Europe’s reliance on Russian gas is a good illustration of the important trading relationship between Russia and Europe. Gazprom estimate they supplied up to 34.7% of the gas consumed in Europe in 2017; Germany is the largest individual market. This it implies Europe’s approach to sanctions is necessarily different to the US. Although it is a different industry, last week the US eased the recent sanctions on Rusal, given the knock-on effects on European businesses, by extending the deadline to October for compliance. US Treasury Secretary Steven Mnuchin commented: ‘Given the impact on our partners and allies, we are issuing a general license extending the maintenance and wind-down period while we consider RUSALs petition.’
Not that the German economy has fared poorly in the past four months, but the political stalemate that has endured over that period is finally moving forward - with Chancellor Angela Merkel’s conservatives (CDU/CSU) yesterday agreeing terms for a renewed ‘grand coalition’ with Martin Schulz and the SPD. But many on both sides still oppose the pairing which in some ways seems about as unmelodious as the UK’s Clegg-Cameron-Coalition of yesteryear. So in the typical drawn-out fashion a final vote on the deal, by half a million registered SPD members, is still required and expected by the 4th of March.
UK’s Industrial Production for November 2017 came in this morning as forecasted at 0.4% mom: the 8th consecutive rise. Last time this happened was over 23 years ago in May 1994. Moreover, because of revisions to prior months’ data the yoy Industrial Production growth read 2.5%, beating forecasts of 1.8%. And although we are a nation built more upon the service industry, such an improvement should at least help the 2017 GDP figure reach its 1.5% target, which was notoriously revised downwards over the course of last year, as stalled Brexit negotiations took their toll.
Today France celebrates la fête nationale (or Bastille Day) and Emmanuel Macron is hosting Donald Trump at the celebration: Perhaps in another demonstration of his intent to make a mark in international affairs as well as domestic policy. Once the festivities end the focus will no doubt return to Macron’s domestic agenda and how much of his policy rhetoric he is able to execute.
Markets are relatively quiet in anticipation of the main event of the next 24 hours – tomorrow’s Governing Council Meeting of the ECB in Frankfurt (or perhaps for some it is the new iPhone release and Apple keynote presentation later today). However, happenings on the other side of Germany are worth watching too, namely the state legislature win of the anti-establishment Alternative for Germany Party (AfD) in Mecklenburg, home state of ‘Mutti’ Merkel, pushing her Christian Democrat Party (CDU) down to third place. This could turn out to be a significant antecedent to a further rise in the populist anti-immigration AfD Party and even lead to a swing in federal elections in 2017. Current opinion polls put the AfD in the mid-teens which if held or increased would give them enough seats in parliament to encumber the usual grand coalition between the CDU and the Social Democrats (SPD). An even a small interloper in the Bundestag could obstruct political decision making at the heart and industrial engine of the Eurozone, just at a time when reforms and decisiveness may be needed across Germany and the Eurozone.
The IMF’s 19 July economic update contained yet another downward revision to their global growth estimates: now running at 3.1 percent for 2016 and 3.4 percent for 2017. The report noted “The Brexit vote implies a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences, especially in advanced European economies.” The growth forecasts for the UK saw a modest downgrade to 1.7 percent in 2016 but the 2017 estimate was slashed by 0.9 percent to 1.3 percent.