Euro macro: Germany’s manufacturing sector flourishes – Industrial production in Germany jumped higher by 2.6% mom in August, following two consecutive monthly declines (of 1.1% in total) in July and June. Although it was stronger than expected, a rebound in August was already pre-signalled by strong readings for Germany’s Ifo business climate and PMI indicators for the manufacturing sector during the summer months.171009-Global-Daily.pdf (43 KB)
The details of the production report clearly reflect the fact that domestic demand in Germany and in the eurozone as a whole is growing robustly. Indeed, the strength was in manufacturing output (+ 3.2% mom), while construction output fell by 1.2%. Within manufacturing, production of durable consumer goods (+6% mom) and capital goods (+4.8%) were particularly vigorous. The less volatile year-on-year growth rate of these two parts of manufacturing has also been higher than total manufacturing during the past couple of months. Capital goods production rose by 5.8% yoy in August and durable consumer goods production by 8.1%. We think that economic growth in Germany as well as the eurozone total picked-up somewhat in Q3 and will remain at levels well above the trend rate in the coming quarters. (Aline Schuiling)
European Financials: Spanish banks swiftly relocate due to Catalan events – An increasing number of companies have decided to relocate their headquarters outside Catalonia, following the recent political events in the region. CaixaBank, the largest bank in Catalonia, announced on Friday they would move their headquarters to Valencia. This followed a decision a day earlier from Banco de Sabadell, the fifth largest bank in Spain, to also leave their Catalan base and relocate their legal headquarters to Alicante. A move to stay within the European banking supervision was the main reason behind the relocations, as this was deemed essential to protect both investors and depositors. Investors need to be sure of which legal frameworks apply when problems arise, while depositors benefit, for example, from EU rules in regard to deposit protection.
The recent failure of Banco Popular, due to a drastic removal in deposits, is likely to have accelerated the decision of the institutions. Banks, often more than other types of industry, are extremely sensitive to any removal in confidence, which can trigger a run on the bank. Furthermore, there is still no method to deal with liquidity issues at a European level, which does not help the situation. The swift relocations by the banks will maintain them under ECB supervision, which will assist in bank continuity and protection. All politics aside, the moves show the sensitivity that any bank can face if they leave a strong well-developed supervisory system. (Tomas Kinmonth)