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

Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed up +0.6% week-over-week vs -0.4% last week. Top performers:  Greece +4.6%; Romania +3.9%; Spain +3.3%; Czech Republic +2.8%; Italy +2.7%; Poland +1.2%; Portugal +1.2%. Bottom performers:  Cyprus -3.4%; Latvia -0.9%; Estonia -0.4%; Denmark -0.4%; Switzerland -0.2%.  [Other: Germany +0.5%; France +0.5%; UK +0.3%].
  • FX:  The EUR/USD is up +0.11% week-over-week vs +1.81% last week.  W/W Divergences:  SEK/EUR +1.67%; NOK/EUR +0.61%; RON/EUR +0.57%; CZK/EUR +0.30%; DKK/EUR +0.00%; CHF/EUR +0.00%; PLN/EUR -0.13%; GBP/EUR -0.18%; RUB/EUR -0.50%; TRY/EUR -1.19%; HUF/EUR -2.10%.
  • Fixed Income:  The 10YR yield for sovereigns across the periphery were down week-on-week. Greece declined -110bps to 11.89% and Portugal fell -23bps to 7.01%, and Spain lost -15bps to 5.25%, and Italy fell -17bps to 4.47%. The UK gained 3bps to 1.89% and Germany gain +2bps to 1.38%.

Weekly European Monitor: Monti Out, Vacuum In - 22. yields

EUR/USD: Our TRADE range is $1.31 – 1.33

  • 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 the 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 limit the cross’ upside.
  • The cross could weaken alongside the ECB showing some willingness to cut the benchmark interest rate.

Weekly European Monitor: Monti Out, Vacuum In - 22. eurusd

Monti Out, Vacuum In:

As we head into a quiet holiday week the major call-out for a second straight week is that European equity and credit markets mostly melted higher. While fundamental data is far from showing a resounding inflection in trend, we are signaling in our research a shift from #SlowingGrowth to #StabilizingGrowth.

There are numerous Call-Outs (see the section below) this week across the region. To highlight, we see yet again countries reducing their growth estimates for 2013 (Sweden) and the inability of countries, mostly peripheral, to reach deficit targets (Spain). These data point continue to strengthen our call that growth will remain weak throughout the Eurozone for a protracted period. This week we saw actions from the central banks of Sweden, Turkey, and Hungary to cut interest rates by 25bps to spur on growth.

We remain aware that “risk” has largely abated across Europe (especially the periphery) since the summer and particularly following Mario Draghi’s September ECB statement (9/6) to buy “unlimited” sovereign debt via the OMT program. However, we opportunistically see areas to short markets – Italy in particular – where we believe the market has gotten ahead of itself.  We see risks rising with both the power vacuum created with PM Monti’s resignation (called today following 2013 budget approval) and a new election in mid to late February coupled with Italy’s high debt to GDP ratio (120%). For more on Italy see our note yesterday titled “Italy’s Uneven Footing”.

The European Week Ahead:

Sunday: Dec. UK Hometrack Housing Survey

Monday:  Stock exchanges are closed in Switzerland, Germany, Greece, Denmark, Finland, Norway, Sweden, Austria, and Italy. A half day will be observed in France, Portugal, Netherlands, Belgium, U.K., Ireland, and Spain; also in the U.S.

Thursday: Dec. UK House Prices (Dec. 27-31); Nov. UK BBA Loans for House Purchase; Dec. France Consumer Confidence Indicator; Nov. France Producer Prices, Total Jobseekers; Oct. Spain Mortgages-capital loaned, Mortgages on Houses; Dec. Italy Business Confidence, Economic Sentiment

Friday: Nov. France Consumer Spending; 3Q France GDP – Final; Nov. Spain Retail Sales; Oct. Spain Current Account; Nov. Italy PPI

Call Outs:

Banking Union - Der Spiegel, citing an opinion from lawyers at the Bundesbank, reported that Germany's central bank has serious reservations about the legal framework establishing a banking union in Europe. The magazine said that after an initial review of the results from last week's summit, Bundesbank lawyers found the banking union project lacks "a sustainably sound legal basis". It highlighted concerns that supervisors' responsibilities remain unclear, along with the fact that authorities such as a planned arbitration committee between the supervisors and the ECB Governing Council were not sufficiently covered by European law.

China Sentiment - China's $482B sovereign wealth fund, CIC, said that it is "not optimistic" about the outlook for the debt crisis in the Eurozone. However, it noted that it is considering investing more if the region continues to create a friendlier environment. The article cited comments from Jesse Wang, an executive vice president at CIC.

UK - BOE voted 8-1 to leave stimulus unchanged as Euro risks receded (Miles voted for increase). 

Sweden - Hennes & Mauritz said sales growth continued to slow in the three months to end-November, though the world's No. 2 clothing retailer by revenue recorded a smaller-than-expected drop in November sales, easing fears it would be hit by a spending slowdown in Germany.

Sweden - cuts 2013 GDP growth forecast to 1.1% from 2.7% and 2014 to 3.0% from 3.7%.

France - Fitch Ratings kept the pressure on French President François Hollande, warning that it will more likely than not take away the country's triple-A rating next year.

France - French President Francois Hollande reiterated that his government was targeting a reduction of the public deficit in 2013 to 3% of GDP despite new official data showing economic growth way below forecast. INSEE said the French economy would only grow 0.1% this year, dropping from 1.7% in 2011 and missing the government's forecast for 0.3% growth. The article added that Hollande said he expected unemployment would only begin to fall by late 2013.

Spain - Spain's Santander said it would fully take over its publicly traded affiliate Banco Español de Crédito, or Banesto, in a deal that will result in the closure of about 700 branches.

Spain - Spanish banks reported that non-performing loans grew by over €7B to €189.6B in October, or 11.2% of total outstanding loans. This was up from a 10.7% bad-loan ratio in September. Bad loans have risen every month for over a year. (Loans peaked at ~€1.8T during the height of the property bubble in 2008).

Spain - Deputy Budget Minister Marta Fernandez Curras said Spain will struggle to meet its 2012 deficit target as a contracting economy hinders the impact of the deepest budget cuts in the nation's democratic history. The article noted that Budget Ministry data showed the central-government's shortfall through November was 4.37% of GDP, while Curras said the social security system was expected to register a gap of around 1% of output. The central government and social security together have a full-year deficit goal of 4.5%.

Germany - Germany's debt agency said on Thursday that the country plans to cut federal debt issuance to €250B in 2013 from €255B in 2012. The debt agency plans to issue €173B in longer-term capital market instruments and €77B in money market instruments. It also plans to issue the first common bond between regional states and the federal government.  

Germany - German deputy economy minister saying that Germany is considering cutting its 2013 growth forecast from 1.0%. 

Italy - Polls are not promising for PM Mario Monti. According to polling company SWG SpA, Monti would win at most 20% of votes in elections expected 24-Feb. The 14-Dec poll showed 61% don't even want him to run. A separate 17-Nov poll by Datamonitor showed that 62.5% of Italians had a negative view of the Monti government, 82.4% had little or no confidence in the economy improving, and 81% said they had not been able to save in the past three months.

Greece - was upgraded 6 notches by S&P from selective default to B- with stable outlook after the successful completion of debt buyback shows “strong determination” of Euro area governments to keep Greece in the Euro. 

Greece - Greece's largest banks, EFG Eurobank Ergasias SA and Piraeus Bank Sa, said yesterday they will need a capital boost in excess of €13B ($17.2B) after taking losses from the country's debt restructuring earlier this year. The article said Eurobank will need €5.8B, while Piraeus will require €7.3B. It added that the losses were in line with estimates put together by the Greek central bank. The two banks reported combined losses of €1.7B for the first nine months of the year, on high loan-loss provisions and weaker banking income.

Greece - The ECB has decided to accept again bonds guaranteed by the Greek government at its monetary policy operations, the ECB said Wednesday. The decision follows the positive assessment of Greece's reform program.

Poland - The European Commission is investigating why Poland's government is refusing to pay dozens of foreign contractors for work carried out under a road-building program worth billions of euros and backed by Europe.

Cyprus - debt cut to CCC+/C by S&P as creditworthiness has deteriorated (outlook negative).

Data Dump:


Eurozone Labor Costs 2.0% in Q3 Y/Y vs 1.9% in Q2

Eurozone Trade Balance 10.2 B EUR OCT vs 9.5B EUR SEPT

Eurozone Construction Output -4.1% OCT Y/Y vs -3.8% September


Germany IFO Business Climate 102.4 DEC vs 101.4 NOV

Germany IFO Current Assessment 107.1 DEC vs 108.1 NOV

Germany IFO Expectations 97.9 DEC vs 95.2 NOV

Weekly European Monitor: Monti Out, Vacuum In - 22. germany ifo


Germany GfK Consumer Confidence Survey 5.6 JAN (exp. 5.9) vs 5.8 DEC

Germany Producer Prices 1.4% NOV Y/Y vs 1.5% OCT

Germany Import Price Index 1.1% NOV Y/Y vs 1.5% OCT

France Own Company Production Outlook -9 DEC vs -7 NOV

France Production Outlook -38 DEC vs -42 NOV

France Business Confidence 89 DEC vs 88 NOV

Italy Consumer Confidence Index 85.7 DEC vs 84.9 NOV

Weekly European Monitor: Monti Out, Vacuum In - 11. italy confidence

Italy Hourly Wages 1.6% NOV Y/Y vs 1.5% OCT

Italy Industrial Orders -0.1% OCT Y/Y vs -12.8% September

Italy Retail Sales -3.8% OCT Y/Y vs -1.6% September

Weekly European Monitor: Monti Out, Vacuum In - 111. italy retail sales


Spain Total Housing Permits -34.3% OCT Y/Y vs -51.6% SEPT

Spain Producer Prices 2.8% NOV Y/Y vs 3.4% OCT

UK Q3 GDP Final 0.9% Q/Q vs initial 1.0%   [0.0% Y/Y vs initial -0.1%]

UK CPI 2.7% NOV Y/Y vs 2.7% OCT (highest since May)

Weekly European Monitor: Monti Out, Vacuum In - 22. uk inflation

UK RPI 3.0% NOV Y/Y vs 3.2% OCT

UK PPI Input -0.3% NOV Y/Y vs 0.0% OCT   [0.1% NOV M/M vs 0.1% OCT]

UK PPI Output 2.2% NOV Y/Y vs 2.6% OCT   [-0.2% NOV M/M vs 0.2% OCT]

UK Retail Sales w Auto Fuel 0.9% NOV Y/Y vs 0.8% OCT

UK ONS House Price 1.5% OCT Y/Y vs 1.7% September

UK Public Sector Net Borrowing 15.3B GBP NOV vs 6.0B GBP OCT

UK Total Business Investment 5.1% Y/Y vs initial 4.5%

UK Index of Services 1.1% OCT Y/Y vs 1.2% SEPT

Switzerland Exports 6.0% NOV M/M vs -7.3% OCT

Switzerland Imports 0.2% NOV M/M vs -6.9% OCT

Switzerland M3 Money Supply 9.3% NOV Y/Y vs 8.9% OCT

Ireland Q3 GDP 0.2% Q/Q vs 0.4% in Q2   [0.8% Y/Y vs -0.5% in Q2]

Ireland PPI 2.7% NOV Y/Y vs 2.9% OCT

Portugal PPI 3.8% NOV Y/Y vs 4.6% OCT

Austria Industrial Production 1.3% OCT Y/Y vs 2.0% September

Netherlands House Price Index -6.8% NOV Y/Y vs -7.8% OCT

Belgium CPI 2.23% DEC Y/Y vs 2.26% NOV

Sweden Consumer Confidence -12.2 DEC vs -7.3 NOV

Sweden Manufacturing Confidence -15 DEC vs -17 NOV

Sweden Economic Tendency 89.6 DEC vs 86 NOV

Sweden PPI -3.1% NOV Y/Y vs -2.3% OCT


Denmark Q3 GDP Final 0.3% Q/Q vs -0.7% in Q2   [-0.3% Y/Y vs -1.2% in Q2]

Denmark Wholesale Price Index 3.4% NOV Y/Y vs 3.5% OCT

Denmark Consumer Confidence -4.7 DEC vs -0.8 NOV

Denmark Retail Sales -0.5% NOV vs -1.8% OCT


Finland PPI 1.3% NOV Y/Y vs 1.7% OCT

Finland Unemployment Rate 7.3% NOV vs 6.9% OCT


Netherlands Consumer Confidence -39 DEC vs -37 NOV

Netherlands Consumer Spending -2.4% OCT Y/Y vs -0.1% September

Netherlands Unemployment Rate 7.0% NOV vs 6.8% OCT


Russia Unemployment Rate 5.4% NOV vs 5.3% OCT

Russia Disposable Income 6.7% NOV Y/Y vs 3.5% OCT

Russia Real Wages 7.3% NOV Y/Y vs 7.1% OCT

Russia Retail Sales 4.4% NOV M/M vs 4.0% OCT

Russia Investment in Production Capacity 1.2% NOV Y/Y vs 4.9% OCT

Russia Industrial Production 1.9% NOV Y/Y vs 1.8% OCT

Russia Producer Prices 6.7% NOV Y/Y vs 8.8% OCT


Poland Retail Sales 2.4% NOV Y/Y vs 3.3% OCT

Poland Avg Gross Wages 2.7% NOV Y/Y vs 2.8% OCT

Poland Producer Prices -0.1% NOV Y/Y vs 1.0% OCT

Poland Industrial Output -0.8% NOV Y/Y vs 4.6% OCT

Czech Republic Export Price Index 1.3% OCT Y/Y vs 1.4% SEPT

Czech Republic Import Price Index 2.2% OCT Y/Y vs 2.8% SEPT

Czech Republic PPI 1.6% NOV Y/Y vs 1.9% OCT

Hungary Retail Sales -3.7% OCT vs -3.1% September

Hungary Avg Gross Wage 4.6% OCT Y/Y vs 3.7% September


Slovenia Unemployment Rate 12.1% OCT vs 11.5% September

Slovenia PPI 0.7% NOV Y/Y vs 0.8% OCT

Serbia Unemployment Rate 13.9% NOV vs 13.7% OCT

Croatia Unemployment Rate 20.4% NOV vs 19.6% OCT

Lithuania Industrial Production 8.9% NOV Y/Y vs 14.4% OCT

Latvia Producer Prices 3.2% NOV Y/Y vs 2.9% OCT

Turkey Consumer Confidence 89.2 NOV vs 85.7 OCT

Turkey Unemployment Rate 9.1% SEPT vs 8.8% AUG

Interest Rate Decisions:

(12/18) Riksbank Interest Rate CUT 25bps to 1.00% [inline]

(12/18) Turkey Benchmark Repo Rate CUT 25bps to 5.50% [inline]

(12/18) Turkey Overnight Lending Rate UNCH at 9.00% [inline]

(12/18) Turkey Overnight Borrowing Rate UNCH at 5.00% [expected 25bps cut]

(12/18) Hungary Base Rate Announcement CUT 25bps to 5.75% [inline]

(12/19) Norway Deposit Rate UNCH at 1.50%

(12/19) Czech Repo Rate Announcement UNCH at 0.05%

Matthew Hedrick

Senior Analyst