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http://www.sarrafx.com/en/view-blog-article/84/Politics-set-to-trip-up-Euro

Where can the West find growth? The release this morning of GDP data for the EU shows that growth is going to remain elusive for developed economies for some time to come. A further quarter on quarter fall and a year on year figure of -0.6% shows just how dire things remain. German Factory Orders also released this morning were appreciably better than expected but this merely highlights how bad things are in the rest of economy that is inexorably linked by the single currency. Now that the immediate issues of the debt crisis have been postponed it remains to be seen what can be done to promote the growth that is the only way that a sustainable recovery can be achieved. Mrs Merkel has said in a number of speeches recently that growth is the key driver for economic recovery. Of course never having had to stimulate the German economy to create growth she doesn’t actually have any practical experience. Austerity for the foreseeable future is not going to be a sustainable policy and expansion through public spending is the only way that confidence can be promoted. Confidence will lead to investment, investment to growth and growth to recovery. Interest rate announcements have now become very boring! Little can/will change for some time to come. It would be interesting to know when Central Bankers would predict when they see rates actually being increased. It has to be measured in years but I would hope less than five! Maybe three? In the U.S. things are not a lot better than in Europe from the growth perspective but the economy has a very different dynamic. Stimulation has become a byword and the U.S. Treasury is not really into austerity (the debt mountain is a testament to that). I hope that the current generation are not merely providing case studies for future MBA candidates in how they are handling their respective economies. Real people with real problems are being affected on both sides of the Atlantic! It is truly tragic to imagine that there are youths in Spain and probably other European countries who will NEVER work! Not through an institutional lethargy but simply due to the lack of opportunity. This is the terrible legacy of this crisis and may be the single issue that creates a sufficient groundswell if not to pull the Eurozone apart then to create sufficient support for programmes that create jobs. It is clearly the responsibility of every politician in every country to support such programmes. The EU centralized in all the wrong ways and also decentralized in all the wrong ways. If there is commitment to this experiment then it needs total commitment, harmony on taxation a single Central Bank and job creation schemes that stretch from Malaga to Oulu and Bruges to Larnaca.

It seems that we can no longer label those heavily indebted countries of Southern Europe as being the periphery. The idea that Greece leaving the Eurozone could cause the disintegration of the single currency means that the tail continues to wag the dog and will do for some time to come. Europe is at last waking up to the idea that were Greece to leave, then the domino effect could be catastrophic. Keeping Greece in the club and funding its needs seems to have been accepted as policy. Mrs Merkel added to the feeling that a solution is close by saying yesterday that “If Greece one day can rely once again on its own revenue, without having to borrow, then we’ll have to look at this situation and make an evaluation,” Merkel told Bild am Sonntag in an interview when asked about the prospect of debt forgiveness. It wouldn’t happen before 2014 or 2015, “if everything goes according to plan,” the chancellor said. It remains to be seen just how constitutionally possible such an action would be and we are nowhere near getting ratification from inside the EU or, just as importantly, those outside agencies that are equally as heavily involved. Those are very much matters for the future but the markets clearly liked what they have seen and have gone heavily into risk on mode with the Euro trading comfortably above 1.30 and looking very much lined up for an assault on the heavy resistance at 1.3120. This is a heavy data week with the final NFP of the year to be released on Friday preceded by the PMI reports across both Europe and the U.S. In line with current optimism, the expectation is for European data to show some improvement from very poor figures released last month and for the U.S. to see a slight pullback. Italy was the first to release and they showed a weaker than expected number. Economic data has taken a back seat over 2012 as risk sentiment and the debt crisis have driven markets. Therefore it will take something spectacular (and PMI data isn’t considered spectacular) for the sentiment to change. The JPY continues to be weak and trade comfortably above 80.00 and 106.80. It could be that we are seeing the beginnings of sustained weakness for the Japanese currency and that will be a relief for the new Government following the upcoming elections. It seems that the Euro will be relatively strong into the New Year. The Greek issue has been deferred yet again but the markets don’t seem to mind. This has had a positive knock-on effect on Spain, their bond yields fell again in November and Italy has managed to avoid the limelight. It remains to be seen if this serenity can be continued into the harsh reality of European winter following the festive season.

So, that was 2012! What did we learn? Well, as far as I am concerned, I learned that gravity doesn’t exist! What is holding the Euro up? I have now idea. It seems that with Greece having secured a further bailout, all in the garden is rosy. The Euro is trading up above 1.30 (as I write) and making multi month highs against an ailing JPY. There is something of a paradox here. Of the two major safe haven currencies, the JPY is weaker as their economy struggles and further QE is expected while the other the USD is weaker as their economy is starting to improve (if the revised GDP data is to be believed.) So, that was 2012! What of 2013? Well one thing is certain the issue of the Fiscal Cliff will be resolved, like the stars of an old romantic movie, the Democrats and Republicans are acting coy but will get together before the final reel! Europe will continue to kick the can down the street and muddle along without taking decisive action. I saw this morning that Mr Draghi says that the population of the EU can trust him and the ECB. Trust them to do what is the question! I am still a believer in my tenet that the Euro is not best solution for what ails the Southern countries and help from the North cannot be expected to last forever. Indeed a Bloomberg Survey just released shows that most economists believe that the continuation of the debt crisis will drag Germany back into recession. Without their help as the major contributor to the various bailout funds what will happen? That is definitely a question for the New Year. A topic I have mentioned before but feel no shame in mentioning again is that the action taken by the U.S. at the start of the financial crisis (is it coming up to five years ago?) was not maybe a perfect solution but it was decisive and gave America something to build upon. The EU is still bumbling around in the dark and hoping that doing pretty much nothing is a solution in itself. I have three wishes for 2013, they won’t come to pass in this year but I would like to see some progress; First the collapse of the Euro (naturally). Guys, it’s not working, please wake up. Second, some progress in the U.K. to leave the EU. They don’t belong and never will. The populace don’t like it. Brits view sovereignty totally differently to mainland Europeans and will cling to every last vestige before they hand anything to Brussels (or Frankfurt/Berlin). Finally, can we have our market back? Trading that works technically due to fundamental reasons. That is to say, let’s say goodbye to risk on/risk off and welcome back to currencies and commodities that move due to supply and demand created by economic fundamentals. I have a trade Idea! Sell Eur with a TP at parity! I am not sure when it will happen but I know it will. Trust Me!!!!!!!!!

http://www.sarrafx.com/en/view-blog-article/79/So,-What-now?

http://www.sarrafx.com/en/view-blog-article/78/Politics-&-Economics

http://www.sarrafx.com/en/view-blog-article/77/Austerity%E2%80%A6%E2%80%A6%E2%80%A6The-new-dirty-word

http://www.sarrafx.com/en/view-blog-article/75/Risk-off

http://www.sarrafx.com/en/view-blog-article/74/Is-the-UK-emerging-from-the-dark?

http://www.sarrafx.com/en/view-blog-article/73/Unequal-recovery

http://www.sarrafx.com/en/view-blog-article/72/Pleny-of-newsno-action

http://www.sarrafx.com/en/view-blog-article/71/Where-do-we-go-from-here?

Thank you my friend. I hope I have been fufilling your requirements with my posts

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http://www.sarrafx.com/en/view-blog-article/70/No-News-is-Good-News