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CE Macro Report

Eurozone experiencing sluggish recovery, following a disappointing start to 2016. Eurozone growth averaged a quarterly rate of 0.3% in the second half of 2015 and the SX5E fell 7.5% in the first month of 2016. This is an especially discouraging result for two reasons: recent low energy prices have boosted consumer spending and continued quantitative easing is designed to further stimulate growth following the implementation of negative interest rates in June, 2014. These conditions, however, have been counteracted by the slowdown in China and Emerging economies, which account for a quarter of Eurozone exports. Additionally, negative market sentiment has been a persistent factor in the downturn of stock prices and economic performance. The outlook for the remainder of 2016 is modestly positive due to: the ECB’s is expected to continue loose monetary policy, as a result of the inflation rate becoming negative at 0.2%; there is a lack of a foreseeable end to the commodities rout; there is expected to be increased spending on refugees, especially in Germany.

German bund yields are dropping even deeper into negative territory. On the 29th of February the two year yield closed at -0.57%. Yields are decreasing as investors flood to safe haven assets, like the bund, forcing prices upwards. This dramatic shift is following the announcement of negative inflation in the Eurozone; the implication of which is continued quantitative easing. The EU is unable to buy anything that is below its deposit rate, which currently stands at -0.3%, making half of German debt ineligible for Quantitative Easing. Another consideration is the historic link between low yields and economic health. In the past, consistently low yields have been a signal to economic recession.

Europe’s migrant crisis is increasingly unstable, as tensions peaked on the Greece Macedonia border. Refugees attempted to break down the barbed wire fence separating the two countries and were held back by tear gas. The refugee crisis persists across the EU and the arrival of 1.1m refugees into Germany is destroying Angela Merkel’s support base, as well as faith in her immigration plan. 9 months after its creation, the EU’s refugee relocation policy has failed to come close to achieving its stated aims; of the 160,000 people intended to be relocated roughly 600 have. The result of the increasing uncertainty is that some member states have taken independent action; Austria partially closed their borders earlier this year. The EU’s refugee policy is inching nearer to complete failure as borders close and policy is determined independently.

Credit Suisse has posted its first loss since 2008. The bank posted a 2015 net loss of 2.94bn Swiss francs, as well as an impairment charge of 3.8bn Swiss francs. As a result, the bank’s stock is down 36% this year and shows no signs of rebounding. This is the lowest level it has hit since 1992. The bank is following in the footsteps of many of its peers, as European banks struggle to be profitable in the ever changing regulatory environment, against increasing capital requirements, and with too much exposure to the energy assets. European banks are being hit hard by a market wide selloff.

Key Indicators:

  • GDP Growth Rate: 0.3%
  • Unemployment Rate: 10.4%
  • Wage Growth: 1.4%
  • Inflation Rate: -0.2%
  • Interest Rate: 0.05%
  • Government Bond 10y: -0.3%
  • Manufacturing PMI: 51
  • Industrial Production: -1.3%
  • Consumer Confidence: -9






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