Category Archives: EU

EU trade surplus

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This is seriously strong euro stuff:

European Union : Merchandise Trade
eu-trade-dec
Highlights
The seasonally adjusted trade balance was in a record E23.3 billion surplus in December, up from a stronger revised E21.6 billion print in November. Unadjusted the black ink stood at E24.3 billion, nearly double the comparable outturn a year ago. The results were on the high side of expectations.

However, the improvement in the headline masked weakness in both sides of the balance sheet. Hence, exports fell 1.1 percent on the month while imports were off a sharper 2.4 percent, their third straight decline. Versus December 2013 exports grew 8.0 percent but weak domestic demand again restricted imports to a modest 1.0 percent advance.

Still, the December report made for an average fourth quarter surplus of E21.7 billion, a significant expansion from the previous period’s E15.7 billion. Although lower oil costs will have been an important factor here the signs are that net export volumes made a positive contribution to Eurozone real GDP growth last quarter. For 2014 as a whole the black ink weighed in at E194.8 billion after a E152.3 billion excess in 2013. Euro weakness should ensure that exports provide a still larger boost over 2015.

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flow news in 2014 is bad for the Euro

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So I still see all the fundamentals/trade flows favoring the euro vs the $US, with the EU running a trade surplus and the US a deficit, and low oil prices ‘helping’ the EU trade balance while ‘hurting’ the US’s.

But the portfolio shifts continue to go the other way, including this report of CB’s shifting some 100 billion out of euro, spurred by the belief that what the ECB is doing and the Greek risk is euro unfriendly, and what the Fed is doing is $US friendly.

It’s as if the corn crop failed, and supply fell below demand, but someone with a large warehouse full of corn decided to sell it all. The price would go down until he was finished, and then the shortage due to the ongoing consumption would start driving prices higher.

Subject: flow snippet: last piece of flow news in 2014 is bad for the Euro

Every quarter the IMF puts out a snapshot of global central bank reserve composition (with a quarters lag).

Today, we got the Q3 numbers, and after accounting for valuation effects, the numbers seem to signal a shift in central bank behavior.

Normally, central banks operate with fairly fixed currency allocation targets, and when a currency goes down in value, they accumulate, to stabilize its share.

In Q3, the Euro dropped sharply vs the dollar, but both G10 and EM central banks were on the margin active sellers of Euro’s.

This is a big deal, as it suggest ‘portfolio rebalancing’ has been put on hold.

This means that stabilizing flows, which could have been in the region $100bn, are not materializing.

If this is indeed the new trend, there may be potential for a faster move lower in the Euro in early 2015, driven more purely by private sector flows.

Happy new year!
Jens Nordvig

The Euro share of global central bank reserves fell significantly in Q3. According to IMF COFER data published today, the Euro share of global reserves dropped 1.5 percentage points to 22.6%. This is one of the largest quarterly declines in the share ever. What is particularly interesting about the fall is that it was a function both of the valuation effect (a weaker Euro vs the USD) and active sales of Euros. This is striking, as normally „portfolio rebalancing‟ would create positive flows (EUR buying) to offset valuation effects when the price of the Euro declines (this happened during the early part of the Euro-crisis for example). As such, it seems that global reserve managers have may have put „portfolio rebalancing on hold‟ in the face of monetary policy divergence and negative interest rates on a large portion of their EUR holdings. If this trend continues, leaving central banks on the sidelines as the Euro declines, the Euro has potential to decline steadily in coming months in line with the trend in private sector flows.

Central Banks accumulate reserves, valuation causes total to fall

In the 2014 Q3 update of the IMF Composition of Official Foreign Exchange Reserves (COFER) data, global reserves decreased by $218bn, bringing the total reserves to $11.8trn. This is the first quarter that global reserves have fallen since the first quarter of 2009, and is only the third quarter total since the IMF began providing quarterly COFER data in 1999. The most recent data shows allocated reserves decreased by $128bn, while the unallocated reserves decreased by $90bn. However, the decline in reserves was driven by valuation adjustments. Excluding the valuation adjustments, advanced countries added $21bn in reserves, while emerging markets added $31bn.

Adjusting the allocated reserves for currency valuation effects, there was central bank reserve buying of $52bn. This was dominated by USD buying, which totaled $24bn, with advanced economies buying $8bn and EM buying $16bn. EUR stood out as the most sold currency, with $3bn sold total, split with $1bn of selling from advanced economies and $2bn from emerging. EUR showed the biggest decline when including valuation and measured in USD, with reserves falling by $123bn (or just over 8% of outstanding EUR denominated (allocated) reserves).
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According to our central bank intervention tracker, intervention slowed significantly to just $22bn in Q3, driven primarily by a large change in tact by China, which switched to FX selling (see Quarterly central bank reserve update, 16 October 2014). The valuation-adjusted flows from the IMF also suggest that intervention slowed, although to a lesser degree, with $52bn of total accumulation compared to $71bn in Q2 (in allocated reserves).

Allocation to USD up, EUR down

With the US dollar gaining strength in the third quarter, it would have been logical to assume a tendency to sell USD and buy some of the relatively cheaper currencies in order to maintain allocations in central bank portfolios. At least this has been the general pattern of central bank behavior in the past, including during the Euro-crisis.

However, in Q3 we saw the opposite. Reserve managers actively accumulated USD and sold EUR. Meanwhile, portfolio rebalancing worked as normal for other currencies, with reserve managers actively buying JPY, AUD and GBP during Q3, helping to stabilize allocated shares. With regard to the Euro, the active selling exacerbated the valuation effect rather than countering it. Hence the USD allocation jumped sharply to 62.3% from 60.7% (a 1.6pp increase) globally and EUR allocation fell to 22.6% from 24.1% (a 1.5pp decline). This fall in EUR allocation globally is the largest in a quarter since Q1 2004 (and larger than the declines during the Euro crisis periods). The USD allocation gain is tied historically with Q1 2004 as the largest.

One reason for the shift out of EUR as a reserve currency could be the low and often negative yields in Eurozone assets. As we highlighted in The Trillion Euro Question, a large amount of short-term bonds and deposits held in Eurozone assets were earning negative yield and at risk for a shift out of the Eurozone. If global reserve managers have indeed disabled portfolio rebalancing in the context of their EUR share, it has important negative implications for the Euro in coming months

If global reserve managers have indeed disabled portfolio rebalancing in the context of their EUR share, it has important negative implications for the Euro in coming months.

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Comments on Greece

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A couple of ‘fundamentals’

A default/restructure/debt reduction of any form removes euro financial assets and is a contractionary/deflationary bias that makes euro ‘harder to get’ and thereby firms the currency.

Also, Greece has been running a budget deficit, which adds net euro the global economy, making euro easier to get, etc. so if Greece leaves the euro that source of net euro financial assets goes away as well, also fundamentally firming the euro.

And any Greek contribution to the euro trade surplus would be lost, which would work to weaken the euro.

Not that markets would initially react this way!!!
;)

As we had been expecting, the third and final round of the Greek parliamentary vote to elect a new President failed this morning and the country is now headed for a general election. The most likely date for this is January 25th (+/- a week, elections are always held on a Synday), with the constitution stipulating that parliament has to now be dissolved within ten days (most likely tomorrow) and elections held as soon as possible after. With Greek banks still reliant on the ECB for funding and bond maturities ongoing throughout 2015, a significant period of political and financial uncertainty now opens up for Greece and the Eurozone as a whole. Here are the three major questions that need to be answered as we enter the New Year:

1. What will the European response to early elections be?
Greece now has to deal with exceptionally pressing deadlines from its creditors. The current financing programme has been extended to the end of February to allow Troika negotiations to conclude and disburse the remaining 1.8bn EFSF funding before transitioning into a new financing arrangement (most likely an ECCL). If this deadline lapses without agreement, Greece will legally no longer be “under a program” and the undisbursed amounts will cease to exist. The European position across three fronts will therefore need to be clarified.

First, how “hard” is the February headline? Assuming the election takes place on January 25th, it will take around another 10 days to elect a new president (three 5-day distance parliamentary rounds are required, but the second round only requires 150 MP majority), and probably at least a week to form a new governing coalition.* With at best a few weeks left for a new government to negotiate the disbursement of the final tranche and a new credit line, completing talks will be a tall order. European partners will need to discuss if they would be open to another program extension, or if talks would have to start on a blank slate. Both avenues would require fresh approval of the extension or new funding from national parliaments.

The second question relates to ECB funding of Greek banks. We estimate that at least a third of the current 42bn EUR of Eurosystem financing is reliant on collateral that currently benefits from a credit rating threshold suspension from the ECB. It would become ineligible in the event the Greek program expires in February without a financing umbrella. Where the program to lapse after February, part of Greek bank funding would have to shift to Emergency Lending Assistance (ELA) at the Bank of Greece. With the size and scope of ELA financing being under bi-weekly review and press reports suggesting that the Governing Council is considering a broader re-think of its terms and conditions, ECB policy on Greek bank funding remains a key source of uncertainty as well as the most direct means of putting pressure on a new Greek government.

The third and final question relates to the Troika’s broader willingness to negotiate and compromise with a new government. As with the negotiations this year, the primary source of disagreement is likely to remain the fiscal gap for 2015, with the Troika’s current demands standing at a 3 percent primary balance target equivalent to a 2bn fiscal gap versus the current government’s budgeted measures. Our prior is that with a new government in place and a fresh 4-year mandate, the Troika would be more willing to give leeway to authorities to assess budget execution over the course of 2015 rather than voting a large number of proposed fiscal measures upfront, if not revising the primary balance target lower. Still, the timing and extent of such concessions remains highly uncertain, if at all possible.

Despite the pressing nature of the above questions, we would not expect full clarity from European authorities on any of the three fronts above while the election period in Greece is in full swing. The Eurogroup next meets on January 18th where local press reports that the European Commission will present a preliminary report on the terms and conditions which Greece would need to satisfy to remain eligible for an ECCL as well as complete the final review of the current program. A further extension of the latter in any case requires a formal request from the Greek government, and we would expect international creditors to remain quiet on most fronts until a new Greek government has emerged.

2. Who will win the Greek election?

The ability to meet the deadlines above in large part depends on the outcome of the general election and the position of the new government. Opinion polls have been showing a consistent lead for the Radical Left SYRIZA party over ruling New Democracy in the last few months, and our baseline remains that SYRIZA wins the elections. Still, the parliamentary and governmental outcome is not a foregone conclusion. First, SYRIZA’s opinion poll lead over New Democracy has narrowed from 4-6 percentage points over the last few months to 3-4 percent currently. With the political environment remaining particularly fluid (and polls unreliable), the outcome on voting day is not a done deal. Second, a SYRIZA first does not guarantee a parliamentary majority. Greek electoral law operates under an enhanced representation system that allocates the first 50 parliamentary seats as a bonus to the first party, with the rest split proportionately. This in practice requires a party to win 34-38 percent of the national vote to gain an absolute majority. As things stand, SYRIZA would win around 140 MPs in parliament and be required to form a coalition* with at least one of the following four smaller parties that are projected to enter parliament:

The River (“To Potami”) – this is a newly founded moderate left-off-centre party that has been founded by journalist Stavros Theodorakis a few months ago. We would consider this the most likely coalition partner, given that the party has openly expressed a desire for coalition-making. The party is currently polling around 7pct.

Independent Greeks – this is a radical populist party sitting on the right of the current government, whose main policy plank has been opposing current “memorandum policies”. While the party stands at the opposite end of the spectrum from SYRIZA on a number of non-economic issues (eg. immigration, separation of church and state), both sides have indicated they would be open to discussions on a governmental program. The party is currently polling at the fringe of the 3 percent threshold required to enter parliament.

PASOK – the current junior coalition party member, the stigma attached to this party would make it a more difficult coalition candidate for SYRIZA. Still, it is possible that the party is faced with internal pressure in coming weeks that forces a leadership change making coalition-making easier. Indeed, local press is reporting that former prime minister Papandreou (whose father founded the party) is considering running under his own separate platform.

Communists – with the agenda of this party being firmly against EU membership, it is the least likely coalition partner of the above.

As things stand, our baseline remains that either a SYRIZA-Potami or SYRIZA- Independent Greek coalition remain the most likely outcomes after a Greek election.

3. What will the new government’s position be?

A New Democracy win is likely to lead to a relatively swift agreement with the Troika by the end of February, likely meeting the relevant deadlines. In contrast, a SYRIZA government has the potential to create a much wider set of possible outcomes. Even more so that international creditors, the negotiating position of a new SYRIZA government is highly uncertain, and not yet fully clarified within the party itself.

Speaking in a Reuters interview a few days ago, SYRIZA leader Alexis Tsipras stated that the party is fully committed to Eurozone membership, and has no intention of making unilateral moves on the existing agreements “unless forced”. Ultimately however, the party’s position is likely to be dependent on a number of factors: (i) the internal political dynamics within the party, which is composed of a number of competing groups. Most vocal of these is the “left platform” led by current parliamentary spokesperson Panagiotis Lafazanis, who sits to the left of the leadership and favours a more confrontational stance versus international lenders; (ii) the outcome of the general election and the potential partner that emerges, with a “River” or PASOK coalition having a much greater moderating influence on the party than Independent Greeks or an outright SYRIZA majority; (iii) market pressure in the run-up to the election.

Ultimately, the party’s position on Europe is unlikely to be fully fleshed out until February, most likely formulated by the leadership team that emerges around party leader Tsipras, inclusive of the person that is appointed to lead the finance ministry. Nikos Pappas (party leader’s chief of staff), Yannis Milios (responsible for economic policy), George Stathakis (responsible for development policy), Yannis Dragasakis (current deputy Speaker of parliament) and Dimitris Papadimoulis (current member of the European parliament) all stand out as potential influential members of a new SYRIZA-led government.

Conclusion
To sum up, markets are likely to be left with more questions than answers until the domestic political progress in Greece plays out more fully over the next two months. In the meantime Greek financing needs over the course of 2015 are ongoing, with large uncertainty on when the government will lose its ability to repay maturing obligations. We estimate this would take place at some point in the second quarter of next year, with a 1.4bn IMF maturity being due in March, another 2.5bn due to the IMF over Q2 and a large 4.2bn GGB payment due to the ECB in July. Ahead of that the role of the ECB – in particular the willingness to tolerate ELA financing of Greek banks in the face of potential renewed deposit pressure on the financial system – will be a key pressure point between Europe and a new Greek government.

Ultimately, we see a consensual outcome between a SYRIZA-led government and its creditors as achievable, but it would require a moderation from both sides. On the European front, it would consist of a lowered primary balance target for this and coming years and an offer of additional official sector debt-relief via maturity extensions – we would consider neither impossible given the adjustments in fiscal targets already granted to other peripheral economies and the low political cost of maturity extensions. On the SYRIZA side, agreement would require the party to give up on its pledges to reverse structural reforms as well as a commitment to maintaining a path of fiscal prudence.

This notwithstanding, convergence is not currently apparent and is unlikely to become so until well after January. It requires both sides to shift to a consensual rather than confrontational approach, in turn perhaps dependent on greater market pressure. Either way, large uncertainty and path-dependent outcomes suggest damaging confrontation cannot be ruled out, which in turn has the potential to generate much greater destabilizing outcomes for Greece and the Eurozone as a whole in 2015. The New Year welcomes Europe with renewed challenges.

George

*If a government does not win an outright 151 majority of MPs, the leader whose party leader comes first is given a 3-day mandate to explore the possibility of a coalition government with other parties. If this fails, the mandate is passed to the second largest party and so on. If all three largest parties fail to secure a coalition, the country goes to a new general election

**The rating threshold exemption is apparent in the ECB document detailing GGB haircuts here: https://www.ecb.europa.eu/ecb/legal/pdf/en_ecb_2014_46_f_sign.pdf

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euro update, q3 gdp update

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Seems trade flows and ‘inflation’ continue make the euro fundamentally stronger even as portfolios shifting due to ECB rhetoric keep it under pressure. Should the shifting run its course, I would not be surprised dramatic appreciation.

q3-1

q3-2

New figures released by the Federal Reserve Bank of New York on Tuesday show that mortgage lending is running at its lowest level in 13 years, with 2014 on pace to be the weakest for new loans since 2000.

Q3 GDP revised up a bit, year over year still low and down a bit, profits low and down a bit, and there is growing evidence the suspect sources of growth- govt and exports and inventories- that added about 2% are reversing:

GDP
q3-3

q3-4
Corporate Profits
q3-5

q3-6

q3-7

q3-8

Consumer Confidence
q3-9

q3-10

Richmond Fed Manufacturing Index
q3-11

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Italy Surrenders

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Reads like Renzi sold out to Brussels and the Italian exporters:

Italy Revises Budget to Avoid Clash With Brussels  (WSJ) Italy backed away from a clash with the European Commission over its 2015 budget on Monday by agreeing to use a €3.3 billion ($4.18 billion) reserve it had initially earmarked for tax cuts to reduce its deficit instead. The government of Prime Minister Matteo Renzi said it would now use the €3.3 billion of funds in reserve to help meet the EU budget requests. A further €1.2 billion from minor budget adjustments will also be redirected to satisfy Brussels. The funds will allow Italy to reduce its structural deficit by more than it had initially planned in its budget. Economy Minister Pier Carlo Padoan had already indicated that Italy could use the funds in reserve to address possible requests from the commission.
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Euro vs $US

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The euro is up vs the $US today in spite of near universal positioning for it to fall,

including technical indicators pointing to further declines.
I see lots of positives for the euro and one negative.
Positives:
1.  $US went up/euro down due to portfolios buying/selling for the ‘wrong’ reasons (for example- Turkey sold 12 billion euro of reserves)
     a.  end of Fed QE- this entirely psychological, as QE in the first instance functions as a tax that removes interest income from the economy
     b.  potential for Fed rate hikes- this is backwards as well- 0 rates are a deflationary/contractionary bias
     c.  negative ECB rates function as a tax removing net euro financial assets from the economy
     d.  proposed ECB asset purchases would remove additional euro interest income from the economy

2.  The EU overall is running a trade surplus, which in the first instance reduces the rest of worlds net euro financial assets

3.  The deflationary forces have depressed wages for exporters, tipping wage ppp in their favor.

4.  EU proactive deficit reduction, assisted by the lower rates on govt. securities, continues (albeit at a slower pace) to reduce the supply of net euro financial assets in the non govt. sectors of the economy.

5.  Lower energy prices help EU more than the US due to higher US domestic energy output.

The major negative is the possibility that the ECB is selling euro through it’s Belgium branch, which has been reporting large increases in $US Tsy holdings.

If the ECB is selling euro it can keep it down to any level it desires.  It’s a political choice.  Market forces are not applicable.

Best I can tell, however, the selling has not been from the ECB, but I have no first hand knowledge.

Therefore I see the ‘fundamentals’ aligned for a strong euro that can potentially go back through the highs, with any proposed further action by the ECB further strengthening it, whether they know it or not.

However, those forces strengthening the euro are also further damaging the economy, which puts more political stress on the EU overall.

And this political stress that will intensify as the euro rises has the potential to end the current institutional arrangements and cause the euro to cease to exist.

That is, I can see the euro going up in value until it becomes worthless.

Reminds me of the saying:
“A man chases a woman until she catches him”
;)

And what I don’t know is whether the portfolio shifting that has driven the euro down for the ‘wrong’ reasons has run its course. If there is more to come it could sell off further until the underlying fiscal and trade flows cause it to reverse.
eu-usd
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today’s observations

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Not much sign of any move towards higher deficits today. Just talk of more bank liquidity, which doesn’t matter, and more to weaken the euro, which doesn’t work either.

Hard to say why the euro has been going down, but it’s not ECB policy per se which, while meant to weaken the euro, instead continues to be ‘strong euro’ biased. So must be portfolios selling euro, maybe in response to Russia’s actions.

“French Prime Minister Manuel Valls called for more action from the ECB to lower the value of the euro.Mr Valls said: “the monetary policy has started to change”. While he called the ECB’s package of measures taken in June a “strong signal,” he also said that “one will have to go even further.”

German Finance Minister Mr Schaeuble said deficit-fueled growth leads to economic decline, signalling discord with Italy and France as euro-area policy makers seek ways to avoid deflation and spur growth. Euro-area countries that pursued austerity policies in return for sovereign bailouts are “doing much better than all the others in Europe,” Schaeuble.

ECB’s Coeure says ready to adjust monetary policy if needed: In an article published in Greek daily Ta Nea, ECB’s Coeure said that ECB’s measures so far, have contributed to stability in the euro zone while its recent decisions have ensured a particularly accommodative direction in monetary policy in the single-currency bloc. “The ECB will provide additional liquidity to banks on the condition that they increase credit directed to the real economy, and it is ready to further adjust the direction of its monetary policy, if needed,” Coeure said (Ta Nea, Reuters) ”

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Time to say goodbye? Schauble Calls on Italy to Pursue Structural Reform

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Schäuble Calls on Italy to Pursue Structural Reform

By Andrea Thomas

July 16 (WSJ) — German Finance Minister Wolfgang Schäuble called on Italy to pursue its ambitious structural reform efforts if it wants to boost its economic-growth prospects. “Especially since growth forecasts for Italy have been reduced recently, it’s important to reform and cut the debt level convincingly,” he said. Italian Prime Minister Matteo Renzi has presented ambitious and broad-based reforms, he added. “The Stability and Growth Pact is the foundation for politico-economic cohesion in Europe,” said Mr. Schäuble. “The Stability and Growth Pact provides sufficient flexibility. It’s doesn’t stand in the way of structural reforms; quite the opposite, it promotes them.”

This is a direct response to Prime Minister Renzi who asked for what can be described as a minuscule amount flexibility with the deficit rules. (Note that Schauble didn’t even say said reforms would boost growth, only ‘growth prospects’, whatever that means.)

The problem is that for any given level of govt spending (a political decision) tax liabilities are too high to allow ‘savings desires’ to be accommodated. And ‘the debt level’ is best thought of as the ‘money supply’ (deposits at the CB) that’s the euro ‘savings’/net financial assets of the non govt sectors.

Said another way, the currency itself is the EU’s public monopoly, and the mass unemployment is necessarily the evidence that the monopolist is restricting the ‘supply’ of net financial assets demanded by the economy.

Said another way, for all practical purposes said reforms don’t increase aggregate demand. At best they address what I call distributional issues.

My proposal is for Italy to deliver an ultimatum to the EU giving them 30 days to relax the 3% deficit limit and eliminate the 60% debt/GDP limit.

If the EU refuses, Italy has two choices:

1. Do nothing as the destruction of their civilization continues,

2. Begin taxing and spending in ‘new lira’ with fiscal policy that promotes output and employment.

And note that if they do go to ‘new lira’ and retain their now constitutionally mandated balanced budget requirement, it will all get even worse.

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concern over euro strength

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As previously discussed, the ‘missing piece’ from the standard export model is buying the currency of your target market, as Germany used to do, and as the EU can’t do for ideological reasons- they don’t want to give the appearance that dollar reserves back the euro, and they want the euro to be the reserve currency. And they want to net export… whatever!

Spanish Central Bank Joins Chorus of Concern Over Euro’s Strength

By Paul Hannon

March 12 (WSJ) — In a news conference Thursday after the ECB’s decision to leave its policy unchanged, the bank’s president Mario Draghi said the euro’s 9% appreciation against the U.S. dollar since mid-2012 had been “a factor that is affecting in a significant way” the inflation rate, likely responsible for lowering it by almost half a percentage point. SpeakingMonday, Bank of France Governor Christian Noyer—who also sits on the ECB’s governing council—said that a strong euro lowers the inflation rate. “We are clearly not very happy at the moment,” he said.On Wednesday, Bank of Spain Governor Luis Maria Linde joined the chorus, making an explicit connection between the currency’s gains and possible future action by the ECB. “A stronger euro may lead to an easier policy, or a drop in inflation,” said Mr. Linde said. “We would like to have a little bit more inflation in the euro zone.”

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A few comments on overnight news

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The threshold may be high but there is one somewhere up there:

Fed should be ‘very patient’ in cutting stimulus: Rosengren (Reuters) The high number of part-time workers who would rather work full-time, the still-high unemployment rate, and very low inflation suggest significant “slack” in labor markets and “call for a very patient approach to removing monetary policy accommodation, particularly given the softness in recent economic data,” Boston Federal Reserve Bank President Eric Rosengren said. Rosengren said that it has been difficult for economists to determine whether weak employment reports for the past two months have been influenced bad weather or if they reflect an economic slowdown, and predicted that harsh winter weather will make the February jobs report similarly difficult to interpret. “In my view, this uncertainty provides an additional strong rationale for taking a patient approach to removing the monetary policy accommodation that the Federal Reserve has been deploying.”

These are closings from contracts signed months earlier:

New home sales hit five-and-a-half year high in January (Reuters) Sales of new U.S. single-family homes jumped 9.6 percent to a seasonally adjusted annual rate of 468,000 units. December’s sales were revised up to a 427,000-unit pace from the previously reported 414,000-unit rate. Sales in the Northeast soared 73.7 percent to a seven-month high, while the South recorded a 10.4 percent rise in transactions to a more than five-year high. Sales tumbled 17.2 percent in the Midwest last month, while rising 11 percent in the West. New home sales rose 2.2 percent compared with January 2013. For all of 2013. Last month, the supply of new houses on the market was unchanged at 184,000 units. The median price of a new home last month rose 3.4 percent to $260,100 from January 2013. At January’s sales pace it would take 4.7 months to clear the supply of houses on the market.

I still suspect some of the q4 activity was ahead of expiring tax credits:

Hope on Horizon for Home-Supply Crunch: Builder Borrowing Picks Up (WSJ) Data released Wednesday by the Federal Deposit Insurance Corp. show that the outstanding balance on loans for land acquisition, development and construction rose in the fourth quarter to $209.9 billion, compared with $206 billion in the third quarter. Last year, the average price of a new U.S. home was $322,100, up 10.2% from 2012. The latest increase in construction lending “is an encouraging signal,” said David Crowe, chief economist for the National Association of Home Builders. But lending remains far from peak, as outstanding land and construction loans topped out at $631.8 billion in the first quarter of 2008. According to the FDIC, outstanding loans solely for construction of homesexcluding development, land acquisition and commercial projectsincreased to $43.7 billion in the fourth quarter, up from a recent low of $40.7 billion in last year’s first quarter.

This helps support prices but doesn’t directly add much to GDP apart from commissions etc. unless it’s new construction:

Foreign appetite for US properties remains strong (FT) Last year the US maintained its position as the top destination for direct commercial property investment by foreigners with $38.7bn pouring into the country, according to a report from brokerage Jones Lang LaSalle. The total was up 44 per cent on 2012. Canadian, Chinese and Australian investors led the charge, with investors targeting top-tier areas such as Manhattan, Los Angeles and Chicago as well as secondary markets including Houston, Dallas and Seattle. Almost half all investments were in office buildings, 16 per cent in apartment blocks, 15 per cent in retail, while hotels, industrial properties and land development made up the rest. Foreign money comprises about 10 per cent of all capital for commercial property investment in the US, which JLL has said could accelerate if international investors expand beyond core assets to riskier deals that deliver higher returns.

The lack of domestic credit expansion and only very modest export growth leaves only govt. to spend more than its income and they keep pressing the wrong way on that as well:

Euro zone lending contraction compounds ECB headache (Reuters) Loans to the private sector fell by 2.2 percent in January from the same month a year earlier, ECB data released on Thursday showed. That compared to a contraction of 2.3 percent in December. Euro zone M3 money supply grew at an annual pace of 1.2 percent, picking up slightly from 1.0 percent in December. The ECB has set out two scenarios that could trigger fresh policy action: a deterioration in the medium-term inflation outlook and an “unwarranted” tightening of short-term money markets. Before the ECB gets to quantitative easing a cut in interest rates is one option for dealing with low euro zone inflation, or tight money markets. Another option the ECB has discussed is to suspend operations to soak up the money it spent buying sovereign bonds under its now-terminated Securities Markets Programme (SMP) during the euro zone’s debt crisis.

6.8% unemployment considered a successful economy?
whatever…

Lowest number of Germans out of work in Feb since Sept 2012 (Reuters) The number of people out of work in Europe’s largest economy decreased by 14,000 to 2.914 million, data from the Labour Office showed. That meant there were fewer unemployed people in Germany than at any time since September 2012. It was the third consecutive monthly drop in joblessness. Separate data from the Federal Statistics Office on Thursday showed employment climbing to a record high of almost 42 million. Berlin expects private consumption, which boosted growth in 2013, to increase by 1.4 percent as workers benefit from an increase in employment to an expected record of 42.1 million this year and a nominal 2.7 percent jump in earnings. The jobless rate held steady at 6.8 percent, its lowest level since German reunification more than two decades ago.

Germany’s wealth distribution most unequal in euro zone (Reuters) Private wealth is more unevenly distributed in Germany than in any other euro zone state. While the richest one percent of people in Germany have personal wealth of at least 800,000 euros ($1.09 million), over a quarter of adults have either no wealth or negative wealth because of debt, the study by Germany’s DIW think tank showed. According to the study, Germany’s Gini coefficient, a measure of income inequality, was 0.78 in 2012. That compared with 0.68 in France, 0.61 in Italy and 0.45 in Slovakia. A score of 0 indicates minimal inequality and 1.0 maximal inequality. Germans have total net assets worth 6.3 trillion euros, with land and real estate accounting for 5.1 trillion euros, and the average German adult has net assets worth around 83,000 euros, according to DIW. In the study, private wealth includes owned real estate, financial assets, valuables and debt.

French jobless total rises to record in January (Reuters) The number of people out of work in France rose by 8,900 in January to reach a record, as President Francois Hollande’s goal of taming unemployment eluded him yet again. Labour Ministry data showed on Wednesday that the number of people registered as out of work reached 3,316,200 in mainland France, up 0.3 percent over a month and 4.4 percent over a year. Hollande’s popularity has plummeted to record lows. He struggled and ultimately failed to live up to a pledge to get unemployment falling by the end of last year. With that promise in tatters despite at least 2 billion euros ($2.73 billion) spent on subsidized jobs, Labour Minister Michel Sapin said earlier on Wednesday that the jobless total should fall this year. Hollande offered last month to phase out 30 billion euros in payroll charges that companies have to pay, in exchange for committing to targets to create jobs.

Spanish Economic Growth Slower Than Expected (WSJ) Gross domestic product grew by 0.2% in the fourth quarter compared with the third, the country’s national statistics institute INE said Thursday. The figure was lower than the INE’s and the government’s preliminary reading, which had pegged quarterly growth at 0.3%. Public spending fell 3.9% compared with the third quarter. Household consumption was up 0.5% in the same period. Strong export growth helped Spain’s economy emerge from a nine-quarter recession in the second half of 2013, but the recovery has so far been anemic, because households remain highly indebted, unemployment still stands around 26% and the government can’t raise public spending because it is struggling to lower its budget deficit. According to the INE, economic output shrunk by 0.2% in the fourth quarter of 2013 compared with the fourth quarter of a year earlier.

Private rental surge hits benefits bill (FT) Englands housing market is seeing a seismic shift towards private rented property and away from home ownership. Figures from the official English housing survey published on Wednesday show the number of households living in the private rented sector overtook those in social housing for the first time last year. Almost 4m households now live in privately rented homes, and a quarter of the tenants are now subsidised by housing benefit, according to the annual survey. Private renting is now the second-largest tenure in England, behind home ownership. Under two-thirds of households now own their own home down from 71 per cent a decade ago. The number of households in the private rented sector receiving the benefit has risen by two-thirds in the past five years, with 390,000 more households in this category beginning to claim, the English housing survey found.

Does China want their currency to adjust to the yen the way other EM currencies have done?

China dismisses concern over sudden renminbi fall (FT) The recent movement of the renminbi exchange rate is the result of market players adjusting their near-term renminbi trading strategies, the State Administration of Foreign Exchange, an agency under the central bank, said. It added that the currencys movement was nothing unusual: The degree of exchange rate volatility is normal by the standards of developed and emerging markets. There is no need to over-interpret it. China faced immense capital inflows at the start of this year, according to data published on Tuesday by the central bank. Banks bought a net $73bn of foreign currency in the onshore market from their clients who wanted renminbi in January, the biggest monthly amount on record. Inflows have been accelerating since the middle of last year when Chinas mountain of foreign exchange reserves grew $500bn to $3.8tn.

China’s Central Bank Engineered Yuan’s Decline (WSJ) China’s central bank engineered the recent decline in the country’s currency to shake out speculators as it prepares to allow a wider trading range for the tightly tethered yuan, according to people familiar with the central bank’s thinking. In the past week, the People’s Bank of China has been guiding the yuan lower against the dollar. It has done so by setting a weaker benchmark against which the yuan can trade. It has also intervened in the currency market by directing state-owned Chinese banks to buy dollars, according to traders. China’s central bank and commercial banks purchased nearly $45 billion worth of foreign exchange in December, the fifth consecutive month of net purchases. The PBOC decided to tamp down expectations for one-way appreciation in the yuan and curb speculative trading during two-day currency-policy meeting that ended on Feb. 18, the people said.

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