Tag Archives: France

News recap comments

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The news flow from last week was so voluminous it was nearly impossible to process. For good measure I want to start today’s commentary with a simple recap of what happened.

On the negative side –

· Greece called a referendum and threw bailout plans up in the air taking Greek 2yrs from 70% to 90% or +2000bps.
· Italian 10yr debt collapsed 40bps with spreads to Germany out 70bps. The moves were far larger in the 2yr sector.
· France 10y debt widened 25bps to Germany. At one point spreads were almost 40 wider.
· Italian PMI and Spanish employment data were miserable.
· German factory orders plunged 4.3 percent on the month.
· The planned EFSF bond for 3bio was pulled.
· Itraxx financials were +34 while subs were +45.
· Draghi predicted a recession for Europe along with disinflation.
· The G20 was flop – there was no agreement on IMF involvement in Europe.
· The US super committee deadline is 17 days away with no clear agreement.
· The 8th largest US bankruptcy in history took place.
· US 10yr and 30yr rallied 28bps, Spoos were -2.5%, the Dax was -6% and EURUSD was -3%.
· German CDS was up 16bps on the week.

On the positive side –

· The Fed showed its hand with tightening dissents now gone and an easing dissent in place.

Too bad what they call ‘easing’ at best has been shown to do nothing.

· The Fed’s significant downside risk language remained intact.

Downside risks sound like bad news to me.

· In the press conference Ben teed up QE3 in MBS space.

Which at best have been shown to do little or nothing for the macro economy.

· US payrolls, claims, vehicle sales and productivity came in better than expected.

And the real output gap if anything widened.

· S&P earnings are coming in at +18% y/y with implied corporate profits at +23 percent q/q a.r.

Reinforces the notion that it’s a good for stocks, bad for people economy.

· Mortgage speeds were much faster than expectations suggesting some easing refi pressures.

And savers holding those securities saw their incomes cut faster than expected.

· The ECB cut 25bps and indicated a dovish forward looking stance.

Which reduced euro interest income for the non govt sectors

· CME Margins were reduced.

Just means volatility was down some.

· There was a massive USDJPY intervention which may be a precursor to a Swiss style Japanese policy easing.

Which, for the US, means reduced costs of imports from Japan, which works against US exports, which should be a good thing for the US as it means for the size govt we have, taxes could be lowered to sustain demand, but becomes a bad thing as our leadership believes the US Federal deficit to be too large and so instead we get higher unemployment.

· The Swiss have indicated they want an even weaker CHF – possibly EURCHF 1.40.

When this makes a list of ‘positives’ you know the positives are pretty sorry

· The Aussies cut rates 25bps

Cutting net interest income for the economy.

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France Unveils New Budget Savings as Growth Slows

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May as well call it the Sarcophagus plan.

It’s all they know how to do.
And again, like the carpenter said of his piece of wood,
no matter how many times I cut it it’s still too short.

France Unveils New Budget Savings as Growth Slows

By Alexandria Sagr

November 7 (Reuters) — France will announce about 8 billion euros of budget cuts and tax hikes for 2012 on Monday, imposing more pain on voters to protect its credit rating and curb its deficit in a gamble for President Nicolas Sarkozy six months from an election.

Sarkozy’s center-right government says extra savings are urgently needed to keep France’s finances from going off the rails, since it cut its growth forecast for next year to 1 percent from 1.75 percent last week.

The announcements could be make-or-break for Sarkozy as he tries to reassure financial markets and ratings agencies without costing him his re-election chances with French voters.

The measures, to be unveiled by Prime Minister Francois Fillon, come on top of 12 billion euros in savings announced just three months ago.

Le Monde newspaper said he would flag cuts totaling up to 17 billion euros by 2016.

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France injects €10.5bn in the six largest banks

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If growth continues to slow down this won’t be nearly enough to cover capital yet to be lost.

Also, with more slowing, the French deficit widens threatening their solvency and ability to fund:

France injects €10.5bn in the six largest banks; doubts about the 2009 GDP growth forecast

The French Finance Ministry said Monday night that the French government will inject E10.5 billion worth of fresh capital into the country’s six largest banks between now and the end of the year by purchasing subordinated debt securities.

Credit Agricole will get €3 billion, followed by BNP Paribas with €2.55 billion, Societe Generale with $1.7 billion and Credit Mutuel with €1.2 billion. Les Caisses d’Epargne will get €1.1 billion and Banques Populaires €950 million.

The banks have agreed to sell subordinated debt securities in those amounts, and they will carry a risk premium of about 400 basis points.


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2008-06-19 EU News Highlights

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Highlights

Italian Unemployment Rate Rises for First Time Since 2003

Euro Central bankers think that’s a good thing for their fight against inflation. Unemployment was getting far too low for comfort.

France’s Woerth Maintains Economic Growth Forecast at 1.7%-2%

More than enough to warrant rate hikes.

French government wants more work hours

Trying to add supply to labor markets to keep wages ‘well contained.’

Zapatero Says Spain Suffering an ‘Abrupt Slowdown’

Spain had been growing too fast for comfort for the inflation hawks


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Bank of France says Fed overreacted to market decline

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Interesting they would take a shot like that at the Fed. Probably concerned about Euro strength and the US gaining export share.

Bank of France Says Fed Overreacted to Market Decline

By Francois de Beaupuy

(Bloomberg) The Bank of France said the U.S. Federal Reserve may have cut interest rates too much and too quickly in response to financial-market declines.

An unsigned article in the Paris-based bank’s monthly bulletin, published today, said new financial products have amplified asset price swings.

That may lead to “stronger monetary reactions than what would otherwise be necessary, as shown by the recent decision of the Federal Reserve,” the article said.

The unusual criticism by one central bank of another may reflect the European Central Bank’s reluctance to follow its U.S. and U.K. counterparts in cutting rates to cushion against an economic slowdown. The ECB left its benchmark rate at 4 percent this month even as growth prospects deteriorate.

“The Bank of France is simply going along the ECB line, trying to manage expectations away from any response similar to the Fed,” said Gareth Claase, an economist at Royal Bank of Scotland Plc in London. “The Fed moved quickly and far. The ECB is likely to move slowly and little.”

The Fed has lowered its benchmark rate by 2.25 percentage points since September to 3 percent — including a three-quarter point emergency cut on Jan 22 — and traders expect another reduction next month.

‘Unusually High’
German Finance Minister Peer Steinbrueck said Feb. 12 he didn’t see ECB Bank President Jean-Claude Trichet shifting to a neutral stance, which might be a prelude to cutting rates. At a press conference last week, Trichet said uncertainty about growth prospects is “unusually high,” prompting traders to raise bets on a rate cut.

“Pressure on the ECB increased after the massive Fed rate cuts,” said Michael Schubert, an economist at Commerzbank AG in Frankfurt. “The ECB has said that it won’t act anytime soon. It doesn’t want to be driven by the Fed.”

German investor confidence unexpectedly increased this month, a sign the European economy can weather the U.S. slowdown.

“It’s unusual for central banks to criticize the actions of others,” said Dominic Bryant, an economist at BNP Paribas in London. “The U.S. is in recession, so it’s somewhat difficult to say the Fed overreacted.”

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Indexing French wages

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A bit of structural inflation being introduced:

Sarkozy Plans to Index Civil Servants’ Salaries to Inflation

by Helene Fouquet and Francois de Beaupuy

(Bloomberg) French President Nicolas Sarkozy said he’d index civil servants’ salaries to inflation and make good on unpaid overtime hours to improve their purchasing power.

“It’s a fact that some civil servants have lost some purchasing power in recent years,” Sarkozy said today in a speech to civil servants in the northern city of Lille. “We’re going to introduce a purchasing power guarantee” to ensure that pay increases match “at least the inflation rate.”

He reiterated that he wants to reduce the number of civil servants and to use half of the savings for pay raises.

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