessarily disrupting other crops.

It is not clear yet if the El Niño phenomenon will happen this year – the odds are high at about 70 percent, according to the U.S. and Australian weather agencies.