Europe - Economic Data & News 01 (May 08 - Oct 08)

[kennynah]

30 Jun 2008 09:00 GMT
ITALY DATA:

Preliminary June HICP increased 0.5% on the month, with the y/y rate accelerating to +4.0% from +3.7% in May.

--The preliminary main domestic index (NIC) gained 0.4% m/m and grew 3.8% on the year, compared with May's rate of +3.6%.

--Core NIC Inflation increased to 2.7% y/y compared with +2.6% in May; net of energy the y/y rate gained 2.8% compared to +2.7% in May.

--ISTAT said the NIC CPI data provided a platform of 'acquired'inflation of +3.2% for 2008.

30 Jun 2008 08:53 GMT

DUE UP: Eurozone flash HICP data at 0900GMT, which is expected to move up to 3.8% -- a new multi-year high in June vs 3.6% in May. ((but note that this has been priced into eur.usd at 1.583....))

[millionairemind]

U.K. House Prices Drop Most Since 1992, Manufacturing Contracts

July 1 (Bloomberg) -- U.K. house prices fell by the most since 1992 and manufacturing unexpectedly contracted in June as banks starved the economy of loans and commodity prices soared, bringing the nation closer to a recession.

The price of an average home declined 6.3 percent from a year earlier to 172,415 pounds ($343,278), the biggest drop since November 1992, Nationwide Building Society, Britain's fourth- biggest mortgage lender, said today. An index of manufacturing fell to 45.8, the least since 2001, according to the Chartered Institute of Purchasing and Supply.

``The economy has yet to feel the full effect of the credit crunch, and there are negative effects from the high oil price,'' said Lena Komileva, an economist at Tullett Prebon in London. ``Recession is a great possibility. We're getting closer to a 50 percent chance.''

Real-estate stocks had their worst performance in more than 20 years in the second quarter and Bank of England Governor Mervyn King predicts ``extremely weak activity'' in the housing market. With inflation accelerating, policy makers are now considering whether they can risk raising interest rates after the slowdown spread to manufacturing, representing 15 percent of the economy.

Denmark slid into a recession in the first quarter, the first European Union economy to contract for two consecutive quarters since the global credit crunch started, while confidence among Japan's biggest manufacturers fell to a four-year low, separate reports showed today.

Property Stocks

U.K. property stocks extended their slide today. Shares of Taylor Wimpey Plc, the nation's largest homebuilder, declined 4.8 percent and building materials distributor Travis Perkins Plc, which has lost almost three fifths of its value this year, fell 5.9 percent.

House prices fell 0.9 percent in June, the eighth consecutive monthly drop, according to Nationwide. The pace of decline on the month was slower than the 2.5 percent drop in May, the most since the index started in January 1991. On the quarter, Northern Ireland led annual declines.

Luxury-home prices in central London, the world's most expensive location for prime real estate, fell for a second month in June as sales slumped, Knight Frank LLP said in a separate report.

``I can't see this price decline coming to an end any time soon,'' said George Buckley, an economist at Deutsche Bank AG in London who predicts values may fall at least 10 percent this year. ``The biggest driver in prices tends to be approvals and yesterday's figure was quite shocking.''

Mortgage Loans

Banks granted 42,000 loans for house purchase in May, compared with 57,000 in April, Bank of England data showed yesterday. An index of consumer confidence fell to minus 34 in June, the lowest since the London riots in 1990 which contributed to Margaret Thatcher's downfall as prime minister.

Falling house prices risk pushing the U.K. economy into recession, as slowing growth and falling confidence curbs Britons' spending. King said June 19 that ``lower demand in the high street will go hand in hand with lower demand in the property market.''

Still, accelerating inflation makes it more difficult for policy makers to kick-start economic growth by cutting rates. Consumer prices jumped 3.3 percent in May from a year earlier, the most in more than a decade. Crude oil reached a record above $143 a barrel yesterday.

Policy makers John Gieve, Timothy Besley, Paul Tucker and Kate Barker, who testified with King on June 26, all said they had considered a vote for higher interest rates last month. The panel kept the benchmark rate at 5 percent for a second month and will meet again next week.

The central bank said in May that the annual rate of economic growth will drop to around 1 percent, the lowest since 1992.

The CIPS index of manufacturing was lower than the 49.8 median forecast in a Bloomberg News survey of 34 economists. A reading lower than 50 signals contraction.

Shares of DS Smith Plc, owner of the Spicers office products brand, fell to the lowest in eight years on June 26 after the company said its operating profit will be hit by lower demand and higher polymer prices. The company raised corrugated case packaging prices to offset rising energy, wood and waste paper costs.

[blid2def]

Full article: http://www.bloomberg.com/apps/news?pid= ... refer=home

Moody's Says Some Employees Breached Code of Conduct (Update6)

By Neil Unmack and John Glover

July 1 (Bloomberg) -- Moody's Corp. ousted the head of its structured finance unit and said employees violated internal rules in assigning ratings to some of last year's worst performing securities.

Noel Kirnon, 47, will leave after a company review showed some staff at Moody's Investors Service breached rules for ranking European constant proportion debt obligations, or bonds backed by derivatives, the company said in statements today. Moody's awarded Aaa ratings to at least $4 billion of CPDOs, as the securities are known, before they lost as much as 90 percent of their value.

U.S. and European regulators are tightening rules for Moody's, Standard & Poor's and Fitch Ratings after the companies provided top grades to securities backed by U.S. subprime mortgages that sparked $400 billion of writedowns and losses on Wall Street. Moody's, the world's second largest credit-rating company, said today that employees, not the company's practices, were to blame.

``Moody's have lost a lot of credibility,'' said Jeroen Van Den Broek, head of investment-grade credit strategy at ING Bank NV in Amsterdam, a unit of the biggest Dutch financial services company. ``It seems like they're looking for a scapegoat.''

Moody's, which is 19.6 percent owned by Warren Buffett's Berkshire Hathaway Inc., fell 37 cents to $34.07 at 2:22 p.m. in New York Stock Exchange composite trading. The stock is down 45 percent in the past year.

See full article at the link above. These ratings agencies - knn, 杀人不见血...

[kennynah]

trichet spoke earlier today... i think u just need to see the highlighted parts...the rest...rhetoric speeches...

********

Trichet says need to address systemic weaknesses highlighted by credit crisis

Wed, Jul 2 2008, 08:35 GMT

PARIS (Thomson Financial) - European Central Bank President Jean-Claude Trichet said the financial authorities must give priority to addressing the weaknesses in the global financial system highlighted by the credit crisis.

"At the present juncture, the main priority is to address from a systemic point of view the global financial system weaknesses which have been identified during the ongoing financial market correction," he said in a speech.

He said effectively coordinated international action has become very important as a result of the crisis, and actions taken so far have been encouraging.

"The major collective effort undertaken by both the public and the private sector to cope with the financial market turbulences has been encouraging. Hard work has been done in terms of restoring the orderly functioning of financial markets in the short term and identifying proper measures to strengthen the resilience of the financial system in the longer term," he said.

Trichet said the recommendations made by the Financial Stability Forum in the wake of the crisis need to be implemented expeditiously.

"There is a strong consensus among the international community to act with determination in this regard," he said.

Trichet said there is also a need to step up efforts to foster European financial market integration, which he said will help the economy reach its full potential.

"An integrated financial market is a prerequisite for realising the true economic potential of Europe," he said.

Trichet made no comments on monetary policy during the speech. The ECB Governing Council meets to consider interest rates tomorrow and council members avoid making comments on monetary policy in the one-week purdah period ahead of a rate decision.

[millionairemind]

Standard of living to fall for at least a year
By Harry Wallop, Consumer Affairs Correspondent

Families will see their living standards fall for at least a year because of the credit crisis and soaring oil prices, the Bank of England has said.

As economists warned for the first time that Britain was heading for a recession, the Bank's new deputy governor, Charlie Bean, admitted there was "not very much" the country could do in the face of global financial turmoil.

The boom era of the late 1990s and the early 2000s was over, he told the Commons Treasury committee.

"Real living standards will have to grow less rapidly this year, and possibly part of next year, than was the case in the late 1990s and early 2000s," said Mr Bean, formerly the Bank's chief economist.

"There is not very much that we can do about that as a nation unless we improve our productivity to offset it."

Leading retailers and house-builders disclosed that they were suffering badly from the credit crisis in "the most rapid and severe downturn" for two decades.

Shares in Marks & Spencer, the bellwether of the high street, suffered their worst one-day fall in 20 years after news that sales fell by more than five per cent in the past three months.

The company said shoppers were cutting back spending substantially because of spiralling utility bills, food prices and petrol costs.

Sir Stuart Rose, the executive chairman, said: "This is the most rapid and severe slowdown since the early 1990s. We are not in recession but that is a technical matter. It's about how the consumer feels that matters.

"You would have to be in your mid-40s to have experienced this. We've had unparalleled growth for 10 or 15 years and customers are going to have to ask themselves, 'what am I prepared to give up?' "

In another turbulent day:

• Taylor Wimpey, Britain's second-biggest house-builder, said it was axing 900 staff after failing to raise enough cash from investors to shore up its finances.

• The Organisation for Economic Co-operation and Development predicted that unemployment would rise by 100,000 over the next two years to reach 1.8 million.

• Nicola Horlick, the City fund manager nicknamed "superwoman", warned investors to steer clear of the stock market for the next two to three years.

The respected think-tank Capital Economics predicted that a recession was a real possibility next year.

"We have been more concerned than most forecasters about the outlook for the UK economy and, in particular, the prospect of an abrupt unwinding of the various imbalances that have built up over the last decade or so," it said.

"Recent news has suggested that things are likely to be even worse than we had previously thought, with a strong chance that the economy enters a technical recession."

A recession is defined as two consecutive quarters of negative growth in gross domestic product.

Most economists have been forecasting that the economy will slow later this year without actually going into negative territory.

Howard Archer, chief economist at Global Insight, said: "In my view the economy will stagnate, but it would not take much to tip it into a mild recession. House prices falling further, oil price climbing further, higher food costs eating into people's purchasing power – and all these are possibilities – could tip us into a recession."

Andy Bond, the chief executive of Asda, agreed that the unparalleled consumer boom of the last decade had come to an end, saying: "Reality is biting. People are now believing that they have to live on what they earn."

Shares in housebuilders fell sharply after Taylor Wimpey, the country's second largest builder, announced it was axing 900 – the equivalent of a third – of its staff.

It has failed to raise £500 million from shareholders to help shore up its finances and its shares fell 42 per cent.

Estate agents, mortgage brokers and retailers have all started to lay off workers.

The Organisation for Economic Co-operation and Development, the world's club of richest nations, predicted yesterday that UK unemployment would rise by 100,000 over the coming two years to reach 1.8 million.

Liberal Democrat Treasury spokesman Vince Cable said: "The OECD is rightly pointing out the economic reality that Gordon Brown and Alistair Darling refuse to acknowledge.

"It is painful but almost inevitable that the perfect storm of rising prices, over-indebtedness and the credit crunch will lead to higher unemployment."

The only bright spot came when Cheltenham & Gloucester, the country's fourth largest lender, trimmed its one, two and three-year fixed rate deals from 7.05 per cent to 6.99 per cent.

[iam802]

Is this posted yet?

---
Trichet Says Rate Increase Will Bring Down Inflation

http://www.bloomberg.com/apps/news?pid= ... refer=home

``The monetary policy stance following today's decision will contribute to achieving our objective,'' Trichet said at a press conference in Frankfurt after the ECB raised its benchmark lending rate to 4.25 percent. Trichet said he has ``no bias'' on further moves.

.......

==========

[millionairemind]

I wonder how large a short position is Goldman's internal hedge funds holding when they released this report? Just like when they say oil will hit $150 2 months ago and we know that they have a large oil trading business.

European Banks May Need EU90 Billion, Goldman Says (Update2)

By Alexis Xydias and Ambereen Choudhury

July 4 (Bloomberg) -- European banks may need to raise as much as 90 billion euros ($141 billion) to restore their capital after the U.S. subprime mortgage collapse caused credit markets to seize up, according to Goldman Sachs Group Inc.

European banks have already raised $115 billion from investors to replenish capital after reporting $134 billion in writedowns, Goldman analysts led by Christoffer Malmer said in a note to clients today.

They may now seek more than 60 billion euros to increase their Tier 1 capital, a measure of financial strength, to about 9 percent, the analysts said. They could need to raise as much as 90 billion euros were credit losses to rise to levels last seen in the recession of the early 1990s.

``Regulatory pressures and a sharp turn in the European credit cycle are the two main causes for concern,'' the London- based Goldman analysts wrote in their note.

The European banks Goldman tracks have lost $900 billion of their market value since the credit crisis began last year. Anshu Jain, head of global markets at Deutsche Bank AG, said this week that that contagion is ``by no means over,'' and Europe's banks have lagged behind the U.S. in raising money from investors.

The Goldman analysts cut their recommendations on Carnegie & Co. and Swedbank AB of Sweden to ``sell'' from ``neutral.'' Banco Santander SA, Spain's largest bank, was downgraded to ``neutral'' from ``buy.''

Goldman's analysts said in their report that ``access to liquidity, capital adequacy and post-crisis profitability are the key areas of near to medium-term uncertainty'' for European banks.

Global financial stocks have led declines that wiped about $11 trillion from equity markets worldwide this year. Credit- related losses, surging oil prices and rising inflation have also stoked concern policy makers will have to raise borrowing costs as the global economy slows.

Separately, Credit Suisse Group AG had its price estimate cut by Citigroup Inc. earlier today, which also reduced its expectations for earnings-per-share at Switzerland's second- largest bank.

[millionairemind]

Housing slump
Collateral damage
Jul 3rd 2008
From The Economist print edition

The latest blows to the property market will pound the economy too

AFTER the longest and biggest boom in post-war history, it is payback time for Britain’s ever more troubled housing market. As shares in homebuilders wilt following the failure of Taylor Wimpey, the country’s largest, to raise urgently needed capital (see article), there are wider worries that Britain may revisit the trauma of the early 1990s, when a housing bust led to a deep recession. With activity in the services sector at its lowest since October 2001, the economy looks perilously vulnerable to falling housing wealth and the collapse in mortgage finance, residential investment and property transactions.

The mortgage market has already plumbed unprecedented depths. Figures released this week revealed that a mere 42,000 loans had been approved to buy homes in May, well under half the number a year earlier and below even the trough reached in the early 1990s. New approvals are closely watched because they point the way to house-price changes (see chart). The declines that started late last year are continuing apace, according to Nationwide Building Society. House prices fell by 0.9% in June, leaving them 6.3% lower than they were a year earlier.

The outlook for both the mortgage market and house prices is grim. On July 3rd the Bank of England’s survey of credit conditions reported that lenders intend to restrict new home loans still more over the next three months. Following the latest statistics on mortgage approvals, Capital Economics, a consultancy, said that it expected house prices to fall by 15% in the 12 months to December 2008. It is forecasting a further 12% decline in the following year.

The interplay between the distressed mortgage and housing markets is likely to get worse as more homeowners find themselves with negative equity (meaning that their homes are worth less than the loans on them). Working out the numbers affected is tricky, says David Miles, an economist at Morgan Stanley, an investment bank, and for many the shortfall may be quite small. With those provisos he reckons that a 15% fall in house prices could push 1.2m households under water; and a 20% decline might affect 2m, as many as in the dog days of the early 1990s.

As everyone involved in property, from homeowners, estate agents and lawyers to builders and their workmen, feels the pain, there will be wider effects. There are three main ways in which the housing market’s malaise may infect the economy. Each threatens to do considerable harm.

The first channel is through lower residential investment. Housing starts fell by 24% in the first quarter when set against the same period in 2007 and things have got worse since then. Kate Barker, a member of the Bank of England’s monetary-policy committee, recently said that the probable decline this year would be on a much bigger scale than in the slump of the early 1990s. The likely fall in investment could slice over a percentage point off GDP growth in both 2008 and 2009, according to Ben Broadbent, an economist at Goldman Sachs, an investment bank.

A second way in which the housing slump will hurt the economy is by slashing the demand for consumer goods linked to property transactions. When people move they typically borrow some extra money to pay for equipment to kit out their new home. That source of demand will take a big knock, since the turnover of homes may fall by 30-40% this year. The effect, estimates Mr Miles, could reduce GDP growth by a further 0.2-0.3%.

The third route is through the decline in property wealth, and this is a matter of considerable controversy. For many years it was taken for granted that there was a strong relationship between house prices and consumer spending (see chart). More recently the Bank of England has cast doubt on the link.

The apparent breakdown in the relationship in the early years of this decade, when consumers did not respond to a surge in house prices by spending more, seemed to support the central bank’s view. This year too, shoppers appear unfazed by falling property wealth. Household spending rose by 1.1% in the first quarter of 2008 compared with the last three months of 2007. Official figures for retail-sales growth in May were so buoyant that they aroused incredulity in the City.

But even if the strength of household spending in early 2008 turns out to be genuine, it may prove short-lived. Consumer confidence fell in June to its lowest level since March 1990, according to a survey by GfK NOP, a research outfit. Until this year the former link between house prices and spending appeared to have reasserted itself. In any case, the earlier breakdown noted by the central bank arguably reflected the influence of a long bear stockmarket in curbing consumer spending.

According to Ray Barrell of the National Institute of Economic and Social Research, a 15% decline in house prices over the next two years would reduce the increase in consumer spending by one percentage point a year. The effect on GDP growth would be smaller, bringing it down by about half that amount over the next year, since much of the spending shortfall would leak out into imports. Clearly, the impact would be bigger if house prices fell more steeply.

Putting these estimates together, the potential economic harm is evident. Mr Miles thinks the outlook is better than in the previous housing bust, because borrowers do not face the sort of shock produced in the late 1980s when the Bank of England doubled the base rate in little more than a year. Even so, the credit squeeze is raising effective borrowing costs as banks restore their margins on new and maturing fixed-rate mortgages. With inflation out of its box, the central bank can do little to help, and may indeed have to raise interest rates to show its inflation-fighting resolve. Coming on top of the erosion of consumers’ purchasing-power by soaring oil and food prices, the housing slump looks set to inflict some hefty collateral damage.

[millionairemind]

The signs of a recession are all here
By Roger Bootle
Last Updated: 12:34am BST 07/07/2008

Last week the seriousness of our economic predicament became palpable. There was a string of bad economic news but for many people what really struck home was the company news.

The UK's iconic retailer, Marks & Spencer, suffered a huge fall in sales and its executive chairman said that he saw no sign of relief on the horizon. This wasn't just a profits warning; this was an M&S profits warning. So how bad will the downturn get and how long will it last?

As regular readers will be well aware, all along I have been pretty pessimistic about the economic outlook, arguing that the Brown "miracle" was a mirage, founded on a sea of debt and resting on an illusion of prosperity created by rampant house price growth and a yawning balance of payments deficit.

In this regard, I have argued that it shows striking similarities with the Barber and Lawson booms, both of which ended in tears. So what is happening now doesn't exactly come as a surprise to me. But I believe that recently the economic outlook has worsened considerably. A recession is now more likely than not.

I still meet plenty of business leaders who say that the cold winds are yet to hit their businesses. Some even say that we are in danger of talking ourselves into a recession. That makes me laugh. As though there is nothing out there in the world to make for a recession. We are passing through the third oil shock, the first two of which brought the world economy to its knees.

Moreover, other commodity prices have undergone a surge comparable to what happened in the early 1970s. As a result, it seems likely that this year real average earnings will actually contract, for the first time in more than 30 years. Meanwhile, we are experiencing the first serious credit crunch since the Great Depression. Oh, and by the way, house prices are falling at the fastest rate on record. What else do people need to see to convince them that the problems are real - the ravens leaving the Tower of London?

So, no, I do not think that the recession danger is the product of self-fulfilling pessimism. If we do experience a recession, it will be because of the combination of adverse external events and home-grown financial excesses.

Even so, I concede that many businesses may well be all right in the downturn. Remember that despite all the dramatic similes bandied around in the media, involving "earthquakes" and "tsunamis", even major economic events are actually marginal. If gross domestic product (GDP) falls, that is supposedly a disaster but for most people life continues much as before. Even in the Great Depression, most people did not lose their jobs and most companies did not go bust.

But the pain is concentrated. For those people who cannot find jobs, and those companies which face bankruptcy, this is intense. And millions more people and umpteen more companies will live in fear of this happening. In fact, this may be the worst aspect of recessions. Because no one knows where the blow will fall next, even those who end up not being affected experience the pain of intense insecurity.

I suppose that this time things could just about blow over without turning into something this serious. The most likely source of good news is a reversal of the sharp upward lurch in the price of oil and commodities. This would put money into consumers' pockets and also, by reducing the inflation rate, would make it easier for central banks, including ours, to reduce interest rates and thereby bring some relief to the hard-pressed housing market. Just at the moment this does not seem imminent, but it could happen.

But even if it did happen it would probably not be soon enough to prevent unemployment from rising. Nor would it stop the credit crisis from biting. Accordingly, it would not stop the collapse of house prices.

So how bad could things get? In the Great Depression, output here shrank by 5pc and unemployment rose by 1.5m. But in the United States, the equivalent figures were 30pc and 11m. I have something of a reputation as a pessimist. So you may be both surprised and relieved to hear that even I do not think that anything like this is on the cards. I do not even think that a recession as serious as the mid- 1970s, early 1980s or early 1990s, when output contracted by 2pc, 3.5pc and 1.5pc respectively, is likely, either - although something on that scale is certainly plausible.

How much suffering is caused by an economic downturn is not only about how deep it is but also about how long it lasts. There is a view doing the rounds that, even if things do get very bad for a while, the economy will quickly bounce back. After all, it did slow in 2005 but it quickly recovered to normality.

This view is extremely optimistic. In the downturn of the early 1990s, it took 13 quarters for the economy to get back to where it had been at the beginning. In the recessions of the mid-1970s and the early 1980s, the equivalent figures were 14 and 17.

Why should the economy recover more quickly now? The credit crisis is not going to go away. Banks will be struggling for years and their lending policies will bear the marks of the shortage of capital and greater scrutiny by regulators and shareholders. The difficulties in the housing market are deep-seated and will not disappear like a will-o'-the-wisp.

And remember that unemployment has not yet risen much. But it will. I reckon that it may increase by about 1m. Unemployment lags the economic cycle, but it also changes its shape. It effects a redistribution of the pain between sectors. Companies can reduce their costs by losing jobs but at the expense of transferring the pain to consumers. In the early 1990s, unemployment did not reach its peak until 18 months after output started to recover.

The upshot is that the economy might have shrunk already and could easily contract in the third or fourth quarters of this year - or both. Even then, however, because of growth over the past year, the annual figures would still show growth for 2008 - of perhaps 1.5pc. But next year probably will be the lowest point. There is likely to be next to no growth at best - and contraction at worst. By 2010, the likely election year, things may be getting better - but I wouldn't bank on it. And even if at that point the GDP figures are showing an upturn, unemployment may still be rising and house prices falling. It could be five years before things return to normal. I will now turn to the more bearish possibilities...

[kennynah]

07 Jul 2008 13:00 GMT

BULLET: NIESR Sees UK Q2 GDP Growth At 0.2% Vs +0.3% In Q1...

NIESR Sees UK Q2 GDP Growth At 0.2% Vs +0.3% In Q1
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UK growth will remain in positive territory despite weakening industrial production figures and surveys on the services sector, the National Institute of Economic and Social Research reports today.

But NIESR stressed that despite signs of weakness in the UK economy, there was still no room for interest rates to be cut. NIESR said that it estimated UK growth at 0.2% in Q2, compared with the official 0.3% result from National Statistics for Q1.

However, NIESR said that it believed that 2008 GDP as a whole would not be any less than 2007.

"We remain of the view that, despite these data, inflationary pressures and the risk of rising inflationary expectations mean that there is no room to reduce interest rates, and that an increase may be needed".