ecb insight - bloomberg.com · ecb insight french industry set ... about 31 percent of french say...
TRANSCRIPT
Friday
March 10, 2017
March 10, 2017
EU Leaders Meet; U.S. Jobs; France, U.K. IndustryBy Geoff King and Colin Simpson
What to Watch: , excluding U.K. Prime Minister Theresa May, meet in EU leadersBrussels to discuss the way forward for the bloc amid Brexit. Starting 8:15 a.m. U.S.
probably increased by about 200,000 in February after the strongest employment advance in four months, while the fell to 4.7 percent, economists unemployment rateproject a report to show. The report is also forecast to show a slight Labor Departmentpickup in , 1:30 p.m. Follow the blog for real-time coverage .wage growth TOPLive here
Economics: French data for January, at 7:45 a.m., is expected industrial productionto show a monthly increase of 0.5 percent after a decline of 0.9 percent in December. The annual rate is seen falling to 0.4 percent from 0.9 percent (see chart below). The UK reports the same at 9:30 a.m., with expectations for the monthly rate to fall to minus 0.5 percent from 1.1 percent, while year-on-year should fall to 3.2 percent from 4.3 percent. German data for January and Romania February is at 7 a.m., trade CPI Spain's January at 8 a.m., Italian fourth quarter at 9 a.m., retail sales unemploymentU.K. January trade at 9:30 a.m. and February's NIESR at 3 p.m. U.K. GDP estimate
Companies: will sell almost all of its production assets in Royal Dutch Shell PlcCanada’s oil sands in a $7.25 billion deal that cuts debt and reduces involvement in one of the most environmentally damaging forms of fossil-fuel extraction.
Markets: The rout in global continued ahead of the U.S. jobs report, government debtwith Treasuries heading for their longest slump in more than 40 years. South Korea’s currency and stock market fluctuated after President was removed from Park Geun-hyeoffice. climbed from a three-month low but remained below $50 a barrel.Oil
(All times local for London.)
View a live version of this chart on the Bloomberg .terminal
Quote of The Day
"It’s important for the European Union to take a united stand against unfair and protectionist practices whenever and wherever necessary. Though we see nationalist and protectionist tendencies on the advance in parts of the world, Europe must never retreat, wall itself off or withdraw."
— German Chancellor Angela Merkel
Commentary in This Issue
ECB President Mario Draghi surrendered a little ground to the Governing Council hawks and took the first step toward signaling an from the period of exitmonetary stimulus expansion: David Powell.
Marine Le Pen’s proposed replacement for the euro would quickly by between 10 depreciate percent to 20 percent in trade-weighted terms should it become a reality: and Stefania SpezzatiHelene Fouquet.
Chancellor of the Exchequer Philip Hammond confirmed the U.K. would leave the European Union’s customs union, his clearest pronouncement yet on the issue. "It’s clear that we can’t stay in the customs union,” Hammond said yesterday in a BBC radio interview. “Wasting a lot of political capital arguing about that will not be fruitful." More on the .terminal
ECB Insight
French Industry Set to Extend Positive 4Q Momentum
French industry ended 2016 with a negative performance in December but with an overall positive final quarter. Though some industrial surveys, such as the PMI, deteriorated a bit in February, the soft data remain upbeat at the start of the year and continue to signal that momentum isn't fading. That should be reflected in the January reading for industrial output. Still, the bar is high from the fourth quarter, and based on current levels it would only take a 0.1 percent monthly decline to turn the first quarter negative from the start.
— Maxime Sbaihi, Bloomberg Intelligence economist
Economics Europe 2 March 10, 2017
ECB Insight
Draghi Takes a Baby Step Toward the ExitBy David Powell,Bloomberg Intelligence economist European Central Bank President
surrendered a little ground Mario Draghito the hawks on the Governing Council yesterday and took the first step toward signaling an exit from the period of monetary stimulus expansion in the euro area. However, it was a baby step and weak underlying inflation means significant policy changes are unlikely to come soon — Bloomberg Intelligence Economics expects the ECB to reveal a plan in September for tapering asset purchases.
Changes in tone were peppered throughout the introductory statement. It said, "sentiment indicators suggest that the cyclical recovery may be gaining momentum." The previous communique made no mention of growth accelerating meaningfully. A line indicating "the Governing Council will act by using all the instruments available within its mandate" was removed. Perhaps the most obvious change was a phrase spelling out "the risks surrounding the euro area growth outlook have become less pronounced."
The upbeat message was reinforced by small upward revisions to the GDP growth forecasts of the staff economists. The figure for 2017 rose to 1.8 percent from 1.7 percent in December and that for 2018 to 1.7 percent from 1.6 percent. The figure for 2019 was unchanged at 1.6 percent.
Draghi accompanied this with a more optimistic tone in the press conference than was evident in January. He said the removal of the phrase related to using all the instruments available signaled there is no longer a sense of urgency prompted by a risk of deflation to take further actions. He also revealed the Governing Council didn’t discuss launching a new TLTRO, even though the last TLTRO will soon take place.
These developments were nonetheless
Read this analysis with additional live charts on the Bloomberg .terminal
only a first step toward the exit from the use of unconventional monetary policy
instruments and subsequent steps aren’tlikely to be taken rapidly. Even though thegrowth outlook has improved, the next
— an acceleration of link in the chain underlying inflation — has yet to be found.Measures of that have shown no signs of life.
That was reflected in the latest inflation forecasts. The core figure for 2017 was unchanged at 1.1 percent. However, the ECB’s optimism was expressed in the figures for 2018 and 2019 — they were both revised upward by 0.1 percentage point to 1.5 percent and 1.8 percent, respectively, indicating a slightly more advanced recovery than was previously assumed. The headline figure for 2018 was also revised higher — to 1.6 percent from 1.5 percent — though the figure for 2019 was unchanged at 1.7 percent. The projection for 2017 was increased to 1.7 percent from 1.3 percent to take into account the effects of rising oil prices.
Draghi highlighted the missing ingredient in the inflation recipe is wage growth. "That’s the key point. It’s not the only point but it’s one important element
of our assessment," he said. Pay growth should rise as the economy returns to full employment, though the rate of joblessness is still 0.6 percentage point above BI Economics’ estimate of the non-accelerating inflation rate of unemployment.
BI Economics looks for the spare capacity in the economy to be gradually eroded throughout this year and that should provide a small boost to core inflation. The acceleration will probably be enough for the ECB to announce in September that it’ll begin tapering its asset purchases in January by 10 billion euros per month.
The first rate hike still remains a distant prospect. BI Economics expects the ECB to wait for the U.K.’s withdrawal from the EU to pass and then announce a 15 basis point increase of the deposit facility rate in the second quarter of 2019. Draghirefused to commit to leaving rates on hold until the central bank’s asset purchases have been completed at his press conference. However, having had to deal with the fallout of his predecessor’s decision to prematurely hike interest rates, he’s unlikely to be in any rush to do so.
French Currency
Underlying Inflation Remains Muted
Economics Europe 3 March 10, 2017
French Currency
JPMorgan Sees Le Pen's New Franc Falling by Up to 20 PercentBy Stefania Spezzati and Helene FouquetMarine Le Pen’s proposed replacement for the euro would quickly depreciate by between 10 percent to 20 percent in trade-weighted terms should it become a reality, according to JPMorgan Chase & Co.
The new French franc envisaged by the anti-euro presidential candidate would slump to reflect the higher risk premium that foreign holders of France’s bonds and stocks would demand if the nation exits the currency union, according to John
, London-based head of foreign-Normandexchange, commodities and international rates research at the bank. That would be a similar move to the decline seen in the pound since the Brexit vote.
Currency reform has become a central feature of Le Pen’s campaign, even as her vision for the new tender has appeared to shift and France’s political system makes such a change difficult. TheNational Front candidate, who polls say will fall short of winning the Presidency, said March 8 that she’d introduce a new franc at a rate of one-to-one to the euro and then allow it to fluctuate.
The preference of Le Pen’s National Front party for loose monetary and fiscal policies amid rising inflationary expectations also could weaken a new franc, according to JPMorgan. Still, losses would be limited as France’s economic fundamentals resemble those of core euro-area nations, the bank said, meaning the projected decline would be small relative to the average 50 percent depreciation that has resulted from various countries’ balance of payments crises and other regime changes over thepast 25 years.
“The magnitude of a currency
By Mark Deen About 31 percent of French say that the euro has more advantages than disadvantages, while 32 percent say that the euro has as many advantages as disadvantages and 37 percent say it has more disadvantages than advantages, an Elabe poll shows.
undershoot would depend on how fiscal- monetary policies interact with possible capital controls during the exit process,” Normand wrote in a note to clients. “The
successor regime won’t resemble the explicit strong-franc policy of the late 1980s and early 1990s. A weak franc
characterized by 10 percent to 20 percent trade-weighted depreciation seems
reasonable.”The euro would fall by about 10 percent
versus the dollar over a few weeks on aLe Pen victory, JPMorgan said in a note
in February. The bank didn’t provide anyestimate on potential euro declines in case France chose to exit the currency union.
France is the only core euro-area nation
classified as a net international debtor and non-residents have a sizable
exposure to the country, owning at least 1 trillion euros ($1.05 trillion) of
government bonds, 800 billion euros of equities and with 600 billion euros of
corporate direct investment, JPMorgan says. This would make a new currency
vulnerable to declines, the bank adds. Even if Le Pen wins the election,
introducing a new currency would require— and winning — a referendum holding
over the euro. Also, she needs to manage a majority in parliament in June to be able pursue her plans, a major hurdle for her party which has never had more than two lawmakers in the National Assembly with the current voting system.
QuickTake: EU Trade
French Have Mixed Views on Euro’s Benefits — Elabe Poll
Economics Europe 4 March 10, 2017
QuickTake: EU TradeHow Trump May Drive EU and China Closer on Trade By Dara DoyleThe European Union and China may be moving toward closer trading ties as President introduces an element of Donald Trumpuncertainty into the U.S.’s trading relationship with the rest of the world. Some EU leaders have been encouraged by Chinese President ’s push back against Trump’s protectionist rhetoric. Though China still goes to great lengths to protect its Xi Jinpingdomestic industries — just one of the issues that divides the two sides — some believe the time is right to seal an EU-China accord. It would be a milestone for two of the most powerful players in world trade.
German Chancellor has Angela Merkelspoken about her concern with the rise of protectionism, while Chinese President Xi has likened protectionism to “locking oneself in a dark room.” , Jyrki Katainena vice president of the European Commission, the EU’s executive arm, has predicted the relationship between Europe and China will deepen. Trump withdrew the U.S. from the 12-nation Trans-Pacific Partnership and is likely to end talks on a similar open-trade deal with the EU. That all leaves the EU and China freer to maneuver.
China and the EU are working on an agreement to liberalize investment and eliminate restrictions on investors in each other’s market. Katainen said Europe wants to speed up those talks. Currently, the EU accounts for about 16 percent of investment flows into China.
A lot. China is the EU’s second-biggest trading partner after the U.S.; the EU is China’s biggest trading partner. More than 1.5 billion euros ($1.6 billion) of goods and services move between China and the EU daily. That amounts to more than 500 billion euros a year. In all, China accounts for about 20 percent of EU goods imports and 10 percent of its exports.
In 2015, the EU ran a trade deficit in goods of 180 billion euros with China. In
1. How is Trump pushing the EU and China closer?
2. What could result from closer ties?
3. How much trading goes on now?
4. Who has the edge on trade?
services, the EU had a surplus of 10.9 billion euros.
Not at all, which has made the EU’s relationship with China rocky. The trade deficit is at least partly due to barriers China has thrown up. In a laundry list laid out by EU Trade Commissioner Cecilia
, these include non-tariff Malmstrommeasures that discriminate against foreign companies, Chinese government support for state-owned competitors and poor protection of intellectual-property rights. Malmstrom says China’s Xi needs to follow his words with action on free trade and globalization.
In a word, reciprocity. European companies want the same level of access to China that the EU gives to Chinese firms. The Chinese have made high-profile purchases in Europe, including German airports, the Port of Piraeus in Greece and Italy’s Pirelli & C. SpA. By contrast, European investors face barriers, including equity caps, forced technology transfers and licensing restrictions, Malmstrom said. European steelmakers must also compete with Chinese firms that benefit from huge subsidies, she said, adding that Chinese firms are treated impartially by European regulators but that isn’t always the case for European companies in China.
In the last three months of 2016 alone, the EU expanded tariffs on steel pipe from China, imposed anti-dumping duties as high as 74 percent on two other types of Chinese steel and laid out plans to extend tariffs on imported Chinese solar modules
5. Is the EU OK with that trade imbalance?
6. What does Europe want?
7. How has the EU reacted to these barriers?
for another two years. In all, China faces more European anti-dumping duties than any other country.
It complains it’s being treated like a non-market economy — meaning, the EU uses other nations’ trade and manufacturing figures to calculate anti-dumping levies against China. The EU says it does this because China’s subsidies distort the market by artificially lowering domestic prices, making them an unreliable indicator of a good’s “normal value.”
It’s up for debate. Under World Trade rules, countries may Organization
consider a product to be dumped when it’s sold abroad at less than normal value. For the past 15 years, the WTO has allowed the EU to use “analogue” figures — prices and costs from other countries — when it calculates whether China is dumping products into Europe. This has made it easier for the EU to levy duties on Chinese imports. China filed a WTO complaint that, if successful, could prod the EU into relying on Chinese-provided costs and prices. That could reduce the EU’s ability to protect its domestic industries. The EU is proposing to scrap its analogue methods to meet Chinese demands while pledging other tweaks that it says would ensure European anti-dumping duties continue to protect against state intervention in China.
Chinese Premier has Li Keqiang accepted Merkel’s invitation to visit Germany for talks on economic and trade issues. No date has been set.
8. What does China say about all this?
9. Is that allowed?
10. What happens next?
Economic Calendar
Economics Europe 5 March 10, 2017
Economic Calendar
Upcoming Releases
TIME PLACE EVENT SURVEY PRIOR
07:00 Norway CPI YoY 2.90% 2.80%
07:00 Romania CPI YoY 0.20% 0.05%
07:00 Finland Industrial Production MoM — -0.70%
07:00 Germany Trade Balance 18.0b 18.7b
07:00 Germany Current Account Balance 15.5b 24.0b
07:45 France Industrial Production MoM 0.50% -0.90%
07:45 France Manufacturing Production MoM 0.50% -0.80%
08:00 Denmark CPI YoY 1.10% 0.90%
08:00 Hungary Trade Balance 599m 579m
08:00 Spain Retail Sales YoY — 0.90%
09:30 U.K. Industrial Production MoM -0.50% 1.10%
09:30 U.K. Manufacturing Production MoM -0.70% 2.10%
09:30 U.K. Visible Trade Balance GBP/Mn -£11,100 -£10,890
09:30 U.K. Trade Balance Non EU GBP/Mn -£2,425 -£2,114
09:30 U.K. Trade Balance -£3,100 -£3,304
09:30 U.K. BoE/TNS Inflation Next 12 Mths — 2.80%
10:00 Croatia Industrial Output YoY — 14.90%
10:00 Greece Industrial Production YoY — 2.20%
10:00 Greece CPI YoY — 1.20%
10:00 Cyprus GDP NSA YoY — 3.00%
11:00 Ireland Industrial Production MoM — -11.70%
11:00 Portugal CPI EU Harmonized YoY 1.50% 1.30%
13:30 U.S. Change in Nonfarm Payrolls 200k 227k
13:30 U.S. Unemployment Rate 4.70% 4.80%Source: Bloomberg. Survey figures updated at 5:20 a.m. London time.
Click on the to see the range of forecasts on the Bloomberg terminal.highlighted releases
Competitive Impact: The landscape for competition between U.K. retail banksand building societies was in the reset 1980s with the removal of the bank “corset” (1981), the Big Bang reforms and the Building Societies Act (both in 1986). While these reforms facilitated entry and expansion of different business models into markets that had previously been off-limits, the 's Bank of England
and Sebastian J A de-Ramon Michael , say competition weakened Straughan
substantially in the runup to the financial crisis.
Too Late: The European Commission has a published "White Paper on the
ahead of the Rome Future of Europe"Summit scheduled for March 25. According to LSE Professorial Research Fellow at the European Institute Iain
, its main contribution may be to Beggpush the EU27 to accept the reality of an EU without the U.K., but in doing so it sets out scenarios that, had they been plausible options only a year ago, would have been music to British ears.
Budget Joy: As most observers expected, the U.K. Spring Budget offered little of for investors to get substance their teeth into. However, , Ben Russonvice president and portfolio manager at
U.K. Equity Team, Franklin Templetonsuggests there are reasons to believe that this low-key swansong for the Spring Budget is exactly what the Chancellor of the Exchequer wanted.
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