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CE Macro Report

Scott Gibson and Michelle Vero

Eurozone macroeconomic conditions are beginning to brighten up as Eurostat, the statistics office for the European Union, predicts inflation to rise to 0.00% in October, a 1% increase from September’s deflation, according to a recently published flash estimate. This is excellent news, especially when combined with the EU’s unemployment rate of 10.8%, an almost 4 year low. Furthermore, there is reason to believe that the European Central Bank will strengthen their €1.1tn quantitative easing programme at the December meeting, following Mario Draghi’s announcement that “the degree of monetary policy accommodation will need to be re-examined.” This could mean the inclusion of a wider range of assets, a time extension or an increase in the amount of monthly purchases. A rate cut, from the current level of -.2%, is also under consideration. This forward guidance may be the inflationary stimulus the Eurozone needs.

Deutsche Bank will incur a $258m fine in settlement fees with US authorities, as a result of “non- transparent methods and practices” in the undertaking of clearing transactions, valued at $10.86bn, on behalf of both Middle Eastern and Asian entities. In addition, following a €6bn third- quarter loss, 9,000 full-time jobs within Deutsche Bank are being cut, as well as shareholder dividends being suspended for the next two years. Detusche Bank joins the ranks of European investment banks such as UBS, Credit Suisse, and Barclays, who are struggling to redefine themselves after the financial crisis. They now face ever-changing regulation, uncertain market conditions and increased competition; how they handle these hurdles will determine their future.

Volkswagen, German car manufacturer, has wiped 40% (€32.4bn) from their stock’s value since September, after admitting to installing defeat devices in 11m diesel cars. Although the scandal’s effects on sales are as of yet unknown, the firm has since revealed losses of €1.7bn for the third quarter, the first time this German powerhouse has made a loss in 15 years. Recently, America’s Environmental Protection Agency has reported that the scandal is wider than previously thought. Extending to models from its premium Audi and Porsche brands. VW have isolated €6.7bn of funds to deal with affected cars, however UBS analysts expect the true cost of this scandal to surpass €30bn and with recent news the costs could be even higher. 

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