rance is an organized chaos, with lots of Asian tourists walking around, discovering French wines and cheeses in the vicinity of cultural spots… and I did not get convinced (over the long weekend in Paris) they are very price sensitive. Ironically, the land of petites faces economic and political problems not that petite at all. But as I once said… Greece was a special case, Cyprus was a special case, France is a special case…and that’s what makes the euro zone so unique. What France, and the rest of Europe needs, is combining own creativity with Asian competitive labor, and money. There are some good signs on the latter, if you look at the data from the latest issue of The Economist (Figure 1).
Figure 1. Chinese FDI by destination
Remarkable blow to the pro-austerity camp last week, with debt/GDP of 90% no longer a taboo. Among the austerity victims, the UK got its death kiss from Fitch late Friday, something that has been the known risk factor for British pound following Moody’s act several months back. I still retain the positive view on GBP, after seeing last week’s labor market figures (unemployment rising not least due to the fact that people getting back to the labor force!). Don’t underestimate chances of GBP to recover in particular vs USD (as long as 1.5150-1.5200 holds), though I still believe in EURGBP trending higher short term. The UK Q1 GDP report on Thursday will be a psychological moment: triple dip recession, or “just” a double dip one? After previous week’s construction figures expectations were adjusted down, so anything above 0% in y/y growth in Q1 would be OK news for GBP.
The EUR manages to hold rather well. Despite last week’s flop – Weidmann’s comment Llast Wednesday on ECB rate cuts, which weakened the EUR. It was in no sense a game changer or policy shift, if you put it into perspective of numerous other speeches over the past few weeks. The man himself corrected the situation Friday, saying ECB won’t act until see more data weakness, which helped the EURUSD reach back above 1.31s. European PMIs and the bank lending survey, released this week, are crucial. Not much change from last time is expected by consensus, so hope at least for that (and hope justified at least by recent Asian surveys, EMU money supply growth (Figure 2) and monetary conditions). On the other side of the Atlantic, watch the Q1 GDP growth released on Friday. Sure, the US has been growing faster…but at what (future) price? I giggle at IMF claiming that “the top priority for the U.S. is to raise the debt ceiling in a timely manner”.
Figure 2. EMU PMI and money supply
A notable reminder: ECB is not Fed or BoJ. You can feel a bit of irony in Asmussen’s speech where, to my understanding, he codes the American and Japanese policy approach as cynical, saying “to the cynics, my message is: we will not solve a debt crisis with more debt.” Golden is his comparison as to what Greece has done relative to the US: “in this country, the ‘sequester’ calls for cuts of 1.2 trillion dollars over ten years. The equivalent of what Greece has done would have meant for the US an adjustment of 1.6 trillion dollars over three years.” Part of the adjustment/deleveraging is creates a positive flow, once again confirmed by the large EMU current account surplus last week (Figure 3).
Figure 3. EMU current accoun
Japan has been given (yet another) green light. The G20 winks with the IMF at front, expecting positive spillovers all over the world. The BoJ rate decision ahead this Friday, and latest comments from BoJ suggest expect no more stimulus to come. But I guess one should be obsene do expect that anyway. As Finance Minister Aso said last, Japan is already implementing “thee bazookas” against which even Fed’s plan looks modest (Figure 4). The USDJPY must go for 100 now! I am in for more upside with EURJPY.
Figure 4. BoJ’s monetary bazooka
Nordea