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Italy has taken the first step along a path that could lead it out of the euro-zone. There are still many obstacles to an Italian exit. But as long as the country’s future is uncertain, bond yields are likely to rise and the government might need to …
5th December 2016
A rejection of Matteo Renzi’s proposed constitutional reforms in Sunday’s referendum could plausibly set Italy on a path towards an eventual exit from the euro-zone, an outcome not remotely priced in to financial markets. … Crunch time for …
2nd December 2016
The stagnation of Swiss GDP in Q3 demonstrates the negative impact that deflation and the strong franc have had on the economy. With a plethora of political risks inthe euro-zone set to keep the franc strong, exporters are unlikely to get a respite soon. …
The election of Donald Trump in the US drove large moves in Nordic and Swiss financial markets last month, with currencies generally depreciating against the US dollar while long-term bond yields increased. … External market drivers Trump domestic …
1st December 2016
Amid heightened political and economic uncertainty, President Mario Draghi seems set to announce another six-month extension to the ECB’s Asset Purchase Programme this month. We expect purchases to continue at the current pace of €80bn per month. The Bank …
October’s euro-zone unemployment data show that the labour market recovery has regained some pace. But the rate of unemployment is still high and recent developments are consistent with pretty slow wage growth. … Euro-zone Unemployment (Oct.) & Italian …
November’s PMIs suggest that Swiss and Swedish manufacturers are performing well, while their Norwegian and Danish counterparts are still lagging behind. … Manufacturing PMIs …
Don’t draw too much comfort from the markets’ muted response to political risks in the euro-zone. It may not tell us much about the scale of the threats facing the currency union and it may not last. … Are markets under-estimating political …
30th November 2016
November’s small pick-up in euro-zone headline inflation is unlikely to deter the ECB from announcing further policy stimulus next week. Indeed, underlying price pressures remain subdued and inflation expectations are low. We expect the Bank to announce a …
November’s German inflation data suggest that euro-zone inflation was unchanged at a low level. And while energy effects should cause headline inflation to rise sharply in the months ahead, the German figures confirm that underlying price pressures are …
29th November 2016
November’s rise in the European Commission’s measure of economic sentiment supports the message from the PMI that euro-zone growth accelerated towards the end of the year. But with inflationary pressures weak, we still expect the ECB toannounce an …
Sweden’s decent economic expansion in Q3 masks a sharp slowdown in domestic demand growth. But with survey indicators pointing to a renewed acceleration in GDP growth in Q4, that slowdown looks set to be temporary. … Swedish GDP (Q3, 1st …
October’s euro-zone money and credit data remain consistent with steady economic growth. But a renewed pick-up in money and lending growth will be needed before the ECB can feel comfortable about hitting its inflation target. … Euro-zone Monetary …
28th November 2016
According to both market measures and survey measures, inflation expectations have been rising. Yet both short and longer-term inflation expectations remain undesirably low. And while the recent depreciation of the euro will help to boost inflation, other …
25th November 2016
November’s German Ifo Business Climate Indicator (BCI) adds to the evidence that the economy has performed fairly well so far in Q4. However, we expect growth to slow next year, putting pressure on the ECB to loosen policy further. … German Ifo Survey …
24th November 2016
The Economic Tendency Indicator now points to annual Swedish GDP growth of over 4%, while consumers’ inflation expectations have also jumped. Both factors suggest that any further loosening by the Riksbank will have to be reversed before long. … Swedish …
Taken in isolation, the euro’s decline against the dollar is a welcome development for the euro-zone economy. But in trade-weighted terms, the currency has still strengthened this year. And given that its slide against the dollar has partly reflected …
23rd November 2016
November’s rise in the euro-zone composite PMI suggests that GDP growth should edge up in Q4, implying that political uncertainty has yet to take a toll on the economy. … Euro-zone Flash PMIs …
September’s Norwegian Labour Force Survey (LFS) provided some hints that the recent rise in unemployment might be coming to an end. Meanwhile, other perhaps more reliable measures of unemployment have painted a more positive picture of the labour market. …
Swedish inflation is set to rise sharply over the next year. As such, the Riksbank’s intention to loosen monetary policy further seems like a mistake and any additional interest rate cuts will have to be reversed before long. Ultimately, we expect the …
22nd November 2016
The final opinion polls ahead of Italy’s forthcoming referendum suggest that the public will reject the proposed constitutional reforms. The low level of bond yields suggests that investors are not very concerned about the vote. However, a “no” vote could …
21st November 2016
Recent events seem to have further boosted the chances of the National Front’s Marine Le Pen in next spring’s presidential election. Of course, she has been quick to claim that Donald Trump’s victory in the US underlines the credibility of her bid to …
18th November 2016
October’s consumer prices data highlight the contrasting inflation outlooks in Sweden, Switzerland and Norway. In Sweden, consumer price inflation picked up to its strongest rate in four-and-a-half years. And the krona’s depreciation, as well as the …
After narrowly avoiding EU fines for its excessive fiscal deficit, the Portuguese Government has a lot of work to do to get its finances in order. But strong political resistance to austerity and continued slow economic growth mean that the deficit is …
17th November 2016
The Swiss National Bank’s (SNB’s) pledge to intervene in foreign exchange markets appears to havealleviated upward pressure on the franc in the wake of the US election. But experience has shown itspolicy limitations and we suspect that the franc will …
16th November 2016
The Central Bank of Iceland’s decision to keep interest rates unchanged rests on overly cautious assumptions for the króna and on fears about fiscal policy and capital controls that will probably not be realised. As such, interest rates may yet be cut …
The second estimate of euro-zone GDP confirmed the message from national data that the economic recovery maintained its pace in Q3. However, we think that growth will slow over the coming quarters. … Euro-zone Flash GDP (Q3) & German ZEW …
15th November 2016
October’s rise in inflation was driven almost entirely by energy effects whileunderlying measures of inflation remain weak. As such, the Riksbank seems all butcertain to loosen monetary policy at its next meeting in December. … Swedish Consumer Prices …
Norway’s economic recovery slowed in Q3, while Finland’s picked up. But surveys suggest that growth in both countries might improve over the coming quarters. … Norwegian & Finnish GDP …
Despite September’s fall in euro-zone industrial production, industry probably made a positive contribution to GDP growth in Q3. However, industry is unlikely to prevent overall economic growth from slowing in 2017. … Euro-zone Industrial Production …
14th November 2016
Last week’s US election result raised the question of where the next political shock might be. The popularity of far-right candidates and forthcoming major elections make France and the Netherlands obvious candidates. But the biggest risk is in Italy, …
11th November 2016
In October, the Norges Bank’s favoured measure of inflation was unchanged at a joint 14-month low. We think that it will fall sharply next year, prompting the Bank to cut its key policy rate from 0.5% to zero. … Norwegian and Danish Consumer Prices …
10th November 2016
We think that the sharp appreciation of the króna over recent months will prompt the Central Bank of Iceland to cut its inflation forecasts next week. As a result, although the Bank has previously stated that it would act cautiously in monetary policy …
Today’s minutes showed broad support for an extension of the Riksbank’s government bond purchase programme. Combined with the uncertainty created by Donald Trump’s victory in the US, an extension of bond purchases by the Riksbank now seems all but …
9th November 2016
We suspect that the Nordic and Swiss economies will see limited effects from Mr Trump’s victory. Butit makes monetary policy divergence between Switzerland and Sweden next year slightly more likely. … Trump win could widen policy divergence next …
The limited immediate reaction in European financial markets to Donald Trump’s victory appears to support our view that the outcome will have few direct economic implications. If anything, though, the outcome heightens political risk in what was already a …
The importance of international trade to the Nordics and Switzerland, as well as the franc’s role as a safe haven, mean that the outcome of the US election is potentially important to the region. This Watch explores the implications in more detail. … What …
8th November 2016
September’s sharp drop in German industrial production partly reflected payback from a sharp rise last month, and production posted a solid gain in Q3 as a whole. Nonetheless, the data are disappointing compared to the more positive message from the …
As the European Commission (EC) undertakes its annual review of euro-zone member states’ budget submissions, yet more signs of fiscal slippage emerged in the South. Finances in Spain and Portugal continue to disappoint, while Italy faces a showdown with …
7th November 2016
The fading boost to consumers’ spending power from lower energy prices may bebehind September’s fall in euro-zone retail sales. As we have warned for sometime, consumer spending growth is set to weaken further as rising energy pricesdrive inflation higher …
October’s Swiss CPI data did little to ease fears that the economy may be experiencing a sustained bout of damaging deflation. This supports our view that additional monetary policy support will be needed and that the Swiss National Bank (SNB) looks set …
According to the Sentix investor survey, Italy is now the most likely country to leave the euro-zone in the next 12 months. While we think that Italy remaining in the currency union is still the more likely outcome, there is plenty of scope for investors’ …
4th November 2016
A Trump victory in next week’s US election could prompt an unwelcome appreciation of the euro exchange rate, but we suspect that this would be short-lived. What’s more, other effects on euro-zone growth would probably be minimal. Europe has bigger issues …
3rd November 2016
The most noteworthy market developments last month were prompted by expectations of further policy loosening from Sweden’s Riksbank, with the krona depreciating sharply last month as a result. Meanwhile, bond yields increased inmost countries while equity …
September’s euro-zone unemployment data suggest that, while the labour market is still strengthening, it is doing so at a slow pace. And forward-looking indicators suggest that the labour market recovery will soon slow. … Euro-zone Unemployment …
September’s sharp rise in Swedish industrial production suggests that August’s large fall was due to one-off effects. Looking ahead, the rise in the services PMI supports the message from earlier surveys that GDP growth is set to accelerate. … Swedish …
The euro-zone’s consumer sector appears to have had another poor quarter in Q3. Retail sales volumes were flat in August, while timelier national data point to a contraction in sales in September. Combined with data on car registrations, that suggests …
1st November 2016
October’s manufacturing PMIs generally painted a positive picture of economic growth.But the surveys’ price indices suggest that inflationary pressures vary across the region. … Manufacturing PMIs (Oct.) & Swiss Retail Sales …
The next Icelandic government may be an unconventional one, but improvements to Iceland’s public finances and external position since the crisis mean that there is little risk to economic growth. … Little risk to growth from Iceland’s …
31st October 2016
The preliminary flash estimate of euro-zone Q3 GDP supports the message from earlier country data that the pace of growth remains fairly slow. So it is no surprise that October’s inflation data show that underlying price pressures are still very weak. … …
