Recap 2014-09-09


I’d like to touch on the excessive pessimism on Europe. It’s very fashionable to compare Europe to Japan these days, which then invariably segues to the ineffectiveness of monetary policy and a comparison of demographics issues. Of course both of those items miss the key issue that afflicted Japan in the past and Europe now – availability of bank credit. GS ran a survey on the upcoming TLRTO, and the pessimism is evident there as well. More than half (54%) view higher loan growth as unlikely. Similarly, they believe that many of the managements of largest European banks (flush with liquidity) are also skeptical. The pessimism is also reflected in asset prices – long dated real yields are pricing in a depression like outcome for Europe, which even Japan did not go through, and the risk premium for European equities remain at levels that coincide with recessionary outcomes.

All this pessimism is understandable. In addition to the problems listed above, EU banks remain quite levered, which have caused them to tighten lending standards sharply, to levels which exclude all but the most credit-worthy applicants. But amidst it all, it’s worth pointing out that last quarter, for the first time since 2007, after 7 long and lean years, credit standards by EU banks EASED on a net basis: (in white below, Industrial Production YoY in orange)

Now, one marginally positive print does not make a spring. But since it is coming following a slow, 2.5 year period of sequential improvement, there is a good chance as any that the trend is likely to persist. And while there are still plenty of reasons to be pessimistic, the tide is turning: (net easing vs EUR non-financial loan growth in orange below)


Must read:

Think Thanks influenced by foreign governments:

The arrangements involve Washington’s most influential think tanks, including the Brookings Institution, the Center for Strategic and International Studies, and the Atlantic Council. Most of the money comes from countries in Europe, the Middle East and elsewhere in Asia, particularly the oil-producing nations of the United Arab Emirates, Qatar and Norway, and takes many forms.

On that topic – note that a US court has allowed Yelp to change reviews for payment.


  • Australia Business Confidence declined to 8 vs 11 prev
  • Home Loans rose 0.3% MoM vs 1.0% exp
  • US NFIB index improved to 96.1 vs 96 exp and 95.7 prev. The compensation plans sub-index is at levels last seen in mid 2004.
  • Scotland polls: Second opinion poll has confirmed the race to keep Scotland within the UK was neck-and-neck, 39% "No" vs 38% "Yes"
  • Russia – evidence Western sanctions are hurting. Rosneft is cutting staff and production and selling stakes in Siberian fields in response to Western sanctions. The co is having difficulty servicing its ~$55B debt load and securing cutting-edge technologies needed to extract crude. Reuters


  • Tue: Japan Machine Orders
  • Wed: RBNZ, AU Employment
  • Thu: FranceCPI, US Jobless Claims, USDA WASDE reports, NZ PMI
  • Fri: Kuroda Speaks, US Retail Sales, U Michigan Confidence
  • Mon: China Retail Sales, IP, US Empire Manufacturing,
  • Tue: UK CPI, PPI, German ZEW, US PPI