Bond yields in the eurozone are hitting new lows not seen since 2010…
Depressing eurozone and German prints below. The eurozone composite was bleakly steady at 46.5 while the German comp hit 48.8 from 50.6 in March — its worst level in six months. The only real good news is that this might increase the chances of an ECB refi cut in the near future.
But since France came out first…. Read more
From Credit Suisse on Thursday morning:
BREAKING NEWS: Stronger-than-expected euro area flash PMIs in January – except for France
Not many people seem bothered by France’s overnight downgrade by Moody’s. The euro shrugged and French bond yields crept upwards at a snail’s pace.
But one place the downgrade might have a real and lasting impact is within the Swiss National Bank. They have a predilection for core eurozone bonds and the downgrade might just prompt them to ditch what holdings they have and/or stop loading up on French debt.
Read more
Moody’s has cut France to Aa1 from Aaa, maintaining the negative outlook originally conferred in February.
Pierre Moscovici, French finance minister, was stoic at pixel time. “Moodys is now giving France the same rating as Standard & Poor’s, which has allowed us to live with low interest rates for many months,” he told Reuters. S&P cut its AAA rating for France back in January. Read more
As expected, the eurozone economy shrunk in the third quarter. But, fortunately, not by quite as much as expected.
Thursday’s data did, however, confirm that the debt crisis in southern Europe is hitting the ‘core’ economies in northern Europe, and analysts seem in agreement that it’s going to get significantly worse. Read more
Compétitivité is a big deal in France right now.
The country’s loss of competitiveness is a serious issue, especially as its crisis-struck neighbours push on with wage cuts and labour reform.
On Monday, Louis Gallois, former head of EADS, is going to publish his report on the issue, and he’s expected to call for a “competitiveness shock”. He’s already said that he wants to see somewhere between €30bn-€50bn of taxes from the payrolls transferred to broader-based taxes, such as VAT, much to the delight of business leaders. Read more
Another day, and another confirmation that the eurozone economy is struggling to gain traction. And it’s not just the small peripheral economies that are seeing factory activity slowing.
Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) fell to 45.4 in October from September’s 46.1. The October figure was just up from an earlier reported flash reading of 45.3. The index has been below the 50 mark that divides growth from contraction since August 2011.
George W. Bush famously (and reportedly) opined that:
“The problem with the French is that they don’t have a word for entrepreneur” Read more
That’s the FTSE 100 down 1.2 per cent:
Let’s start on a positive note on the volley of Markit PMI released Monday.
Spain’s PMI rose during August to 44, versus 42.3 in July… Read more
Germany and France both beat expectations for GDP growth in the second quarter, while the eurozone and wider group of 27 European countries saw an anticipated quarter-on-quarter contraction of 0.2 per cent.
The figures, released on Tuesday morning, revealed some resilience in the German economy, with 0.3 per cent growth. Economists had expected the quarter-on-quarter figure to come in at 0.1 per cent. Read more
Is France facing a future Greece-style debt crisis? Er, maybe — so long as you ignore the difference in their government bond yields and just use debt-to-GDP projections made in a working paper from 2010. But we’ll get to that later. For now, it’s over to John Mauldin of Mauldin Economics in his weekly newsletter who’s going to tell us why France is a ticking time bomb run for your lives:
Don’t look now, but the lion that lies hidden in the grass is France. Yes, the France that is supposedly a big part of the solution to eurozone woes and Germany’s stalwart partner in guaranteeing all that debt. AAA France. Rated that way by the same people who turned the nuclear waste of subprime CDO squareds, composed 100% of the worst sort of BBB junk, into gold. Read more
We take our headline from Sharon Bowles MEP.
The Member of the European Parliament was talking to Public Service Europe about this ominous move in transparent sovereign accounting: Read more
We were having problems confirming this at pixel time (all enquiries were directed to a fax machine) , but it seems a shame not to share it given the ‘usually knowledgeable’ status of the source… Read more
It’s a Bank Holiday Monday in the UK so analysis is pretty thin on the ground. But here’s the best of what we have so far. A quick recap: François Hollande won the French election, while the Greeks rejected the country’s main austerity focused parties, opening the country to political uncertainty.
From Kit Juckes at Societe Generale: Read more
Both Spain and France managed to get decent debt sales away this morning and although yields did jump in Spain there was at least some solid demand to provide solace. Not bad considering it was Spain’s first auction since the country’s rating got cut by S&P last week. The steady demand will also provide reassurance as the ECB’s LTRO effects start to wane.
French borrowing costs actually fell! Interest rates on the €1.6bn of nine-year paper sold fell from 3.29 per cent previously to 2.85 per cent while those on the €3.3bn of 10-year bonds dropped by 2 basis points to 2.96 per cent. Read more
On Friday morning when a report landed in FT Alphaville’s inbox with the headline “Lagging Corporate France… The French – at least their brands are popular”, our interest was piqued. It’s a one-pager from independent equity research firm AlphaValue. It contains interesting snippets about how French companies have a lot of goodwill booked on their balance sheets when compared to their European peers.
As Investopedia tells us: Read more
Just in case anyone thought we’d gone soft on Sarko…
From Andrew Garthwaite at Credit Suisse on Wednesday: Read more
President Nicolas Sarkozy of the French Republic, courting the critical anti-FT vote in a debate held on Thursday night (via Europe1):
Some mildly positive PMI data from Markit this morning (published as the Bank of England’s minutes heaped praise on the readings’ accuracy - see page 3).
Flash Eurozone PMI Composite Output Index at 49.7 (50.4 in January). Second-highest in 6 months Read more
On French inflation during the 1920s, that is.
Central bankers continue to be oh-so-blasé about their ever-expanding balance sheets, swiping aside all those worries of triggering a surge in inflation. Read more
Société Générale, France’s second-largest lender, on Thursday reported a near 90 per cent drop in fourth-quarter profits, following losses at its investment bank and further writedowns on Greek sovereign bond holdings, the FT reports. However, the bank said it had met tougher regulatory capital requirements six months early, with a core tier one ratio – a key measure of financial strength – of 9 per cent, following in the footsteps of larger rival BNP Paribas. Frédéric Oudéa, SocGen chief executive, expressed confidence that the European Central Bank’s extension of cheap three-year loans to the region’s lenders had eased fears of the collapse of the single currency. Mr Oudéa told CNBC: “I’m happy with the start of the year regarding capital markets [but] I remain overall prudent for 2012. “Clearly the decision made by the European Central Bank with the [long-term refinancing operation] … has been key to reassure the markets regarding extreme scenarios. Still, we will have relatively mediocre economic activity. It’s not a catastrophe, but not that dynamic.” The WSJ noted, meanwhile, that the bank increased provisions for Greek sovereign bonds from 60 per cent to 75 per cent, booking an additional €162m charge in the fourth quarter for the position. Read more
More huge numbers on US dollar asset deleveraging in a French bank’s end-2011 results, on Thursday. Societe Generale got rid of $55bn in funding needs in the six months from June 2011:
BNP Paribas, France’s largest bank by assets, sees positive signs for 2012 despite reducing its dividend for 2011 and cutting its bonus pool, the FT reports. The bank ended 2011 with a 50.6 per cent drop in quarterly net profit, weighed down by fresh Greek writedowns of €567m, but the results were better than expected and BNP is already seeing signs of improvement for this year. Jean-Laurent Bonnafé, BNP Paribas’ chief executive, said: “The beginning of the year has been quite strong in investment banking …[We see] some kind of stabilisation of the eurozone situation. “Bonuses are going to be down by half in 2011. In any case, those remunerations are always in line with the financial results,” he added. BNP’s fourth-quarter net profit of €765m beat analysts estimates of €574m. The bank posted fourth-quarter revenue of €9.69bn. BNP said it had cut its cash balance sheet excluding certain activities by 12 per cent in 2011 to €965bn, allowing it to hit an core tier one ratio of 9.2 per cent by the end of 2011. Read more
Update — apologies for a rather disorganised (and long) post… but we’ve finally gained information from all seven eurozone central banks who’ll accept additional credit claims under the ECB’s new rules…
Lend to an Italian small business for five years, take the loan to the Bank of Italy for ECB three-year funding… get this kind of haircut: Read more
Intesa Sanpaolo’s chief executive says he’ll use ECB funds to buy Italian bonds…
BBVA sells the first senior unsecured bond to be issued by a Spanish bank since October… (like Intesa a few weeks ago. Both with unusually short – 18-month – maturities, however) Read more
Europe must grow its way out of this slump! It’s not enough to bail out profligate sovereigns and banks! Capital must be deployed to SMEs! Youth unemployment must be tackled! Fiscal discipline is not enough on its own!
Fire all engines!! Read more
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