Grim EU Economic Outlook in the Spotlight

November 4, 2014

The EU Autumn economic outlook was released, revising projected real growth for the euro area  in 2014 down 0.4 percentage points to 0.8% and projected 2015 growth down 0.6 percentage points to 1.1%.  Previously, GDP decelerated from 2.5% per annum in 1995-99 to a 1.9% pace in 2000-04 and 0.7% per annum in 2005-09, and 0.6% per annum in 2010-14.  The forecast shows a deceleration of CPI inflation from 2.2% per annum in the decade to 2009 to 1.4% in 2013 and 0.5% this year, but it does not extrapolate such below the zero threshold.  Rather consumer prices are expected to rise 0.8% next year and 1.5% in 2016.

The EU forecast contrasts with yesterday’s news that the United States federal deficit in fiscal 2014 had narrowed sharply to just 2.8% of GDP, lowest nearly a decade.  These different outcomes stem from different macroeconomic policy responses to the Great Depression.  In both fiscal and monetary policy, Euroland took a more hawkish approach than the United States.  If opinion polls prove correct, the irony is that today’s U.S. election will shift the U.S. political needle further to the Right, which embraces Europe’s “austerity is great” mantra.

Japan’s Nikkei jumped 2.7% overnight following Monday’s holiday closure.  European markets have barely reacted to the EU projections.  Stocks are down 0.3% in Spain and Italy and by 0.1% in France, but they have risen 0.2% in Germany and Switzerland as well as 0.1% in the U.K.

Equities in the Pacific Rim closed unchanged in China and India, down 0.3% in Singapore, Indonesia and Hong Kong but up 0.2% in Australia and 0.1% in New Zealand.

The dollar extended its rise against the loonie by 0.3% but settled back 0.6% relative to the New Zealand and Australian dollars, 0.4% versus the yen, 0.2% vis-a-vis the euro and Swissie, and 0.1% against sterling.

West Texas Intermediate oil plunged another 2.6% and at $76.72 per barrel is 16.3% weaker than at the time of the climate change march in New York held in September.  Since the June 13 closing level of $106.91, oil has plummeted 28.2%, and such has promoted increasing demand for larger vehicles that get worse mileage than smaller ones.  U.S. motor vehicle sales totaled 16.46 million annualized last month, a very robust pace.  Meanwhile, the desire of the September marchers to avert a climate catastrophe is slip-sliding away.

Comex gold edged 0.2% firmer to $1,172.60 per ounce.  Ten-year sovereign debt yields fell five basis points in the U.K. and by a basis point in both Japan and Germany.

There have been two monetary policy meetings today.

  • Officials at the Reserve Bank of Australia retained a 2.5% Official Cash Rate.  That’s been the record low since a cut in August 2013. The statement explaining this month’s decision reads very similarly to that from October’s meeting.  Officials project in-target 2-3% inflation over the coming two years and tout the prudence of not rocking the monetary boat with a rate change anytime soon.
  • The National Bank of Romania engineered the fifth reduction of Romania’s monetary policy interest rate, again by 25 basis point.  Such falls to a record low of 2.75% following cuts in January, February, August, September and now November as well as earlier cuts totaling 125 basis points in the second half of last year, 75 bps in 2012, 25 bps in 2011, and 400 bps in 2009-10.  Before 2009, the interest rate benchmark stood at 10.25%.

Producer prices in the euro area rose 0.2% in September following reductions in 4 of the prior 5 months.  On-year PPI deflation stayed level at 1.4%, led by a 4.3% 12-month decline in energy.  The PPI fell 0.2% on average between 2Q and 3Q, an annualized drop of 0.9%.  On-year PPI declines were shared by most of the countries in the euro area.

Australian retail sales rebounded 1.2% in September, an 8-month high, but were again just 0.3% greater than a year earlier.  Australia’s trade deficit widened 123% between August and September, reaching A$ 2.261 in the later month which is a 22-month high.  Australian labor statistics for September were revised to show a smaller drop in jobs but a higher 6.2% unemployment rate.

The global PMI-manufacturing index compiled by JP Morgan was unchanged at 52.2 in October.

Non-oil purchasing manager surveys were reported for Saudi Arabia, the U.A.E. and Egypt.  The Saudi index fell 2.7 points to a 5-month low of 59.1.  The U.A.E. PMI rose 3.6 points to a record high of 61.7, and Egypts index dropped 1.4 points to a 3-month low of 51.0.

Japan’s manufacturing purchasing managers index was revised down by 0.4 to 52.4 in October but still constituted a 7-month high that exceeds the series’ long-term average reading of 50.6.

Spanish unemployment jumped by a larger-than-anticipated 79.2K in October, the third rise in a row and four times greater than September’s increase.

Consumer prices in South Korea dipped 0.3% last month and recorded a 1.2% 12-month rate of increase.  Romanian PPI inflation slowed 0.4 percentage points to 0.1% in September. 

Consumer confidence in India slid 0.3% on month but was 3.0% greater in October than a year earlier.

Today is the 35th anniversary of the Iranian seizure of hostages at the U.S. embassy in Teheran. 

Scheduled U.S. data to be released today are the trade deficit, factory orders, the NAPM regional PMI survey, and the IBD/TIPP optimism index.  Weekly chain store sales will be reported, too.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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