November has been a very busy month. In this post I propose to go through the political and economic news over the last 23 days. The figure below superimposes the relevant economic and political events on the movements of the Euronext stock index. It’s been an eventful month.
On November 3, the ECB lowered the standing facilities and the MRO by 25 basis points (i.e.: 0.25). It also took the opportunity to announce the relaunch of the Covered Bond Purchase Programme, under the new acronym CBPP2.
On November 6, Papandreou resigns from the office of prime minister of Greece. Papademos, who was the president of the Greek central bank prior to the government committing accounting fraud and misreporting data to eurostat, with the help of Goldman Sachs.
On November 8, billionaire Silvio Berlusconi resigned from the office of Prime Minister of Italy. He was replaced by ex-trade commissioner Mario Monti on the 12th. According to reports, the ECB was key in getting Berlusconi out and in helping Monti get a government on the 16th, by increasing or decreasing the volume of its purchases of Italian sovereign debt under the SMP. These rumours are more or less impossible for me to confirm.
On the same day, Lorenzo Bini Smaghi announced he would resign his seat on the executive board of the ECB, thus putting an end to a noisy dispute between Italy and France.
On November 14, Eurostat announced that September industrial production had fallen by 2.0% m/m in the euro area.
According to the press release,
- “In September 2011 compared with August 2011, production of capital goods declined by 4.2% in the euro area and by 3.1% in the EU27. “
- “Durable consumer goods fell by 3.8% and 1.7% respectively. Intermediate goods dropped by 2.2% in the euro area and by 1.7% in the EU27. Production of energy decreased by 1.4% and 1.2% respectively. “
- “Non-durable consumer goods fell by 1.3% in the euro area and by 0.5% in the EU27. Among the Member States for which data are available, industrial production fell in eleven, remained stable in the United Kingdom and rose in ten.”
- “The highest decreases were registered in Estonia (-10.9%), Portugal (-5.8%), Italy (-4.8%), Ireland (-3.5%) and Germany (-2.9%), and the largest increases in Slovakia (+3.2%), Poland and Sweden (both +1.9%) and Slovenia (+1.5%).”
On November 15, Eurostat announced that Euro area and EU27 GDP up by 0.2% y/y and 1.4% y/y in Q3 2011and that the Euro area had registered an external trade surplus of €2.9 bn in September 2011. This were relatively good news. Anything that isn’t negative is in the current environment.
There was no break down of the GDP data, this being a flash estimate, but there was a comparison with the USA and Japan:
- “During the third quarter of 2011, GDP in the United States increased by 0.6% compared with the previous quarter (after +0.3% in the second quarter of 2011).”
- “In Japan GDP grew by 1.5% in the third quarter of 2011 (after -0.3%).”
- “Compared with the same quarter of the previous year, GDP rose by 1.6% in the United States (after +1.6% in the previous quarter), and decreased by 0.2% in Japan (after -1.0%).”
Regarding the balance of trade, Eurostat commented that
- “The EU27 deficit for energy increased significantly (-249.4 bn euro in January-August 2011 compared with -196.5 bn in January-August 2010), while the surplus for manufactured goods rose notably (+155.2 bn compared with +108.3 bn). “
- “The EU27 trade surplus increased with the USA (+48.5 bn euro in January-August 2011 compared with +44.8 bn in January-August 2010), Switzerland (+17.2 bn compared with +12.2 bn) and Turkey (+16.8 bn compared with +10.7 bn).”
- “The EU27 trade deficit increased with Russia (-62.2 bn compared with -50.7 bn) and Norway (-31.5 bn compared with -24.8 bn), remained nearly stable with China (-103.0 bn compared with -104.2 bn) and Japan (-13.7 bn compared with -14.8 bn), but fell with South Korea (-2.8 bn compared with -8.2 bn).”
- “Concerning the total trade of Member States, the largest surplus was observed in Germany (+100.6 bn euro in January-August 2011), followed by the Netherlands (+28.8 bn) and Ireland (+28.2 bn). The United Kingdom (-76.3 bn) registered the largest deficit, followed by France (-58.0 bn), Spain (-31.5 bn), Italy (-23.4 bn), Greece (-11.9 bn) and Portugal (-11.1 bn).”
On November 16, Eurostat reported that inflation remained stable at 3% y/y, for the second consecutive month.
- According to the release by Eurostat, “fuels for transport (+0.52 percentage points), heating oil (+0.19), gas (+0.12) and electricity (+0.11) had the largest upward impacts on the headline rate, while telecommunications (-0.16), rents (-0.11) and vegetables (-0.10) had the biggest downward impacts” on a y/y basis.
- On the other hand, “garments (+0.12 percentage points), footwear, gas and tobacco (+0.03 each) had the largest upward impacts, while fuels for transport, rents and accommodation services (-0.03 each) had the biggest downward impacts“, on a m/m basis.
Still on the 16th, the ECB, the IMF and the European Commission issued their joint statement on the occasion of the Second Review Mission to Portugal. While stating that “overall, the program is off to a good start“, it highlighted issues still to address:
- “Growth in 2011 is likely to be somewhat better than foreseen in the program, but the recession in 2012 is now projected to be more pronounced, with GDP expected to contract by 3 percent and risks to the outlook tilted to the downside.”
- The 2012 budget “is consistent with meeting the ambitious fiscal target of 4.5 percent of GDP (…). Moreover, key measures, particularly nominal cuts in public wages and pensions and increases in indirect taxes, are also appropriate in view of the need to switch from a consumption-based to a more export-led growth model.”
Then, on November 17, Eurostat announced that in September construction output fell down by 1.3% m/m in €Z. France, Portugal and the UK experienced the largest falls while Slovenia, Poland and Slovakia’s construction sectors grew the most.
On the same day the European Commission announced that its First quarterly report of Commission’s Task Force for Greece shows cautious optimism. This is not the same thing as the reviews of the programme implementation which are set to Greece as well as Portugal and Ireland. This is a task force which was set up by the European Commission on the request of Greece, in order to help it manage its finances during the crisis. In its statement, the European Commission highlights 3 achievements:
- “Efforts have focussed on improving the planning and accelerating the disbursement of cohesion policy assistance”
- “Ensuring efficient tax administration and sound public finance management”. To this effect, “A far-reaching programme of technical assistance has been launched to tackle shortcomings in the Greek system of tax administration and public finance management. “
- “The Task Force is preparing a coherent programme of technical assistance that Greece needs to implement effective administrative reform; improve the business environment; increase efficiency in delivery of public health; and improve performance of basic administrative functions such as public procurement and payments.”
Further details can be found in the full report.
On November 23 (today):
- Moody’s isn’t worried about the USA’s super committee failure to reach a deal on debt reduction because spending caps will happen automatically in January 2013.
- Fitch, however, is worried about Spain and demands that the new government “outline additional proposals”.
- Moreover, Eurostat reported that industrial new orders fell by 6.4% in €Z in September. According to the press release, “excluding ships, railway & aerospace equipment4, for which changes tend to be more volatile, industrial new orders dropped by 4.3% in the euro area and by 2.1% in the EU27”. The countries with the largest drop were Italy, Estonia, France and Spain, while Germany, Latvia, Denmark, Poland and the Czech Republic experienced the largest m/m growth.
- This coincided with releases of November Flash Manufacturing PMIs for China and the Eurozone by Markit. In the Euro-zone, this was due to a fall in new orders, in the backlog of stocks as producers attempt to draw down their inventories. To complicate matters more, there was also a rise in input costs which drove prices charged upwards.
- At the same time, the European Commission announced its renewed economic governance package, with regulations calling for “the introduction of a common budgetary timeline and common budgetary rules, such as independent macroeconomic forecasts and independent fiscal councils monitoring the implementation of national rules“. There is also a reference to Euro-bonds, which are called “Stability Bonds”.
- Finally, and most alarmingly, “Germany failed to get bids for 35 percent of the 10-year bonds offered for sale today, propelling borrowing costs in Europe higher and the euro lower on concern the region’s debt crisis is driving away investors. “