Cross posted from Alpha Sources
I have already covered this to some detail here on AS in relation with my notes surrounding the ECB decision to raise to 4%. For those of you who are ardent Eurozone watchers I have a note up over at GEM on the very recent slew of data from the Eurozone. Here is my summary ...
The only thing missing here is of course an interest call on the future course of the ECB in 2007. In many ways, I have already dealt with this in my previous notes on the ECB decision to take the refi rate to 4% a few weeks back. For all intent and purposes it is very difficult, at this point, not to expect the ECB to take it to 4.25% at some point in 2007. Both the recent remarks from the ECB, the Euribor futures markets as well as forecasts from Morgan Stanley indicate this. I remain skeptical on this and I clearly do not agree with Morgan Stanley when they open the door to a refi rate as high as 4.75%; this I think is highly unlikely. What I think is important is that the ECB from here on quite simply have to become more data dependant as it clear that restrictive territory is moving ever close if the threshold has not been passed already, at least in Italy's case. In that respect, the data fielded above paints a less favorable picture than the ECB had expected or at least, this would be my guess. Also, at some point it will be interesting to see whether the ECB can keep on maintaining its cyclops eye fixed on aggregate inflation and monetary measures. As for my official interest rate call I have nudged it up to 4.25% based more on what I think will happen than I think should happen. One thing I think however to be crucial is the incoming real data on domestic demand in Germany and Italy.
Today adds a couple of new interesting data points which conform with the headline of a mixed outlook for the Eurozone. Firstly, it seems as of business confidence in Germany may have finally topped although we need to remember that sentiment on a relative basis is still on an all time high.
German business confidence fell more than economists forecast in June after a rebound in oil prices and higher borrowing costs raised concern growth in Europe's largest economy may have peaked.
The Ifo institute's sentiment index, based on responses from 7,000 executives, fell to 107 from 108.6 in May, the Munich-based research institute said today. Economists predicted a decline to 108.4, the median of 43 forecasts in a Bloomberg survey showed.
More evidence of a relative easing of momentum in the Eurozone comes from industrial orders which fell in April. I do think we need however to be cautious here since the number after all is from April and with the latest news from the US about how Q2 growth might even pick up we should perhaps expect a reverse in this in the months to come?
European industrial orders fell in April as the higher euro damped exports of the region's textiles and machinery.
Orders in the euro area fell 0.4 percent from the previous month, the European Union statistics office in Luxembourg said today. Economists had forecast a decline of 0.8 percent, according to the median of 15 estimates in a Bloomberg News survey. From a year earlier, orders increased 12.2 percent, compared with an 8.1 percent rise in March.
And finally some good news albeit the fact that it is not really in the bank yet. Still, the French statisitical office revised its growth forecast upwards today for the last two quarters of 2007 (to 0.7%). All in all, if the INSEE predictions for the Q2-Q4 07 come through France will be looking at an annualised growth rate of 2.5% which is not bad at all.
French economic growth will accelerate in the second half of the year as consumer spending picks up, according to Insee, the national statistics office.
Paris-based Insee predicted Europe's third-largest economy will grow 0.7 percent in each of the next two quarters from the previous three-month period after 0.6 percent in the current quarter and 0.5 percent in the first three months of the year.