Euro-Update (30): Markit Surveys, US-Iran tensions & €Z interventions

The web is awash with news reports about regional and world economics. The focus is on the recent Markit Survey results, published in the last 2 days, as well as the US-Iran tensions, bond and forex markets. Here’s my overview. Have a good day!

The Markit reports

Regularly, Markit Economics provides what it calls its Purchasing Manager’s Index (PMI), which is a survey of the business conditions (rather than the expectations) that purchasing managers find themselves in.  The data they collect is considered to be as good a monthly measure of industrial production as there is. As a result it is a good gauge of what GDP might be doing.

The Euro-zone

  • As the Guardian reports, the survey results for the Euro area are not encouraging. On the contrary they seem to be reflecting the mood in the street, pointing towards the begining of a recession. Although this might be new to the EMU as a whole, it clearly cannot be said to be the case for the periphery. So what this is is a spillover of the poor economic conditions experienced in the periphery, towards the core. According to the Euro-zone report, the output index in Q4 2011 was at its lowest level (46.9[given how the index is computed, any value above 50 is good and below is bad]) since the middle of 2009. This is response to falls in demand as new orders continue to sink. As a result, firms continue to shed workforce, in order to adjust their supply to the shift in demand. Of the surveyed countries, Spain, Italy and Greece were the worse off, while Austria, France and Germany (consistent with the fall in unemployment) were the least worse off, with the Netherlands in the middle. A good surprise is Ireland which at 48.6 is actually above Germany.


  • In a very non-alarmist report, Brazil was found to have experienced a very small marginal fall in manufacturing output in December. This was reportedly explained by a fall in demand. Consistent with this fact is a continued fall in new orders in December. A similar observation was made for Russian services. India, on the other hand, experienced an ecouraging growth in manufactoring output and in new orders, the largest in 6 months. This led to job creation for the first time in 5 months. Unfortunately, the same cannot be said of China, which continued to experience a fall in output, although a milder one than in the previous month. This inevitably has led to an increase in inventory stocks for the first time in 17 months, as businesses pile up their product in the absence of demand. The results are depicted graphically below.

Oil Prices: The Iranian Nuclear Programme Sanctions

In the mean time, crude oil prices continue to rise due to the recent international tensions between the USA (muscled advocate of Sunni Arab countries) and Iran (ambitious and powerful Persian Shia theocracy, next door) and its threat to close access to the straight of Hormuz, which the later threaten could push prices above US$ 200. This follows US and EU sanctions imposed on Iran due to its unwillingness to unwind its nuclear programme. After the earlier military exercises, the NYT reports, Iran is now warning the US against bringing back aircraft carriers into the Persian golf. The USA is not budging.

Euro-Zone: ECB interevention calms bond markets and depreciates Euro

Euro-Zone bond markets in the mean time have calmed down.

Although it is difficult to confirm, this is probably the result of the ECB’s targeted SMP (+€41Bn, out of a total of €211Bn, since Papandreou’s referendum mess between October 31 and November 6, 2011)  and CBPP2  intervention and LTROs abundance (+€335Bn in week of 23-28 of December 2011).

The result of this increase in ECB provided liquidity is a cheaper Euro, which the Germans (as well as other member states) are probably very happy for.

Ah, the “advantages” of asymmetric shocks in Monetary Unions without fiscal transfers…

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