Europe - Economic Data & News 01 (May 08 - Oct 08)

[kennynah]

there's truth to L's post above...

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Eurozone June Inflation At Record High On Higher Food, Fuel Prices
7/16/2008 10:09 AM ET



(RTTNews) - Soaring food and fuel prices pushed up inflation in Eurozone and two of the main economies in the region, Germany and France.

Confirming the preliminary estimate, final data from the Eurostat showed Wednesday that consumer price annual inflation in the 15-nation economy shot up to a new record of 4% in June, up from the previous record of 3.7% in May. Inflation reached the highest level since the euro was introduced in 1999 and the highest since June 1992. On a monthly basis, the consumer price index rose 0.4%.

Annual inflation continued to stay above the European Central Bank target, which is to keep inflation rates "below, but close to, 2% over the medium term". On July 3, the European Central Bank had hiked interest rates citing record high inflation and slowing growth.

The key-lending rate, which is the minimum bid rate on the main refinancing operations, was hiked by 25 basis points to 4.25%. The central bank had maintained the rate at a six-year high of 4% since June last year.

On July 9, speaking at the European Parliament the ECB President Jean-Claude Trichet had reiterated that the harmonized consumer price inflation in Eurozone is expected to continue at an elevated level and is likely to moderate gradually in 2009.

[millionairemind]

Stocks to slide more in credit market catch-up
Thu Jul 17, 2008 11:01am EDT By Natalie Harrison and Amanda Cooper - Analysis

LONDON (Reuters) - Equity markets face more hefty falls as shareholders wake up to the prospects for corporate failure and earnings shrinkage that have been reflected in credit markets for months.

Equity and credit have mostly moved in the same direction this year, with credit tending to price in a worse scenario. This week, stocks have fallen more sharply than credit indexes.

"The whole equity world seems to have accepted the fact that we are in the middle of a crisis," said Suki Mann, a credit strategist at SG CIB.

Experts say share prices have more catching up to do, even though the FTSEurofirst 300 index of top European shares hit 3-year lows this week and is nearly 6 percent below its March troughs and 30 percent off last July's 6-1/2 year peaks.

The investment-grade Markit iTraxx Europe index is at around 100 basis points, up from around 20 basis points a year ago but some 40 percent below March's record wide.

At 100 basis points, the iTraxx Europe reflects a default rate of 8.3 percent for investment-grade companies with a 40 percent recovery rate.

"That is way beyond expectations of where default rates will get to, even in the high yield space," said Simon Ballard, a global credit strategist at Fortis Investments.

Moody's Investors Service predicts the global high-yield default rate will rise to just 4.6 percent by year-end and to 6.1 percent a year from now.

Among the biggest fears of both credit and equity investors are more U.S. bank runs after last week's collapse of mortgage lender IndyMac (IDMC.PK: Quote, Profile, Research, Stock Buzz), capital raising problems among financials, and deteriorating conditions for U.S. mortgage lenders.

The impact will be felt differently though, analysts say.

Take the U.S. government's rescue plan for mortgage lenders Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) and Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz).

The worry for equity holders is that while the package ensures the top-notch triple-A rating on both companies' debt, existing shares will be diluted.

"The respective performance in stock and credit markets reflects the fact that the bill for the whole mess will be paid by stockholders and taxpayers," said Philip Gisdakis, a credit strategist at UniCredit (HVB).

GETTING REAL

Many still view earnings forecasts for this year as far too optimistic and believe analysts have so far been reluctant to aggressively cut those estimates.

"The real dilemma we are facing is not just the deterioration in the macroeconomy but the total misalignment between the relatively optimistic earnings expectations which sell-side analysts still seem to be maintaining and what we believe the macroeconomy is capable of supporting over the next couple of years," said Ian Richards, European equity strategist at Royal Bank of Scotland.

Data from Thomson Reuters shows average long-term earnings-per-share growth for components of the DJStoxx 600 index stands at 8.7 percent, down only a fraction from a forecast of 8.8 percent in January this year.
Gisdakis said there were both fundamental and technical reasons for the current trends. Perhaps most important is that equity holders face the first losses if a company defaults.

"We've been trying to convince investors for more than a year that there will only ever be losses for credit holders in the event of a company liquidation if the equity value is zero," said Gisdakis.

"Stock investors were ignoring this reality over the last 12 months or so. They have now caught up a bit."

Credit indexes were swinging wildly in March as highly leveraged investors were forced to sell complex credit products such as constant proportion debt obligations (CPDOs).

This snowball effect has not materialized in the latest leg down in credit, but the debt market will not be completely immune to the inevitable further downside in equities.

"We're seeing more of an impact within the equity markets because we are seeing the transition from a financial turmoil into a macro-economic slowdown," said Ballard.

Investors may switch out of stocks in favor of higher-grade credits, such as utilities. That may mean the iTraxx Crossover index, made up of mostly "junk"-rated 50 credits, underperforms the Europe index.

"As we get to the final swings of the writedowns or we believe we are, then there will be a shift from the broader indexes to single name positioning for the latter part of the year," said Ballard.

[kennynah]

202pm 18Jul +8GMT

Germany June PPI up 6.7% yoy and 0.9% mom

this shd have an immediate impact on eur/usd and consequently Crude Oil...

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German June PPI Inflation Highest Since March 1982
7/18/2008 2:14 AM ET

(RTTNews) - Friday, the Federal Statistical Office reported that Germany's producer price index rose 6.7% year-on-year in June, marking a faster pace than the 6% recorded in June. The pipeline inflation rate also exceeded economists' consensus of 6.5% for June.

The statistical office announced that the June inflation rate is the highest year-on-year rate of increase since March 1982, when prices rose 7.2%.

Month-on-month, German producer prices were up 0.9% in June, a tad slower than the 1% rise in May. Economists were looking for an increase of 0.7%.

[millionairemind]

UK Budget deficit soars to the worst since records began
By Rosa Prince, Political Correspondent, and Jon Swaine
Last Updated: 12:13pm BST 18/07/2008

Britain's budget deficit has soared to the widest in more than 50 years, underlining the pressure on Gordon Brown to rip up his borrowing rules as the economy heads into a downturn.

The deficit swelled to £24.4bn in the three months to June, official figures showed today. Last month alone, the shortfall increased to £9.2bn, higher than the £7.4bn pencilled in by economists.

The figures come as speculation mounts that the Treasury is expected to re-write its own rules on borrowing in order to avoid forcing up taxes.

"The figures were horrific, absolutely horrific,'' said Philip Shaw, chief economist at Investec. "Faced with a choice of tightening fiscal policy, breaking both the rules or changing them, the Government seems to be opting for the third choice.

Gordon Brown's strict self-imposed "sustainable investment" rule, which limits Government debt to 40pc of national income, was laid down by Mr Brown when he became Chancellor in 1997 as a signal of Labour's intention for "prudence" in economic affairs

The new, looser framework, which is set to be announced in the pre-Budget report this Autumn, would allow the Government to borrow more to avoid a £10bn hole in the public purse which would otherwise have to be made up by increased tax revenues.
Robert Chote, the director of the Institue for Fiscal Studies, warned yesterday that Government borrowing was already exceeding the forecast of 39.8pc promised by Alistair Darling, the Chancellor, in the last budget.

Since then Mr Darling has borrowed £2.7bn to compensate some of those who lost out after the abolition of the 10p tax band.

Mr Chote also said that the situation faced by Mr Darling can only worsen as he comes under pressure to make further concessions to the 10p tax victims, as well as on vehicle excise duty and fuel duties.

As a result, Mr Chote told a Conservative business conference, whoever wins the next general election will be faced with a "toxic choice" between tax increases during an economic downturn or public spending cuts - unless the borrowing rule is broken.

Speaking at the same event, David Cameron, the Conservative leader, criticised Mr Brown for having built up a mountain of debt despite having presided over an era of strong economic growth. He said: "Something went wrong. We need to make some very large changes in terms of economic policy."

A Conservative spokesman added: "This is a final nail in the coffin of Gordon Brown's reputation for economic competence. He repeatedly staked that reputation on his fiscal rules, and now we're told that the Treasury is having to re-write the rules because the Government has lost control of the public finances".

Vince Cable, the Liberal Democrats' Treasury spokesman, said: "The Government is now acknowledging it will break the rule on debt." Mr Cable said it was now time to establish an independent body to scrutinise fiscal policy.

He said: "This step underlines what I and my colleagues have said for years - that the assessment of fiscal policy must be made by an independent body in the same way interest rates are determined."

To justify the move, Treasury officials are set to argue that the 40pc rule, introduced by Mr Brown in 1997 at the start of his 10-year term as Chancellor, was relevant during the last economic cycle, characterised by a benign economic outlook, but that a new cycle has been ushered in by the credit crunch began in March, requiring a re-think.

[millionairemind]

Alistair Darling may face £100bn budget deficit
By Edmund Conway, Economics Editor
Last Updated: 11:41pm BST 18/07/2008

Alistair Darling may see his budget deficit balloon to a record £100bn in the coming year as a potential recession bites, experts have warned.

The alert was sounded as the public finances lurched deep into the red in the first solid sign that the economic downturn is now weighing heavily on the Government's accounts.

Revenues from income tax, National Insurance, corporation tax, VAT and stamp duty have suddenly dried up as the credit crisis and downturn in the housing market hit the economy, the figures showed.

It came as the Chancellor confirmed that his closely watched borrowing rules are "under review", with many speculating that he is poised either to scrap or loosen them.
The news pushed the pound lower and caused the biggest weekly decline in gilts for more than a month as traders speculated that inflation could soon leap even higher.

The Office for National Statistics reported that net borrowing climbed to a record £24.4bn in the first quarter of the financial year. This amounts to 6.7pc of gross domestic product - the highest level since 1996.

The result is that Mr Darling is now close to breaking his sustainable investment rule, which insists government debt must not exceed 40pc of GDP.

The ONS said net debt is now at 38.3pc of GDP - up one percentage point on a year ago. The ratio is 44.2pc when Northern Rock is included, although the Treasury insists these debts are temporary.

Experts warned that the outlook will become even gloomier in coming months. Roger Bootle, of Capital Economics, said: "When the economy turns down, all the usual forecasts and carefully calibrated figures from experts prove to be way, way, way off the mark. I suspect that the borrowing numbers will be devastatingly awful. Activity in the City is going to be weak. VAT receipts will suffer. I'm expecting the numbers to be ghastly.

"If there is a normal recession, it could see a borrowing requirement of over £100bn. A downturn as severe as the early 1990s could produce £150bn of deficits - 10pc of GDP."

Such high borrowing would push up long-term bond yields, making it more expensive for the Government to borrow in the future, with far-reaching consequences for the economy.

Mr Darling refused to confirm whether he would maintain his golden rule, which forces the Government to borrow only for investment purposes over the economic cycle. However, most expect him to relax the sustainable investment rule, raising the ceiling towards 50pc of GDP.

Indeed, he pointed out yesterday that public debt levels in the UK remain lower than in many other major economies, including France, Germany, Italy and the US.

He said: "The key position is this: of course it is right - especially now our economy is being hit by two shocks, the credit crunch and very high oil prices - that we allow borrowing to support the economy. But what is critical is that you do have rules to ensure the public finances are sustainable in the medium term."

One striking point in the borrowing figures was an 18pc annual fall in stamp duty revenues. The Council of Mortgage Lenders said gross mortgage lending fell to £23.8bn in June, down 32pc on a year earlier.

[millionairemind]

The global economy is at the point of maximum danger
By Ambrose Evans- Pritchard
Last Updated: 11:54pm BST 20/07/2008

It feels like the summer of 1931. The world's two biggest financial institutions have had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No world leader seems able to discern the problem, let alone forge a solution.

The International Monetary Fund has abdicated into schizophrenia. It has upgraded its 2008 world forecast from 3.7pc to 4.1pc growth, whilst warning of a "chance of a global recession". Plainly, the IMF cannot or will not offer any useful insights.

Its "mean-reversion" model misses the entire point of this crisis, which is that central banks have pushed debt to fatal levels by holding interest too low for a generation, and now the chickens have come home to roost. True "mean-reversion" would imply debt deflation on such a scale that would, if abrupt, threaten democracy.

The risk is that these same central banks will commit a fresh error, this time overreacting to the oil spike. The European Central Bank has raised rates, warning of a 1970s wage-price spiral. Fixated on the rear-view mirror, it is not looking through the windscreen.

The eurozone is falling into recession before the US itself. Its level of credit stress is worse, if measured by Euribor or the iTraxx bond indexes. Core inflation has fallen over the last year from 1.9pc to 1.8pc.

The US may soon tip into a second leg of this crisis as the fiscal package runs out and Americans lose jobs in earnest. US bank credit has contracted for three months. Real US wages fell at almost 10pc (annualised) over May and June. This is a ferocious squeeze for an economy already in the grip of the property and debt crunch.

No doubt the rescue of Fannie Mae and Freddie Mac - $5.3 trillion pillars of America's mortgage market - stinks of moral hazard. The Treasury is to buy shares: the Fed has opened its window yet wider. Risks have been socialised. Any rewards will go to capitalists.

Alas, no Scandinavian discipline for Wall Street. When Norway's banks fell below critical capital levels in the early 1990s, the Storting authorised seizure. Shareholders were stiffed.

But Nordic purism in the vast universe of US credit would court fate. The Californian lender IndyMac was indeed seized after depositors panicked on the streets of Encino. The police had to restore order. This was America's Northern Rock moment.

IndyMac will deplete a tenth of the $53bn reserve of the Federal Deposit Insurance Corporation. The FDIC has some 90 "troubled" lenders on watch. IndyMac was not one of them.

The awful reality is that Washington has its back to the wall. Fed chief Ben Bernanke thought the US could always get out of trouble by monetary stimulus "à l'outrance", and letting the dollar slide. He has learned that the world is a more complicated place.

Oil has queered the pitch. So has America's fatal reliance on foreign debt. The Fannie/Freddie rescue, incidentally, has just lifted the US national debt from German 'AAA' levels to Italian 'AA-' levels.

China, Russia, petro-powers and other foreign states own $985bn of US agency debt, besides holdings of US Treasuries. Purchases of Fannie/Freddie debt covered a third of the US current account deficit of $700bn over the last year. Alex Patelis from Merrill Lynch says America faces the risk of a "financing crisis" within months. Foreigners have a veto over US policy.

Japan did not have this problem during its Lost Decade. As the world's supplier of credit, it could let the yen slide. It also had a savings rate of 15pc. Albert Edwards from Société Générale says this has fallen to 3pc today. It has cushioned the slump. Americans are under water before they start.

My view is that a dollar crash will be averted as it becomes clearer that contagion has spread worldwide. But we are now at the point of maximum danger. Britain, Japan, and the Antipodes are stalling. Denmark is in recession. Germany contracted in the second quarter. May industrial output fell 6pc in Holland and 5.5pc in Sweden.

The coalitions in Belgium and Austria have just collapsed. Germany's left-right team is fraying. One German banker told me that the doctrines of "left Nazism" (Otto Strasser's group, purged by Hitler) had captured the rising Die Linke party. The Social Democrats are picking up its themes to protect their flank.

This is the healthy part of Europe. Further south, we are not far away from civic protest. BNP Paribas has just issued a hurricane alert for Spain.

Finance minister Pedro Solbes said Spain is facing the "most complex" economic crisis in its history. Actually, it is very simple. The country was lulled into a trap by giveaway interest rates of 2pc under EMU, leading to a current account deficit of 10pc of GDP.

A manic property bubble was funded by foreigners buying covered bonds and securities. This market has dried up. Monetary policy is now being tightened into the crunch by the ECB, hence the bankruptcy last week of Martinsa-Fadesa (€5.1bn). With Franco-era labour markets (70pc of wages are inflation-linked), the adjustment will occur through closure of the job marts.

China, India, East Europe and emerging Asia have all stolen growth from the future by condoning credit excess. To varying degrees, they are now being forced to pay back their own "inter-temporal overdrafts".

If we are lucky, America will start to stabilise before Asia goes down. Should our leaders mismanage affairs, almost every part of the global system will go down together. Then we are in trouble.

[sesdaqfan]

Hi MM,
Where do you get all this sombre news? You may want to post some positive news to balance the prediction of the future as well.

[iam802]

The International Monetary Fund has abdicated into schizophrenia. It has upgraded its 2008 world forecast from 3.7pc to 4.1pc growth, whilst warning of a "chance of a global recession". Plainly, the IMF cannot or will not offer any useful insights.

Good. We are almost there now.

The more foggy their statement becomes, the clearer the opportunity (or crisis) will present itself.

Couple of days back, GIC also said that the downturn could be worse than the tech downturn (which last around 8 years).

[millionairemind]

Unemployment to hit 2m for first time under Labour
By Harry Wallop and Edmund Conway
Last Updated: 7:22am BST 21/07/2008

The number of people out of work will reach two million for the first time in a decade of Labour rule, as the housing market downturn leads to hundreds of thousands of job losses in the wider economy, an influential analysis warns.
Estate agents, house builders, mortgage brokers and other workers in the financial services sector will lose their jobs, with total unemployment rising by 25 per cent to its highest level since July 1997.

The warning comes today from the well-respected Ernst & Young Item Club in its starkest warning yet over the state of the economy, which predicts that Britain will now struggle to avoid a recession.

It describes the current economic climate as a "horror movie" at risk of turning into a "disaster movie".
increasing steadily over the last three months
The accountancy firm predicts growth in the economy will to amount to just 1 per cent, undermining the Government's optimistic growth forecasts for both this year and next.

The predictions were added to this morning by David Blanchflower, a member of the Bank of England's Monetary Policy Committee who has been calling for rapid rate cuts.

In an interview with the Guardian Newspaper today, Mr Blanchflower said: "I think we are going into recession and we are probably in one right now.

"It's not too late to stop it but we have to act right now. Monetary policy has been far too tight for too long."

However, its most ominous forecast is that the number of unemployed in the UK will climb from today's 1.6 million to more than two million within the next 18 months.

This would be the first time that the number of people out of work has climbed above that milestone since July 1997 – two months after Labour came to power and Gordon Brown entered 11 Downing Street.

The increase will be driven by the downturn in the housing market, with Ernst & Young predicting house prices will fall 15 per cent from their peak.

Increasing the number of people in work has always been one of the main planks of the Labour Government's economic policy.

Mr Brown has previously boasted that employment levels have hit a record high this year, but economists point out that the figure has been flattered by the number of migrant workers coming to the UK and the number of elderly people coming out of retirement to take on extra jobs.

More worrying has been the rising number of unemployed workers, which has been increasing steadily over the last three months.

According to Ernst & Young, it is set to get dramatically worse as the full force of the housing market crash starts to affect the whole economy "like a virus".

Peter Spencer, professor of economics at York University and the author of the report, said: "Unemployment hitting two million is highly embarrassing for the Government.

"But people don't have to lose their jobs for there to be serious problems. It's when they see their neighbours and family lose theirs, that they really start to worry. When that happens consumer confidence disappears."

While Ernst & Young's forecast of two million unemployed is still substantially lower than the 3.3 million that were jobless during 1984, economists pointed out that the rise would have a significant impact on the economy.

People become unable to pay their mortgages, with many ending up having their homes repossessed or being declared bankrupt.

At least 45,000 people are predicted to have their homes taken off them this year as a result of being unable to pay their mortgages.

Rising unemployment also brings an inevitable fall in consumer spending – resulting in falling high street sales, and in turn forcing shopkeepers and restaurateurs to cut some of their workforce.

Philip Hammond, shadow chief secretary to the Treasury said: "The Item Club has an excellent track record of forecasting changes in the economy, so this report is especially worrying.

"So far, the story has been one of slowing growth, soaring inflation and out-of-control Government borrowing. But if the Item Club forecast is right, the focus of attention will switch to rapidly rising unemployment as the credit crunch reaches the workplace."

Professor Spencer's main concern is that the housing market is behaving "like a virus, that is infecting everything".

The average house price has already fallen 8.7 per cent from a year ago, according to the Halifax, the UK's largest mortgage lender – an annual rate of decline not seen in the housing market since 1931.

So far more than 5,000 jobs have been lost in the house building industry in the last month alone, with hundreds more estate agents, mortgage brokers and removal men already losing their jobs.

Many food factories have started to lay off workers, unable to cope with the soaring cost of many ingredients, combined with high energy prices.

Liberal Democrat Treasury spokesman Vince Cable said: "Gordon Brown last week contemptuously dismissed references to rising unemployment, but it's very clear that this is where we are heading.

"One of the sad but inevitable consequences is that anyone losing their job will face severe difficulties maintaining mortgage payments. Very few people are effectively insured, and the benefits system no longer provides a safety net for them."

The high numbers of migrant workers coming to Britain could also act as a safety valve on the employment figures, the report says.

It points out that if many migrants chose to return home, as is happening already with some Polish workers, this would help keep unemployment from rising too high.

However, that the lack of cheap foreign labour would, in turn, cause wage inflation to rise – which would be very damaging for the economy.

A spokesman for the Department for Work and Pensions said: "We don't comment on speculation about future employment figures.

"Figures released last week showed that employment is still at a record high. Unemployment is rising and that is a concern but we have the policies in place to make sure that people are given the support to get back into work."

[kennynah]

Greece Industrial Turnover Growth Slows In May
7/21/2008 8:38 AM ET

(RTTNews) - Monday, the General Secretariat of the National Statistical Service of Greece revealed in its preliminary report that the industrial turnover index increased 13.4% year-on-year in May, a bigger growth than the 3.3% rise of the year ago period. In April, the industrial turnover growth was 20%.

The statistical office said that the industrial turnover index increased mainly due to the 13.8% rise in the manufacturing turnover. On the other hand, mining and quarrying turnover dropped 5.6%.

Among the industrial groupings, the major contribution came from the energy turnover that surged 58.4%. Meanwhile, the turnover in capital goods fell 15.5% and that of consumer durables by 2.8%.

On an annual basis, the turnover index for domestic market and non-domestic market rose 10% and 24.2%, respectively in May.