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Belgian Consumer Confidence Climbs To 27-Month High
Belgium's consumer confidence improved for the seventh successive month in October, and reached its highest level in twenty-seven months, as households turned more optimistic about their personal finances, survey data released by the National Bank of Belgium showed Friday.
The consumer confidence index moved up to -6 in October from -7 in September. The index recorded growth every month since March, and the latest score is the highest since July 2011.
Driving the improvement in the overall mood, households' confidence with regard to their future financial position increased further in October. At the same time, concerns about a rise in unemployment waned somewhat, improving from last month's slightly more gloomy estimate.
Nevertheless, consumers' expectations regarding their saving capacity remained unchanged from the previous month.
Meanwhile, the ongoing optimism among households about the general economic prospects fell back a little in October, the survey showed.
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Europe Markets End At Five-Year High
European stocks closed at a fresh five-year high Friday, as expectations that the Federal Reserve will have to keep its easy-money policies in place for longer following the partial U.S. government shutdown buoyed equity markets.
The promise of more Fed liquidity also pushed the dollar close to its lowest point of the year against the euro and U.S. Treasury debt prices to their highest point since July.
The Stoxx 600 index, which contains a wide variety of European stocks, climbed 0.8% to finish the week at 318.15, its highest close since June 2008. Germany's DAX gained 0.6%, closing at an all-time high of 8865.10, as global equities got a further helping hand from encouraging Chinese growth figures.
The moves mean major European indexes have now more than recouped the losses made since mid-September, when the budget impasse in Washington began to weigh on markets.
Yields on the 10-year Treasury note, which move inversely to prices, touched 2.538%, the lowest level since July 24, according to CQG. The dollar continued its slide against major rivals, including the yen and pound. The pound traded just above the $1.62 level for the first time in two weeks. The greenback fetched ¥97.79 from ¥97.93 late Thursday. The euro gained ground against the dollar, buying $1.3696 from $1.3675.
The drop in the dollar and the rise in Treasury debt and stock prices were set in train earlier this week after lawmakers reached a temporary solution to raise the so-called debt ceiling, showing that investors doubt the Fed can start to reel in its stimulus measures—a process dubbed tapering—for as long as economic performance and data is compromised by the now-ended shutdown, and as long as the risk of repeat shutdowns lingers.
"As policy remains über-accommodative, the dollar has adjusted downwards," said Scott Jamieson, head of multi-asset investing at Kames Capital in London, with $24 billion under management.
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S&P Maintains Sweden's 'AAA/A-1+' Rating; Outlook 'Stable'
Rating agency Standard and Poor's on Friday confirmed its 'AAA/A-1+' credit rating on the Swedish economy, and maintained the 'stable' outlook, citing the country's strong and diversified economy and effective policy-making.
According to the rating agency, Sweden has a prosperous and competitive economy, and the the government is committed to maintain prudent economic policies. The country has a low government debt burden, modest inflation, a floating currency, and persistent current account surpluses.
Meanwhile, the banking system's high reliance on external funding, and the continued accumulation of household debt are the key challenges facing the economy, the agency said.
S&P forecasts that Sweden's current account surplus would average close to 6 percent of GDP over the 2013-2016 period.
On the affirmation of the outlook, the agency said it expects Sweden to continue to benefit from sound economic policies that will manage risks such as the high household debt burden and potential asset price overvaluation in a timely manner.
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Italy court hands Berlusconi two-year ban from public office
A Milan court on Saturday ruled that former Prime Minister Silvio Berlusconi should be barred from holding public office for two years following a conviction for tax fraud.
But, since Berlusconi is a senator, the court's decision will have no immediate effect and his expulsion from the Senate will depend on a separate vote in the upper house of parliament, expected to take place next month.
Saturday's ruling reflected the prosecution's request for a two-year ban. Berlusconi's lawyers, who can appeal to the supreme court, had asked for a one-year ban, the minimum under the law that was being applied in the Milan case. The maximum would have been three years.
Italy's supreme court on August 1 definitively upheld a tax fraud conviction against the centre-right leader, rejecting his final appeal against an earlier four-year jail sentence.
The four-year sentence was commuted to one year, and, if the Senate expels him, Berlusconi will spend the year either under house arrest or in community service.
In the August 1 ruling, the supreme court confirmed the conviction but ordered a further judicial review of a ban on holding public office imposed for the same offence.
The upper house's vote next month will effectively supersede the Milan court's decision because it will be based on a separate law, which, if he is expelled, would ban Berlusconi from public office for six years.
Losing his seat in the Senate would deprive Berlusconi, who is fighting a conviction for paying for sex with a minor among other legal cases, of his parliamentary immunity from arrest.
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Europe Week Ahead: ECB AQR, -BLS, German Ifo, EZ PMI, -M3, UK MPC Minutes, -GDP
It is unclear how much information we will get from the ECB next week with respect to the upcoming Asset Quality Review (AQR), with a specific communication expected around 23 October. Our best guess is that we will know more about the timing of the Balance Sheet Assessment (expected to be conducted in Q114, ahead of the stress tests to be published in the autumn by the European Banking Authority) as well as the broad methodology. The key technical issues will include the scope of assets under focus (SME loans, real estate, shipping, ‘legacy’ assets), the risk-weighted accounting rules as well as, importantly, the way impaired loans are classified. There are many risks involved with the AQR and stress tests, given Europe’s calamitous experience on that matter in recent years, but overall we believe that the incentives on the ECB’s side will be strong enough to favour a credible balancing act, which would be neither too rigorous nor too complacent, mostly because it is the ECB’s credibility that is at stake.
Meanwhile the European Council on 24 and 25 October will discuss “growth, competitiveness and jobs”, notably the implementation of the investment plan for Europe agreed last June, the Youth Employment Initiative and the completion of the Banking Union. Little progress has been achieved this week on the latter subject and further tensions could build around the definition of the SRM features by the end of the year.
The Bank Lending Survey of credit conditions conducted by the ECB will likely reveal some further modest improvement in credit availability and demand for credit from households and companies, in line with the ongoing improvement in consumer and business confidence. The previous survey from July had revealed that banks anticipated a decline in the further pace of the net tightening of credit standards on loans to non-financial companies and on loans for house purchase, while they expected conditions on consumer credit to remain broadly unchanged. Regarding demand for loans, banks expected the net decline for loans across all categories to continue albeit at different paces, with a better outlook for housing loans than for loans to companies. Low capital investment remains the main driver behind the weakness of loans demand from companies and is likely to remain so in the coming months
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EUR/USD Forecast October 21-25
EUR/USD rallied to a new 8 month high, enjoying the poor resolution to the US political crisis. Can the pair break higher? Or is it consolidation time? German Producer prices, German Ifo Business Climate and Manufacturing and services PMIs are the highlights of this week. Here is an outlook for these events among others, and an updated technical analysis for EUR/USD, now just under the year-to-date peak.
The Euro strengthened against the US dollar in light of the lingering shutdown, badly affecting US economy. The aversion of the debt ceiling was achieved only at the last moment, and it set new dates for a potential shutdown and default, in early 2014. On this background, the Fed will likely postpone QE tapering and maintain the heavy weight on the dollar. In the meantime ZEW Economic Sentiment continued rising However, the door to new easing is still open, as ECB officials remain worried about tighter credit conditions and falling inflation, as seen again just now. Let’s start:
Updates:
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Bundesbank head warns Merkel on increased state spending
The head of the German Bundesbank has told Chancellor Angela Merkel to keep a tight grip on government spending in coalition talks with the center-left Social Democrats (SPD) next week, in which she faces pressure to boost investment funding.
"It is important to shape public budgets in a way that preserves a safe distance to the net new borrowing ceiling, to avoid unpleasant surprises," Jens Weidmann told the business magazine Wirtschaftswoche on Saturday.
Coalition talks between Merkel's conservative block and the SPD are due to begin on Wednesday. Leading members of both camps have demanded more spending on Germany's neglected infrastructure as well as education in the coming years.
The SPD wants to finance such investments through higher taxes on the most wealthy, but Merkel has pledged she will not pursue that option.
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Greek minister foresees hellish debt negotiations
Greece should prepare itself for a hellish negotiating period with international creditors on the country's financial needs and its level of debt, Finance Minister Yannis Stournaras said Sunday.
"Up to June it will be hell. Our lenders will review and judge everything," Stournaras said to the newspaper To Vima.
The minister also told the daily Kathimerini that Greece would refuse a new bailout package if it came with additional austerity measures.
His statements come at a time of increasing anxiety in Greece as the so called troika of creditors from the European Union, European Central Bank and International Monetary Fund consider further loan releases to the cash-strapped country.
Greece is experiencing a sixth year of continuous recession and an unemployment rate of more than 27 percent. A second general strike in less than four months is planned for November 6 to protest harsh government austerity policy.
Greece was first bailed out for 110 billion euros in 2010 but when that failed, got a second rescue in 2012 worth 130 billion euros plus a private sector debt write-off totalling more than 100 billion euros.
The second bailout is set to end in mid-2014, when the plan is for Greece to return to the markets for its long-term funding, an eventuality that for now seems unlikely.
The creditors are worried the country can not afford to meet its 4.4 billion euros ($5.4 billion) loan repayments. The impending financial hole could rise to 10.9 billion euros by 2015.
With state revenue still far short of planned spending, the Greek government is looking for ways to afford day-to-day spending in 2014 without forcing yet more austerity on Greeks.
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Merkel Moves Closer to Grand Coalition as SPD Approves Talks
Germany’s Social Democrats ratified their leaders’ decision to enter talks on joining Chancellor Angela Merkel as junior partners in a “grand coalition” between the two largest parties.
About 85 percent of 229 SPD delegates voted to start coalition negotiations with Merkel’s bloc on Oct. 23, the day after the lower house of parliament, or Bundestag, holds its first post-election session. Merkel and SPD leaders agreed last week to move toward a grand coalition after three rounds of initial talks.
“It’s possible that unbridgeable differences arise during the talks so that a coalition isn’t possible,” SPD Chairman Sigmar Gabriel said late yesterday after the vote at the party’s Berlin headquarters. “But if you decide to take up coalition talks, then your goal is to bring them to a successful end.”
Merkel’s Christian Democrats and her CSU Bavarian sister party won almost 42 percent of the vote on Sept. 22 and came five seats short of an absolute majority. Gabriel and his party will fight to give a new government an SPD imprint including demands for a minimum wage and infrastructure investment as negotiations stretch toward the end of the year.
The full SPD membership will vote on a coalition agreement if one is reached. To win over rank and file, the delegation yesterday said the SPD demand for a nationwide minimum wage of 8.50 euros ($11.63) an hour, as well as shoring up pensions and investing in roads and schools, will be “essential.” Gabriel said his party would aim to form a government by Christmas.
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German Producer prices in September 2013: –0.5% on September 2012
In September 2013 the index of producer prices for industrial products fell by 0.5% from the corresponding month of the preceding year. While prices of consumer non-durable goods increased by 2.1% prices of intermediate goods were 2.0% low and energy 1.4% low compared with September 2012. In August 2013 the annual rate of change all over was –0.5%, too.
Compared with the preceding month the index increased by 0.3% in September 2013 (–0.1% in August and in July 2013).
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