17th December 2014 by The Harried House Hunter
Eurozone business surveys are starting to confirm the improved economic outlook signalled by monetary trends and leading indicators – see previous post.
The Eurozone manufacturing purchasing managers’ new orders index rose back above the breakeven 50 level in December after three months below it. This turnaround has occurred on schedule following a recovery in the longer leading indicator calculated here from a low in May – see first chart.
The December ZEW survey, meanwhile, reported a further solid gain in German economic expectations, which should be mirrored directionally by the more widely-watched Ifo survey released on Thursday – second chart.
These improvements are unlikely to deflect ECB President Draghi from attempting to drive through sovereign QE in early 2015. His hand has been strengthened by modest take-up of last week’s TLTRO2 lending operation. As the table shows, the TLTRO2 loan was less than half that required to offset the repayment of earlier three-year LTRO loans by end-February 2015. With private sector asset purchases unlikely to fill the gap, the balance sheet may contract slightly in early 2015, casting further doubt on the achievability of the ECB’s “intended” expansion of about €1 trillion on a reasonable time scale without sovereign QE.
|Longer-term refinancing operations|
|Repayment of three-year LTROs from 2011-12 by Feb-15||-271|
|Implied net change by Feb-15||-141|
|Covered bond / ABS purchases|
|Addition by Feb-15 assuming €5 billion per week||60|
|Combined impact by Feb-15||-81|