Introduction
Every week I try to take noteworthy events and provide accessible commentary regarding the potential impacts of these events and my own personal interpretation. These comments are not necessarily the viewpoint of Newfound Research and solely represent my own personal perspective.
Week Ending: July 19th, 2013
Noteworthy Reads / Events of the Week
- A worsening outlook for the Eurozone: European Industrial Production posted some grim news, with Durable Goods decline steepening, and Germany posting its first decline in since January. European construction also continued to decline, employment forecasts were adjusted downwards (see OECD’s Employment Outlook below)
- Greece bites (another) bullet to secure next round of funding: The Greek government secured another $9BB in rescue loans by approving several new austerity measures. One such measure puts 25,000 civil servants (including teachers, janitors, & municipal police officers) out of work or with reduced compensation by the end of the year.
- It’s no longer a question of whether China’s output growth will decline, it’s a question of how much: China removed the floor on its lending rates in an effort bolster domestic lending after mid-week news that the economy grew at a rate of 7.5% (not surprisingly, exactly in line with analyst estimates), which was the weakest rate of expansion in 23 years. Some like William Pesek of Bloomberg makes the argument that, regardless of GDP numbers (which are inherently inaccurate and backed into anyway), China is in for a hard landing.
- OECD’s employment outlook, grim for some: The OECD came out with its employment outlook this week, and the results regarding Europe were, to say the least, gloomy. A projected rise in the Euro area of 1.2% should bring the zone to fresh highs 12.3% in 2014, whereas specific areas of dismay surround Greece and Spain, whose 2014 unemployment rate forecasts are 28.4% and 28.0% respectively.
- EU Stress Test 2.0: In 8 months ECB will conduct rigorous stress tests on banks aimed at uncovering institutional weaknesses and Non-Performing Loans (“NPLs”). Regulators will likely not be able to audit institutions from their own country to ensure credibility of the test — one of hopefully, many steps taken to assure markets a repeat of the 2011 stress test will not occur (when several banks passed examination, only later to need recapitalizing).
- Can declining commodities exert deflationary forces on price levels?: The Atlanta Federal Reserve published a brief exploration as to whether the current environment of declining commodity prices would fuel the flames of disinflation. They discovered an asymmetric response by businesses to price changes of raw inputs, which roughly translates into, “the decline in commodity prices isn’t likely to have an influence on core inflation unless it leads to a general expectation of a broader disinflation.”