This page has been archived and commenting is disabled.
Optimistic Outlook From Chilly Chiswick Means Erik Nielsen Is Back
Looking at the European theater of Keynesian war, Erik Nielsen says, "We optimists have had a very good week in Europe." Well, when after a 70 year sabbatical, it is once again the pan-continental doctrine to fabricate a lie so bold, the population has no choice but to believe in it, it is truly a victory for the bulls. Yet even the consummately rosiest outlook out of Chiswick agrees there are at least a few thunderclouds on the horizon: "Hungary is a space worthwhile watching. Orban’s government seems to have taken a populist line, but I think the EU and IMF will be prepared to make a demonstration effect out of Hungary, if needed. The government will most likely end up caving, but it could become quite messy before then."
Happy Sunday,
After a brief vacation in the US I have been back in Europe most of this past week - and while I truly like big parts of the US it’s been good to be back; weather and all. Here’s how it all looks today from Chiswick:
- We are through a week of outstanding European real growth and indicator numbers, making our above-consensus forecasts look somewhat pessimistic.
- The stress tests were released on Friday; unprecedented amount of new consistent data – my colleagues are going through it all, and we’ll have a comprehensive assessment before Monday morning.
- This coming week will see the first roll-out of corporate earnings in Europe; we think they’ll beat expectations.
- On the macro side we’ll get the rest of the July surveys in the Euro-zone as well as June labour market data; we expect continued good surveys, but a marginal increase in unemployment.
- In the UK we’ll get the CBI distributive trade survey and mortgage approvals; they’ll probably both slip a bit this time.
- Finally, watch out for Hungary; the lines are being drawn between the government’s reluctance to consolidate the fiscal side and the EU/IMF demands for more. This could become messy.
-1 We optimists have had a very good week in Europe. With respect to growth, we had some pretty decent backward looking numbers coming out, including a strong Q2 GDP for the UK (+1.1%qoq) probably boosted some by delayed construction from Q1, solid June industrial production in Poland (+1.0%mom) driven by exports (which is mostly to the Euro-zone and the rest of Central Europe), and the Spanish Council of Chambers of Commerce Business Confidence Index for Q2 showing an increase of 3.4 pp, adding to the (at least temporary) stabilisation there. And the first (survey) numbers for Q3 were even better, giving us a rocket start to the quarter: The Euro-zone manufacturing and services PMIs for July increased to 56.5 and 56.0, respectively, which are consistent with GDP growth of about 0.7%qoq (non-annualised.) That’s well above our already optimistic forecast of +0.5%. The German manufacturing PMI jumped to 61.2, close to its all-time high, importantly, fuelled more by domestic orders than by export orders. And the July Ifo delivered the biggest jump since reunification to an almost all-time high of 106.2. That got even the Germans excited; Economy Minister Bruederle commented that “with all due caution I believe that we could even reach 2% GDP growth in 2010” (the government’s official forecast is 1.4%; ours is 2.2%!) French and Belgian business confidence also improved strongly in July (although less so than the Ifo) and Italian consumer confidence also improved a tad. The outlier in all of this is France. French consumers reduced their spending in June, and then stabilised their confidence in July while the French manufacturing PMI declined slightly in July. It feels as if the political turmoil in France is having a bad impact on people’s mood.
-2 On Friday afternoon we got the much awaited stress test results. My bank equity analyst colleagues are going through this new Eldorado of bank specific numbers as we speak; they’ll have a note out later today, and we’ll have a conference call Monday morning before markets open (and again before the opening in the US.) The fact that fewer banks failed – and less capital seems to be required – than expected might suggest that the assumptions were somewhat lenient, but I’ll rather wait with any assessment until Jernej & Co have digested it all. One thing is clear though: Equity analysts and investors have considerably more consistent data to consider today than they had last week, and it seems to me that if indeed we don’t like the assumptions we can then re-run it all ourselves on the back of all these newly released numbers. This must be good at some level, including for the overall macro picture.
Turning to this coming week:
-3 We are heading into two weeks of earnings reports from European companies. As my equity strategy colleagues have discussed in recent days the numbers should quite handsomely beat expectations. Recent weeks’ US numbers certainly did, and they have hadn’t the same set of beautiful macro numbers to show for as we have had recently here in Europe.
-4 On macro numbers in the Euro-zone, this coming week will bring the last of the business surveys for July – the European Commission’s consumer and business confidence reports (both with EMEA-MAP relevance score of 4). These are an amalgamation of the already-released regional surveys, and given the strong results we’ve seen in those, an improvement in both of the EC surveys should come as little surprise. We might also get Bank of Spain’s usually accurate early estimate of Spanish Q2 GDP this week (if not, then it’ll come next week) ahead of the official release in mid-August. PM Zapatero said yesterday that GDP growth have been stronger in Q2 than in Q1 (when it was +0.1%qoq) – we think it’ll be unchanged at +0.1%, but we don’t know what his source is. The unemployment report for June will surface on Friday. Labour markets are still on the mend throughout the Euro-zone, although the latest PMIs and other business surveys suggest some stabilization and even slight employment growth. We expect unemployment rates to have crept up in June, with the exception of Germany, where unemployment has been falling for some time now. For the Euro-zone in aggregate, we estimate that the unemployment rate (EMEA-MAP 5) rose from 10.0% to 10.1%. Also on Friday we’ll get the flash estimate for Euro-zone inflation in July. The headline rate receded in June from 1.6%yoy to 1.4% on the back of energy-related base effects, and in July, we expect these same base effects to push the inflation rate back up to 1.8%. Core inflation has probably edged down slightly, but we won’t have the full breakdown of CPI components for another two weeks. Finally, the ECB will release its quarterly bank lending survey on Wednesday. On a net basis, banks were still tightening their credit standards in Q1, albeit very slightly (and even though bank lending has now started to grow marginally), and we presume that some of this continued in Q2 given all the uncertainty that prevailed in financial markets over the past few months.
-5 The UK will relatively quiet this coming week: June mortgage approvals and M4 growth will be released on Thursday, the less important CBI Distributive Trades survey on Tuesday. The last headline CBI balance (for retail growth) was -5, in June. As Ben Broadbent has pointed out, it would have to improve quite a bit to match the strength of official data that month (nominal growth of 2.8% is consistent with a CBI reading of close to +10). Mortgage approvals are likely to slip from the 49.8K recorded in May (we know already those from deposit-taking banks, accounting for 70% of the market, fell by 1.6K between May and June). Excluding bank-like liabilities to OFCs (other financial corporations) M4 growth has been strong of late (annualised growth of 9% in the three months to May). In what is a volatile series we should probably expect some pull-back – i.e. a decline in M4 (ex intermediate OFCs) in the next month or two. Growth of credit (M4 lending) has been much more moderate (0.5% annualised in the three months to May).
-6 Finally a word on Hungary; Europe’s new brewing trouble case. The IMF and EU mission left Budapest last weekend without reaching an agreement on the 2011 fiscal targets, and since then the lines have been drawn up pretty explicitly. The Hungarian government says that they any further fiscal consolidation would hurt the recovery, but PM Orban also said that the Central European currencies tend to trade together unless somewhat makes a policy mistake (with all due respect, I think I am seeing one!) Meanwhile, the EU Commission (and Angela Merkel – living up to her new more prominent pan-European role) has indicated that they’ll stick to its requirements and the deficit reduction plan agreed under the Excessive Deficit Procedure. Moving with unusual speed, Moody’s and S&Ps put Hungary on review for possible downgrade. Hungary is a space worthwhile watching. Orban’s government seems to have taken a populist line, but I think the EU and IMF will be prepared to make a demonstration effect out of Hungary, if needed. The government will most likely end up caving, but it could become quite messy before then. Magdalena Polan will keep a very close eye on this for us.
And that’s the way Europe looks from Chiswick on this slightly chilly late July morning. I’ll be in and out these coming weeks, so my notes might be a bit irregular during August; email me if you need me – I’ll keep an eye on my inbox.
Erik F. Nielsen
»
- 4090 reads
- Printer-friendly version
- Send to friend
- advertisements -
is this dude completely self-absorbed or did he simply miss his calling as a meteorologist
Tarot card reader. But that's an insult to tarot card readers.
"We optimists...."
"...of this country Unicorn Paradise, hereby swear to eat nothing but the economic shit sandwich served to the half retarded population of unicorn paradise."
A few things come to mind.....
Counterfeit money
Bogus accounting
Excessive government intervention
ie If all input prices were $0....and the government partner commands 50% of the price...just how is it that government as a partner is beneficial ?
.......................................
House built on sand....ring a bell ?
......................................
All polys do not comprehend this simple math....
Income + Debt = Valuation
.........................................
Henceforth when a poly pops off at the mouth and contends that the verbage basura of the day that might attract votes....negates the equation obviously...but the poly pop off is blurting otherwise....
Then...where does the fool label belong ?
.........................................
Where is the reset button...
Ah, The Reset Button.
Last time somebody used one of those, the Spelling was Wrong in Cyrillic. Wound up saying something like "your mommas pantaloons smell fishy." when it was given to Dimitrov Rolflauncher, the Russian Foreign Minister. WTF, give it another go. Insanity, but just working with the public Hive behavioral modification system, I guess.
Now, I was not originally going to read this article, but in a moment of submission looking for relief and recognizing the best option in hand (actually) just might be my lap top on wi-fi, I figured WTF.
(loud grunting sound)
The Most Significant Information Take Away from this Ponzimon is that just the other week, (now don't get me wrong for I do not mean to buck the collective's collective collection plate, and so be ostracized from the bathroom) but merely recollect that just a week or so ago, the Squidoo was a pissin' and moanon' about a substandard recovery (as they then said they'd always been forecasting and at that time I recollect that they theretofore had been above consensus, Unicorns pooping rainbows, Kumbaya Happiness, infinite wealth when the GDP calc included Happiness as a measure and serenity abounding bull shit) and now, Whoopie and I don't mean Goldberg, it's off to the races and Europe is the New Abnormal.
Who in thier right mind can listen to this convoluted propaganda? Oh, excuse me, for some do think (and some who Worked for me, note as in past tense) that being who they be, youse gotta knows. I'll tell ya', drivel like that can fuck up a plain good crap.
Maybe they'll give away free complimentary passes to Goldman the Movie?
Maybe Nielsen and the rest of the squidlets can help Hungary hide some of their debt for awhile...that always pans out amazingly well in the end. It disgusts me how much these incompetent slop-jockey bozoids revel in the chaos they generate as if they were merely innocent bystanders. It must be interesting living an entire life without the ability to experience shame or regret.
Why, pray tell why, are Cramer's ads all over this wen site!! Is this website infected by a virus??
Yeah, that's really funny. I like to look at it as CNBC is funding Zero Hedge. Cramer especially.
here is a hint: goodle adsense. in fact, any time you have a question, google first. the answer may be right there.
Well thank heavens for that. Apart from Hungary, we're pretty much back to business as usual. Going long the Euro, shorting my gold positions and might as well buy me a slice of BP.
"I’ll be in and out these coming weeks, so my notes might be a bit irregular during August; email me if you need me – I’ll keep an eye on my inbox."
Don't work too hard, big guy.
Another tool from GSac I'd like to knock the fuck out. Sorry folks for the vulgarity. Beg thy pardon.
More bullshit, I am surprised no one is pointing out the real "reason" the IMF and ECB are walking away is because Hungary has decided to levy a bank tax, affecting mostly western banks operating in Hungary. Hungary's new government is neither more nor less populist than G Pap or the buffoons Merkel and Sark or Ber.coni, the only difference is it has decided the ECB's protege banks will pay partly for the "austerity" whereas the aforementioned would be putting the costs to the taxpayers.
Is "Chiswick" another word for lower intestine?