- Greek crisis Summit on Monday, while Eurogroup to be scheduled before that
- Eurozone banks took up EUR 74bn in the ECB’s fourth TLTRO
- Higher energy prices, lift US consumer prices, while a stronger dollar pushes down core prices
Europe to increase efforts to reach Greece deal
Thursday’s Eurogroup made little progress towards a deal on Greece, though there will now be an emergency Euro Summit on Monday. In addition, a Eurogroup meeting will be planned before then, in order to lay the groundwork for a deal. All this shows that despite the heated rhetoric a strong push is being made to reach an agreement before the end of the month, when IMF payments fall due. The pressure to reach a deal was also underlined by reports that in the first four days of this week, Greek deposit outflows accelerated to EUR 3bn. Apparently the Bank of Greece will request an increase in the ELA limit today.
Fourth ECB TLTRO sees high demand again …
The ECB allotted EUR 73.8bn in its fourth TLTRO, following EUR 97.8bn in the third operation in March. As in the first three TLTROs, it was mainly Spanish and Italian banks that took up the loans. In the four TLTROs that have been allotted so far, banks have borrowed a total amount of EUR 385bn, which is equal to almost 4% of eurozone GDP. The borrowing allowance of the first two TLTROs (in Sep and Dec 2014) was based on the outstanding amounts of bank loans to non-financial corporations and households (ex. mortgages) at the end of April 2014. In contrast, the allowance for the third and fourth operations was based on the increase in lending between the end of April 2014 and the reference month of the relevant TLTRO, versus a certain threshold. Therefore, the positive take-up in TLTROs 3-4 indicates that bank lending to the private sector is picking up.
… as bank lending increases
Indeed, ECB data shows that the monthly flow in loans to households and non-financial corporations (adjusted for sales and securitization) turned positive in August 2014, after having contracted almost non-stop during the previous two years. It has accelerated markedly since the start of this year. In April, the monthly flow came out at EUR 15bn, up from EUR 9bn in March. This rise in bank lending has also been signalled by the last couple of quarterly ECB Bank Lending Surveys, which have shown that banks are easing lending conditions, while demand for bank loans is rising.
US consumer prices rise in May
US headline consumer prices recorded the largest increase in two years in May, rising 0.4%, up from 0.1% the previous month, boosted by a 4.3% increase in energy prices. The core CPI showed some softness, rising just 0.1%, down from 0.3% in April. Mainly apparel and used cars declined in May. Import prices for non-oil imports continue to fall and this could be pushing down core inflation a bit. This impact should diminish in time. Compared to a year earlier, prices were unchanged, while core CPI was up 1.7%.
Fed remains confident about inflation reaching 2% target
We don’t think that the somewhat weaker core CPI will change the view of the Fed on a rate hike, as early as September. Wednesday’s FOMC press statement suggests the Fed remains confident that inflation will gradually move to its 2% target and that it does not have to wait for inflation to reach this target to hike rates.
US labour market remains solid
Meanwhile, initial jobless claims declined to 267k in the week ended June 13 from 279K last week. This is the week which the government surveys employers for the June nonfarm payrolls, suggesting that this job report will be strong.