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There Is a Storm Brewing in the Euro Area

There Is a Storm Brewing in the Euro Area

By    |   Monday, 10 October 2016 09:20 AM


The U.S. presidential debate was perhaps more some kind of a Roman political contest than a Roman gladiatorial contest, with right out of a threat to prosecute one’s opponent.
 

The received wisdom of the media is that it is unlikely to change the position of the middle ground. The Republican National Committee is reported to be meeting, in a members only fashioned today, to discuss some important stuff.


 

It is important to remember that financial markets are likely to have a different reaction, depending on the outcome, not just of the presidential race, but also of the congressional races.
 

The republicans have a structural bias in the House in the constituencies mean Republicans win more seats than their proportion of the vote would indicate.
 

A Clinton White House with a Congress that is partially Republican is a very different outcome for a Clinton White House with a Congress that is Democrat, to give one example of the issues for markets. Therefore, some considerable consideration needs to be given to the impact of the of the Presidential race on other elections in November.
 

In economic matters, Fed Vice Chair Fisher said that there is little prospect of the Fed falling behind the curve with its tightening policy


That may be a rather optimistic assessment. Most inflation measures in the States are in line of or above their 20-year averages. Fed policy is anything but average. This does not herald runaway inflation, but it does raise questions about whether the Fed in allowing the effects of the low oil price to deceive the general public as to the overall inflation pressure position, enough the Fed’s real policy stance.
 

Away from all of the U.S. noise, the euro area gave us some more September inflation figures, or perhaps, from larger economies, but it now does include Greece, which is expected to remain in deflation on the national measure, but see rising inflation or harmonized inflation numbers.
 

The divergences of inflation within the Euro area remain, but the correlation in the core Euro area inflation rates are extraordinarily low.
 

This is one of the main challenges and problems for the Euro area economy.
 

In the United Kingdom, a British Chamber of Commerce survey (Ref. http://www.britishchambers.org.uk/policy-maker/economic-data/quarterly-economic-surve/ ) and the Lloyd’s survey have both signaled that companies expect to scale back on investment and hiring in the wake of the EU referendum result.
 

This is hardly a surprise given the uncertainties that the results generate.


It is unlikely that we will see companies firing workers over the near term, but, either reducing hiring or increasing the use of highly flexible contract workers seems to be very likely.
 

Finally, Bank of England governor Mark Carney said he thought the drop in British GBP was a technical matter.
 

In the wake of the U.S. presidential debate, the US Republican National Committee meets today in private to discuss matters of interest. For markets, it is important to remember that there are more US elections than the race for the presidency.
 

The market implications of a Clinton White House with a Republican Congress would be very different from a Clinton White House with a Democrat Congress, to give one example.
 

Fed Vice Chair Stanley Fischer declared that the Fed is not behind the curve in moving policy. Most US inflation measures are at or above their 20-year average. Fed policy is not average. Meanwhile in Europe, weaker Greek inflation underscores the divergence of eurozone inflation.
 

In the UK, two surveys indicate that companies are intending to scale back hiring and investment plans, in the wake of the referendum result. This is not a surprise given the uncertainty around the future, including issues like the acceptability of employing foreign workers.
 

Yes, there is a storm brewing in the Euro Area.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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The U.S. presidential debate was perhaps more some kind of a Roman political contest than a Roman gladiatorial contest, with right out of a threat to prosecute one's opponent.
storm, euro, invest, economy
659
2016-20-10
Monday, 10 October 2016 09:20 AM
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