As European governments continue to grapple with how to revive growth two hurdles — one internal and one external — are in the forefront. As the sanctions against Russia continue to bite into that nation’s activity, the drop in trade heading east is taking a toll on the European Union’s manufacturing sector, particularly in Germany. While a rate increase by the Bank of Russia appears likely during tomorrow’s monthly announcement, few analysts believe it will stop the ruble’s meteoric fall as low oil prices and frozen trade take their toll. Even if Russian president Vladimir Putin were to meet international demands over the situation in Ukraine, his nation’s wounded economy will still face hurdles that stand to significantly impact trade with Western neighbors. Separately, inside the EU, an unwelcome political flare-up in Greece has brought the eastern Mediterranean nation back into focus as a potential Achilles heel. If the ruling coalition fails to maintain a majority, market sentiment will factor the possibility of a government more hostile to EU demands that accompany the bailout, with current funding mechanisms set to expire in late February. Political risks are not the only headwinds facing European investors, of course. In a note released this morning, Société Générale strategists wrote that expectations for the second tranche of targeted long-term refinancing operations (TLTRO) to appear muted: “It is worth remembering that during the December European Central Bank meeting, [president Mario] Draghi said that it would be difficult to assess the (net) take-up in the December TLTRO, also adding that economic conditions had worsened.” As 2014 winds down, European markets are finding little relief from bad news.
U.K. trade deficit shrinks. U.K. trade data for October registered a deficit at multimonth lows on modestly rising exports combined with lower fuels costs. Separately, the Bank of England is expected to publish a report detailing proposed changes to information regarding its Monetary Policy Committee meetings. Current policy is to publish abridged minutes only. Rising political pressure to provide greater transparency may result in enhanced market guidance from the policymakers.
Production data is more bad news for France. October industrial production data released today by the National Institute of Statistics in Paris disappointed forecasters at a contraction of 0.8 percent for the month, or –1 percent year-over-year. Amid increasing concern that the French economy is stalling, the administration of President François Hollande is pressing for reforms that would bring the nation into compliance with EU regulations that face significant political pushback.
Prices in Japan meet forecasts. Japanese corporate goods price index data for November released today came in line with forecasts at a marginal contraction for the month, providing another data point underscoring the challenges facing policymakers in Japan pursuing higher inflation. The yen has risen modestly against the currencies of regional trading partners in recent sessions as investors prepare for next week’s Bank of Japan monetary policy statement and brace for the special national election on Sunday.
Oil data on deck. The weekly Energy Information Administration inventory report scheduled for release today at the forefront of investors’ minds. Global markets continue to feel the pressure of the Saudi supply glut and increasing North American production levels. Comments today from a senior official at the Iranian Oil Ministry suggested that if OPEC doesn’t intervene on oil price levels, prices could drop as low as $40 per barrel.
