Category Archives: A Few Euros More

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Another ‘euro’ sceptic

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Bloomberg’s Mathew Lynn has been pretty consistently skeptical about the workability of the common currency. Personally I find it difficult to disagree with the following:

“The euro, the common currency shared by 12 EU nations, will weaken considerably as Europe enters a long period of political instability. Recriminations from the collapse of the constitution will be played out over months, not days.

And the economics of integration that have dominated Europe for the last 30 years have come to an end. Forget convergence. The big trend in the next few years will be Europe’s economies going their own way, not with each other. In time, even the euro’s survival might be called into question.

“The initial reaction might be relatively muted because the markets had already discounted `no’ votes in both countries,” said Stuart Thomson, a fixed-income strategist at Charles Stanley Sutherlands in Edinburgh. “What it does do is put a stop to any thoughts of fiscal integration, because that was really the next step of the process. Without that, it is difficult to see what is underpinning the euro.””

Another Day On Euro Watch

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I’ll keep tracking the euro again today, and updating as appropriate. I’ve just posted some stuff in the comments section of Afoe:

Looking at the newspapers the euro steadied up overnight, but seems to be on its way down again in Tokyo. As I write it is trading at $1.2194, ten minutes ago it was 1.2186.

Firstly during the night the dollar firmed:

“Against the euro, the dollar fell to $1.2211 at 9:50 a.m. in Tokyo, from $1.2179 late yesterday in New York, according to electronic currency-dealing system EBS. It was also at 108.64 yen, from 108.76. The dollar traded as high as $1.2160 per euro yesterday, the strongest since Sept. 20,”
Bloomberg.

The general consensus seems to be that the euro will rebound, since that is what the technical charts say it will do. Be these are not ‘normal’ trading circumstances and this view may not be appropriate.

Strategists at National Australia Bank hold what seems to me a reasonable perspective:

“Barring news of a sharp slowdown in the US, the euro is set to test 1.2000 and then 1.1760, the NAB strategists said, adding that the market focus is now turning to US non-farm payroll data for May to be released on Friday”.

I think we are in the hands of events, with a definite downside risk on the euro. So lets wait and see how they unfold.

Update 1: 9:30 CET. The euro is now staging a strong rally $1.2260 at the time of writing. Among other factors which may be affecting this is a speech by Dallas Fed President Richard Fisher which suggested the Fed tightening cycle may be nearly over. This is being widely interpreted as Greenspan testing the water. It is also something I have been arguing for the last couple of weeks: Europe’s weakness is now setting limits to monetary policy in the United States.

EU Manufacturing Declines

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And significantly. It will be worth looking at the US data this afternoon, but the trend is clear, off-shoring is, if anything, picking up speed.

Manufacturing in the dozen euro nations in May shrank the most in almost two years as unemployment near a five-year high and oil prices around $50 a barrel add to concerns about the outlook for expansion this year.

An index based on a survey of about 3,000 purchasing managers compiled by NTC Research Ltd. for Reuters Group Plc fell to 48.7, the lowest since July 2003, from 49.2 in April, according to figures available on the Internet today. Economists had expected a reading of 49.2, according to the median of 30 estimates in a Bloomberg survey.

Euro Still Dropping

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Having just posted on Afoe suggesting I expect a quieter day, I have just noticed this:

“The euro fell against the dollar after the manufacturing report. The European single currency traded at $1.2285 at 10:15 a.m. in Frankfurt, down from $1.2304 late yesterday in New York, according to electronic foreign-exchange dealing system EBS.”

Still this fits in with the general picture I described, every piece of bad news can drive down euro/USD. In this case it was the manufacturing survey. I suppose, taking this a step at a time, the question is how long it needs before we break below $1.20, at this rate, and if we get a bad enough day tomorrow, we can be getting near by the end of the week. Maybe this depends on the US jobs data on Friday. I should write a post entitled eurozone/USA: the great race to the bottom (remember most US commentators are expecting a further dollar decline associated with the current account deficit).

I agree with an earlier commentator (and MS’s Stephen Yen: parity by year’s end would be OK from the European end (although not in Washington). The thing is, by years end, right now what we need is someone to reach for the handbreak.

Update: It reach $1.2257 at 10:30 a.m. in London. In part this is a result of a story in Germany’s Stern magazine.

Update 2: 13:00 Washington post has this:

“The euro dropped to $1.2255 in European trading, also propelled downward by an unsourced report in the German weekly Stern that a possible failure of the monetary union was discussed at a meeting last week attended by Germany’s finance minister and central bank chief.”

Update 3 “The euro fell as low $1.2224 in European trading before climbing back to $1.2242, still down from $1.2312 in New York late Tuesday”.

German Retail Sales Down

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This is not surprising, but it is hard to see how the German economy is going to generate GDP and employment growth in 2005. Remember global trade is slowing gradually, so it is hard to see who you can rely on exports.

Retail sales in Germany, Europe’s largest economy, fell in April as unemployment held near a post- World War II record and consumer confidence slumped.

Sales, adjusted for inflation and seasonal swings, fell 3 percent from a year earlier, the Federal Statistics Office in Wiesbaden said today. Economists expected sales to be unchanged, the median of 13 forecasts in a Bloomberg survey showed. Sales in the first four months of the year fell 1 percent. The report did not give a seasonally adjusted comparison with the previous month.

Cheesy.

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I don’t think it’s fair to talk about European regulatory madness as long as there isn’t a directive handling… Cheese Rolling (from the BBC, hat tip to viewropa)

“Cheese Rolling is one of the oldest customs to have survived in Great Britain. It’s been going on for hundreds of years and some say it has its roots in pre-Roman times.

Today it is as popular as ever and the crowds turned out in large numbers at Cooper’s Hill in Gloucestershire to watch yet more brave souls risk life and limb chasing after a 7lb Double Gloucester cheese. The winner gets to keep the cheese they’ve chased after!”

EU Consumer and Business Confidence Fall

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Just another item to add to the list of bad news:

European business confidence dropped to a 21-month low in May and consumers were the most pessimistic in a year as oil prices around $50 a barrel and unemployment near a five-year high dimmed the outlook for economic growth.

An index gauging confidence among 35,000 executives in the dozen euro nations fell to minus 11 from April’s minus 9, the European Commission said today in Brussels. Economists expected minus 10, the median of 29 forecasts showed. An index of consumer sentiment dropped to minus 15 from minus 13, the commission said.

German Unemployment Remains At 11.8%

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Despite the recent surge in German GDP and export growth, and the ongoing structural reforms, German unemployment remains stubbornly high.

German unemployment was unchanged in May at close to a post-World War II high, dealing a blow to Chancellor Gerhard Schroeder’s chances of re-election.

The jobless rate, adjusted for seasonal swings, held at 11.8 percent, close to the postwar record of 12 percent recorded in March, the Nuremberg-based Federal Labor Agency said today. That was in line with the median of 31 forecasts by economists in a Bloomberg survey.

Divided Opinions in the Czech Republic

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the Czech president has become the first prominent EU politician to call for the ratification process to stop after the French vote.

According to the Czech news agency CTK, Vaclav Klaus, a well-known eurosceptic, said that to carry on the ratification process would be useless, although the Czech prime minister has said he is in favour of continuing.

“The decision has been made and I hope everybody understands it”, Mr Klaus is reported as saying.

In fact, were the ratification process to continue, the Czech Republic has still not decided the actual method of the ratification and the government has admitted it will consider limiting the procedure to a parliamentary vote after all, since the constitutionional change necessary for holding a referendum has proved difficult to agree on among the different parliamentary parties.