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Takeaway: Europe mostly melts higher as government intervention continues.

-- For specific questions on anything Europe, please contact me at to set up a call.

Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed down -0.4% week-over-week vs +1.2% last week. Bottom performers:  Cyprus -3.2%; Slovakia -0.9%; Ireland -0.6%; Switzerland -0.3%; Norway -0.3%.  Top performers:  Portugal +3.5%; Poland +3.0%; Spain +2.2%; Greece +1.9%; Austria +1.8%; Russia (MICEX) +1.7%; Luxembourg +1.6%; Romania +1.5%; Czech Republic +1.5%.  [Other: Germany +1.0%; France +1.0%; UK +0.1%].
  • FX:  The EUR/USD is up +1.81% week-over-week vs -0.45% last week.  W/W Divergences:  PLN/EUR +0.96%; CHF/EUR -0.01%; DKK/EUR -0.06%; CZK/EUR -0.13%; HUF/EUR -0.17%; NOK/EUR -0.86%; GBP/EUR -1.01%; SEK/EUR -1.75%.
  • Fixed Income:  The 10YR yield for sovereigns across the periphery were down week-on-week. Greece declined -154bps to 12.92% and Portugal fell -47bps to 7.09%, and Spain lost -8bps to 5.38%. Germany gain +6bps to 1.36% and Italy rose +5bps to 4.58%.

Weekly European Monitor: Noisy Berlusconi as Grexit Fades - 22. yields

EUR/USD: Our TRADE range is $1.29 – 1.31 with a TREND resistance of $1.31.

  • Our call - the EUR/USD will trade within our quantitative levels and reflect much of the daily headline risk (from Spain, Greece, and Italy in particular), however ECB President Mario Draghi’s September announcement that “the ECB is ready to do whatever it takes to preserve the euro” and the resolve of Eurocrats to maintain the Union will prevent levels falling anywhere near parity.
  • We expect a long road towards a fiscal union as states will be reluctant to give their sovereignty up to an external entity, which should strengthen the lid on the EUR/USD at $1.31.
  • The cross could weaken alongside the ECB showing some willingness to cut the benchmark interest rate: Draghi cited that there was wide discussion [about a rate cut] but the prevailing consensus was to leave rates unchanged when the council met on Thursday.

Weekly European Monitor: Noisy Berlusconi as Grexit Fades - 22. eur usd

Weekly European Monitor: Noisy Berlusconi as Grexit Fades - 22. cftc

Noisy Berlusconi as Grexit Fades:

This week European peripheral equity and credit markets melted higher, taking share from the core. In today’s Early Look we hit on how collectively global data and real-time prices “are signaling a shift from #SlowingGrowth to #StabilizingGrowth.” This is a switch to a marginally more bullish market tone, however the question remains whether governments can stay out of the way of economic stability.

Unfortunately, what we continue to see from Eurocrats is a suspension of economic reality; and bond and equity players have largely cheered on the workings of Draghi, Merkel, and van Rompuy since the early Fall. The latest hope rally is that Draghi will release the OMT to the likes of Spain or Italy, should either country request it.

As we touched on in last week’s note, we continue to call out that growth will remain weak throughout the Eurozone for a protracted period and that estimate revisions are just now coming closer to this reality. Remember, last week the ECB revised Eurozone growth for 2012 and 2013 growth to the ranges of -0.6% and -0.4% and -0.9% and +0.3%, respectively. This week Germany’s  IFO Institute cut Germany’s 2013 GDP forecast to +0.7% from +1.3% previously, while the Bundesbank last week revised Germany’s 2013 GDP projections to +0.4% versus  +1.6% predicted in June.

Yet one signal of data improvement came this week from German PMI Services, which came in at 52.1 in December versus 49.7 in November, showing expansion (above 50) and improvement over two straight months.  However, Eurozone and French Manufacturing and Services PMIs registered below 50 (contraction) and saw little improvement month-over-month.

On the dealings of Eurocrats this week there were two main fronts: 1. Eurozone Finance Ministers set in motion a common bank supervisor by agreeing to terms to allow the ECB to begin direct supervision of up to 200 lenders by March 2014. (The deal still needs to be signed off on by European Parliament  and ratified by National Parliaments).  2. Greece received its disbursement of a €34.4B tranche of bailout funding.

While the latter was widely expected and solidifies our call that a Greek exit (Grexit) or expulsion from the Eurozone is an extremely unlikely event in the medium term, this latest bailout gives Greece good cover going into 2013. On a Banking Union, our call now as before is that while the actions may be a step in the right direction, the key to shoring up the risk loop between banks and sovereigns is setting in place a Fiscal Union in addition to a Banking Union.  Of note is that the 200 banks expected to fall under the ECB’s Banking Union is a far cry from the ECB’s original hope of all 6,000 in the region.

Boisterous Berlusconi

Finally, Berlusconi made broad headlines for a second straight week. The week started with PM Monti announcing his intention to resign once Parliament passes the 2013 budget law (expected to pass before Christmas with early elections likely following on February 17th or 24th) and Berlusconi saying he will take another run at it. Then in mid-week Berlusconi said that he would consider stepping down as a candidate for PM if Monti agreed to run in the upcoming elections as the head of a broad centre-right coalition.

What’s clear is that Berlusconi and his PDL are trailing badly in the opinion polls. Per Luigi Bersani of the Democratic Party (PD) is the current front-runner and despite Berlusconi’s comeback barks he realizes that he personally has no shot to be PM. Further, because a coalition government will have to be formed, Berlusconi may be thinking that the continuity of a Monti victory could bode well for the country’s health.  While Berlusconi’s positioning and utterance may not be clear, expect the risk spotlight to turn up as elections are pushed forward and for Berlusconi's political gravitas to be less than it was in the past.   

The European Week Ahead:

Sunday: Dec. UK releases Dec. Rightmove House Prices

Monday: Oct. Eurozone Trade Balance; 3Q Eurozone Labour Costs; Oct. Italy Trade Balance


Tuesday: Nov. UK PPI Input, PPI Output, CPI, RPI; Oct. UK ONS House Price; Oct. Italy Current Account


Wednesday: Oct. Eurozone Current Account, Construction Output; Dec. Germany IFO Business Climate, Current Assessment, and Expectations; UK BoE Minutes; Dec. UK CBI Reported Sales; Oct. Italy Industrial Orders and Sales


Thursday: ECB Governing and General Council Meeting; Dec. Eurozone Consumer Confidence – Advance; Nov. Germany Producer Prices; Dec. UK GfK Consumer Confidence Survey; Nov. UK Retail Sales; Nov. Spain Budget Balance; Oct. Spain Total Housing Permits; Oct. Italy Retail Sales; Oct. Greece Current Account

Friday: Jan. Germany GfK Consumer Confidence Survey; Nov. Germany Import Price Index; Nov. UK Public Finances, Public Sector Net Borrowing; Oct. UK Index of Services; 3Q UK GDP – Final, Current Account, Total Business Investment – Final; Dec. France Own-Company Production Outlook, Production Outlook Indicator, Business Confidence Indicator; Nov. Spain Producer Prices; Oct. Spain Trade Balance; Dec. Italy Consumer Confidence Indicator; Nov. Italy Hourly Wages

Data Dump:


Eurozone ZEW Economic Sentiment 7.6 DEC vs -2.6 NOV

Eurozone Industrial Production -3.6% OCT Y/Y vs -2.8% September   [-1.4% OCT M/M vs -2.3% SEPT]

Eurozone Sentix Investor Confidence -16.8 DEC (exp. -16.9) vs -18.8 NOV

Eurozone CPI 2.2% NOV Y/Y vs 2.2% OCT

EU27 New Car Registrations -10.3% NOV Y/Y vs -4.8% OCT

Eurozone PMI Manufacturing 46.3 DEC Prelim vs 46.2 NOV

Eurozone PMI Services 47.8 DEC Prelim vs 46.7 NOV


Germany PMI Manufacturing 46.3 DEC Prelim vs 46.8 NOV

Germany PMI Services 52.1 DEC Prelim vs 49.7 NOV

Germany CPI 1.9% NOV Final Y/Y vs 2.0% initial

Germany ZEW Current Sentiment 5.7 DEC (exp. 6.0) vs 5.4 NOV

Germany ZEW Economic Sentiment 6.9 DEC (exp. -11.5) vs -15.7 NOV

Germany Exports 0.3% OCT M/M (exp. -0.3%) vs -2.4% September

Germany Imports 2.5% OCT M/M (exp. 0.4%) vs -1.4% SEPT

UK ILO Unemployment Rate 7.8% OCT vs 7.8% SEPT

UK Jobless Claims Change -3K NOV vs 6K OCT

France PMI Manufacturing 44.6 DEC Prelim vs 44.5 NOV

France PMI Services 46.0 DEC Prelim vs 45.8 NOV

France CPI 1.6% NOV Y/Y vs 2.1% in OCT

France Non-Farm Payrolls -0.3% in Q3 Q/Q

France Bank of France Business Sentiment 91 NOV vs 92 OCT

France Industrial Production -3.6% OCT Y/Y (exp. -2.3%) vs -2.5% September

France Manufacturing Production -4.0% OCT Y/Y (exp. -2.4%) vs -2.6% SEPT


Italy Q3 GDP Final -0.2% Q/Q (unch)   [-2.4% Y/Y (unch)]

Italy CPI 2.6% NOV Final Y/Y [unch vs initial]

Italy Industrial Production -6.2% OCT Y/Y (exp. -4.3%) vs -5.0% September


Spain CPI 3.0% NOV Final Y/Y [unch vs initial]

Spain House Prices for Total Homes -15.2% in Q3 Y/Y vs -14.4% in Q2

Spain Labor Costs -0.1% in Q3 Y/Y vs -0.3% in Q2


Portugal Construction Works Index 55 OCT vs 52 SEPT

Portugal CPI 1.9% NOV Y/Y vs 2.1% OCT


Sweden Industrial Production -4.4% OCT Y/Y (exp. -5.2%) vs -5.0% SEPT

Sweden Unemployment Rate 8.1% NOV vs 7.7% OCT

Sweden CPI -0.1% NOV Y/Y vs 0.4% OCT


Denmark CPI 2.2% NOV Y/Y [inline] vs 2.3% OCT

Finland Industrial Production -0.7% OCT Y/Y vs -2.7% SEPT

Finland CPI 2.2% NOV Y/Y vs 2.6% OCT

Norway CPI 1.1% NOV Y/Y vs 1.1% OCT


Ireland CPI 1.6% NOV Y/Y vs 2.1% OCT

Switzerland Credit Suisse ZEW Survey of Expectations -15.5 DEC vs -27.9 NOV

Switzerland Producer and Import Prices 1.2% NOV Y/Y vs 0.4% OCT   [0.0% NOV M/M vs -0.1% OCT]

Switzerland 3M Libor Target Rate UNCH at 0.00%

Austria CPI 2.8% NOV Y/Y vs 2.8% OCT

Greece Industrial Production 2.0% OCT Y/Y vs -7.3% SEPT
Greece CPI 0.4% NOV Y/Y vs 0.9% OCT

Greece Unemployment Rate 24.8% in Q3 vs 23.6% in Q2

Russia Q3 GDP Preliminary 2.9% Y/Y vs 4.0% in Q2

Russia Light Vehicle and Car Sales 0% NOV Y/Y vs 5% OCT

Czech Republic Unemployment Rate 8.7% NOV vs 8.5% OCT

Czech Republic Industrial Output 4.1% OCT Y/Y vs -6.8% September

Czech Republic CPI 2.7% NOV Y/Y vs 3.4% OCT

Slovenia Industrial Production 2.0% OCT Y/Y vs -0.2% September

Slovakia CPI 3.4% NOV Y/Y vs 3.8% OCT

Romania Consumer Prices 4.6% NOV Y/Y vs 5.0% OCT

Romania Industrial Output -0.1% OCT Y/Y vs -0.1% SEPT

Hungary Consumer Prices 5.2% NOV Y/Y vs 6.0% OCT

Hungary Industrial Production -3.8% OCT Final Y/Y [unch]

Estonia Q3 GDP Final 1.6% Q/Q vs 1.7% initial   [3.5% Y/Y vs 3.4% initial]

Estonia Unemployment Rate 6.0% NOV vs 5.8% OCT

Turkey Q3 GDP 1.6% Y/Y vs 3.0% in Q2   [0.2% Q/Q vs 1.7% in Q2]

Turkey Industrial Production -0.9% OCT Y/Y vs 6.2% SEPT

Interest Rate Decisions:

(12/10) Russia Refinancing Rate UNCH at 8.25%

(12/10) Russia Overnight Deposit Rate HIKED 25bps to 4.50%

(12/10) Russia Overnight Auction-Based Repo UNCH at 5.50%

Matthew Hedrick

Senior Analyst