What Do Spain And Greece Have To Look Forward To? SocGen Answers: "Not A Lot"

Tyler Durden's picture

The increasingly short-termist attitudes of both policy-makers, analysts, and investors leaves market and economic indicators in the US and Europe all anticipating some magic in 2013. If only we can get through the elections, the fiscal cliff, a banking union, a Spanish bailout request, Greek extensions; not to mention another round of weak earnings and a sliding Chinese demand backdrop. As SocGen's FX and Rates desk notes, the battle against disinflation in Europe is not over and nominal GDP outlooks remain far too optimistic - only highlighted by the morning's weak lending data.


The deleveraging has a long-way to go! following Japan's path...


Via Societe Generale's Cross Asset Research

EU Disinflation: Battle Not Over

Weak eurozone lending data for September, published this morning, sent a pretty stark warning to policy makers not to expect much, if any, improvement in the economy over the coming months. It also suggests that inflation can only head ower and a review of the ECB’s nominal growth projections for next year may need trimming back.


All other things being equal, this also suggests that, in fundamental terms, there is no strong case for long-term EU rates and swaps to rise meaningfully in the foreseeable future, and instead the core yield curve should retain a flat bias if the pessimistic growth scenarios play out.

The moribund growth backdrop also begs the question what palpable difference any relief over Spain or Greece (if it comes) will do to the long end. The answer is probably not a whole lot. Lower inflation and nominal growth should keep a lid on long core yields, even if bailout costs for the periphery continue to rise (Greek debt extension). Though CPI inflationin the eurozone has been rather stable, oscillating around 2.5% for most of this year, a series of downbeat data this week (PMIs, IFO, unemployment) validate ECB president Draghi’s assertion yesterday (made in front of German lawmakers) that the threat of disinflation is currently greater than inflation, and that the OMT will not alter that course. The extent to which central banks are factoring in a fall in inflation was highlighted this morning when Sweden’s Riksbank almost halved its inflation forecast for 2013 to 0.7% from 1.3%. Momentum is still swinging in one direction.

With lending levels in Spain and Italy now even lower, in annual terms, than during the depth of the recession two years ago, but with the trend also worsening in France and turning in Germany, it is indeed difficult to envisage inflation staying at the current levels in the EU this winter. As the chart below illustrates, declines in credit growth have in the past resulted in reduced price pressures.


Increases in indirect taxes to meet strict EU deficit rules are temporary, but they are negative for private sector consumption and investment and therefore will only reinforce the trend.

This should help real EU yields edge higher after having fallen below those of some its major G10 peers.


Real yields in Japan continue to hover around 100bp, but Sweden is rapidly closing the gap. Real rates in the UK too have picked up, but a short-term rise in inflation may bring the uptrend to a (temporary) halt.

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Flaming Ferrari's picture

Cheer up. Embrace the liquidity and buy the dips. The music is still playing and the party isn't over.

oh_bama's picture

I sometimes found the tone on this website is overly negative. 

If you followed me and BTFD-ed, you would be able to ride SP500 from 1100-rish to 1400-rish. That is a lot of chips my friends. 

Being negative and being wrong for a year COULD INTRODUCE  a LOT OF CAREER RISKS

AND Being wrong with EVERYONE ELSE IS PERFECTLY SAFE even when the music stops!! It some JOES IRA MONEY SO WHAT THE F**K?

I have to agree that some news titles can catch a lot of eyeballs and attentions


BlueCollaredOne's picture

Yea, I agree man.

It's almost like this website has some sort of agenda.  You know, maybe if it would just ignore every single financial indicator besides the S&P 500 it wouldn't be so god damn grim around here.  

Zh shouldn't be blasting FB, they figured out how to get people to click on mobile ads for chrissakes.  

I'm like you, I'm a status quo guy.  I don't care if I go down with everyone else, because I want to be like everyone else.  Fuck being right and standing for something.  That's for chumps.  

Thomas's picture

Yeah! Risk aversion is for pussies!

davidsmith's picture


The moribund growth backdrop also begs the question what palpable difference any relief over Spain or Greece (if it comes) will do to the long end. 



OK, usage lesson:  the "moribund growth backdrop" does not beg the question, it RAISES the question.  It shows you the low educational level of ZH writers that the misuage of "beg the question" occurs on this site so often.  Which begs the question, what kind of zhidiots are these?

Cognitive Dissonance's picture

Looks like the rabbit hole goes much deeper.

<After you bro.>

vote_libertarian_party's picture

uh, by 'deposits' do they include the Fed pumping trillions into the banking system?


So they aren't really consumer deposits, just banks deposits.



JosephConrad's picture

Spain, Ireland, Italy, Greece, Portugal, the UK and all other European nations must (1) REPUDIATE/DEFAULT on U.S. BANKER derivatives; then (2) form their own new currancy/economic/TRADE union - WITHOUT Germany. They must rebuild their nation's economy and sovereignty based up their historical trqditions and cultures. They must WALL OUT U.S. Wall Street, German and Isreali Banks and turn to China and Russia. Indeed, hey must collaborate to form a new economic order without the destructive, immoral and unethical influence of the U.S. and the former elites in their own nations. When the elites flee to oher lands outside the new union, the new union must strive to incorporqte the peoples of h lands to which the former elites have fled - until the elites have no place to go...Oh yes. they must TAKE BACK and redistribute ALL THE U.S., EU BANKS AND THE ELITES HAVE STOLEN.  


Sixdeuce062's picture

so far no ones suceeded at that yet every time someone starts moving that way they end up in a civil war and under nato/UN occupation

just sayin

Ar-Pharazôn's picture

"Indeed, hey must collaborate to form a new economic order without the destructive, immoral and unethical influence of the U.S"


if China is that better go and live there

Joebloinvestor's picture

When is the next announcement that everything is fine and Greece is saved?


And then the correction?

obessoligarch's picture

well nobody really knows when.......probably many before us elections.