European Reality Check

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ECB cheat sheet: Is a hike hawkish enough?​

Markets are torn. Will the ECB hike this week or not? We think it will, but we look at how different scenarios can impact rates and FX. Even in our base case, we suspect that convincing markets that this is not the peak will be very hard, and dovish dissenters may get in the way. The upside for EUR rates and the euro may not be that big and above all, quite short-lived.

Whether they convince markets or not, they have to keep up with the Fed.
We'll see how clear that signal is after the Fed hikes a couple more times in the months ahead.

  • The European Central Bank’s key interest rate will remain at 4% as it opted to pause in October after 10 consecutive hikes.
  • The ECB repeated its message that rates at current levels would help bring inflation to target if “maintained for a sufficiently long duration.”
  • The Bank of England, Swiss National Bank and U.S. Federal Reserve all held rates steady in September.
Hard-up households across the UK are set to receive a second £300 cost-of-living payment from Tuesday.

The payment will be made to people in receipt of certain benefits, including universal credit, and will be paid directly into their bank accounts.

More than eight million households across the UK will receive the second of up to three cost-of-living payments, totalling up to £900 through 2023 and 2024.

Made me smile.

ROME, Nov 2 (Reuters) - The Italian government plans talks with restaurant owners in order to control prices and help large families to eat out, a government document seen by Reuters showed on Thursday.

Industry Minister Adolfo Urso has summoned several associations from the catering and food sector to a meeting in Rome next Tuesday morning, the document showed.

Yes, because price controls have such a rich history of success. High prices are a symptom, not the root issue.


Key events in EMEA next week​

The focus of next week will be Poland's first MPC decision, with further policy easing expected in the aftermath of the general elections. Elsewhere, inflation in the Czech Republic is likely to come in higher due to government measure base effects. In Hungary, we expect further disinflation in October

FRANKFURT, Nov 15 (Reuters) - Euro zone banks are losing millions of euros due to tech contractors letting them down, the European Central Bank said on Wednesday, as it warned of shortcomings in how lenders approach cyber-risks more broadly.

The ECB ran a survey among the banks it supervises this year and carried out 22 inspections since 2020 to test how prepared banks are to deal with risks including hacks, ageing systems and contractors falling short of what they promised.

LITTLETON, Colorado, Nov 14 (Reuters) - Mainland Europe's two largest economies have reached key power price deals this month that should set the stage for increased power consumption by industry from 2024 onwards.

Higher power and industrial output will in turn likely generate higher total emissions, even amid ongoing efforts to deploy more clean energy throughout Europe's power systems.

Europe's largest economy and main manufacturer Germany reached a five-year agreement on Nov. 9 on a package of measures designed to reduce power prices for energy intensive industries that have struggled with high energy costs since Russia's invasion of Ukraine severed gas supplies in 2022.

By Jack Wittels, Yongchang Chin and John Ainger (Bloomberg) —

Ships sailing to European ports face a combined carbon emissions bill of $3.6 billion next year, the start of a levy that’s almost certainly going to rise as the continent steps up efforts to combat climate change.

The figure is an estimate of the total price of complying with the European Union’s Emissions Trading System from Drewry Shipping Consultants Ltd.

WARSAW, Nov 21 (Reuters) - Poland is on track to access 5.1 billion euros ($5.56 billion) in advance payments as part of an European Union programme to encourage a shift from Russian fossil fuels, the bloc's executive said on Tuesday.

BERLIN, Nov 22 (Reuters) - German Chancellor Olaf Scholz's coalition on Wednesday indefinitely postponed talks on next year's budget as it struggled to find a way out of a crisis caused by a court ruling that blew a 60 billion euro ($65 billion) hole in its finances.

The delay to the talks, which were scheduled in parliament for Thursday, underscored the challenge facing the government after the constitutional court blocked the transfer of unused pandemic funds towards green investments and industry support.

If you read through this and read some of the articles about the IMF & BIS plans for a CBDC in the tin foil hat thread it almost looks like plans are coming together for a one world type of governance in the supply and monetary systems. Then again, could be nothing more than an updated way of making shipping more secure.

Import Control System 2 (ICS2)​

What is ICS2?​

The European Union makes it a top priority to ensure the security of its citizens and single market. Every year trillions of Euros worth of goods are imported into EU, with the EU-27 now accounting for around 15 % of the world’s trade in goods. The European Union is implementing a new customs pre-arrival security and safety programme, underpinned by a large-scale advance cargo information system – Import Control System 2 (ICS2). The programme is one of the main contributors towards establishing an integrated EU approach to reinforce customs risk management under the common risk management framework (CRMF).

Re:ICS2 - I have not read the details yet, but as we transition into tokenized digital money systems and smart contract technology develops, frameworks governing a whole bunch of things like shipping are going to adjust to support them. It's going to open up a world of new opportunities in automation.

Brussels braces for a politically explosive December​

The European Union's to-do list for the month of December is nothing short of sensational.

Before embarking on their coveted winter break, European leaders and policymakers face a month loaded with politically explosive decisions that are set to lay bare old-age divisions, and open up new scars.

Next week will begin the Schengen applications of Romania and Bulgaria, two countries that have been waiting at the doorstep of the passport-free area for more than a decade. For both, the question of joining Schengen is profoundly emotional as the persistent exclusion creates the impression of a two-speed, discriminatory Europe. The European Commission, the European Parliament, and a nearly unanimous majority of member states have thrown their strong support behind their joint bid.

But Austria's notoriously inflexible opposition remains in the way. The country has clung to the idea that Schengen, due to the continued arrival of irregular migrants into the bloc and re-imposition of border controls, has ceased to function. Any expansion at this time is therefore undesirable in Vienna's eyes.



In sea change for Poland, new government is sworn in​

  • Polish president swears in new government
  • Ceremony completes shift away from nationalist rule
  • New PM Tusk aims to repair ties with European Union
WARSAW, Dec 13 (Reuters) - New Prime Minister Donald Tusk's government was sworn in by Poland's president on Wednesday, the final step in a transfer of power that marks a huge change after eight years of nationalist rule.

Following years of disputes between Warsaw and Brussels under the previous government, led by the Law and Justice (PiS) party, Tusk's appointment has raised hopes of smoother relations with the rest of the European Union.



Explainer: What is happening with Germany's 2024 budget?​

BERLIN, Dec 12 (Reuters) - German Chancellor Olaf Scholz, Economy Minister Robert Habeck and Finance Minister Christian Lindner resumed talks on Tuesday to find an agreement on the 2024 draft budget after a constitutional court ruling threw their financial plans into disarray.

Here are some of the questions raised in the four weeks of negotiations:


Finance Minister Lindner of the fiscally hawkish Free Democrats (FDP) estimated Germany faced a funding gap of around 17 billion euros ($18.27 billion) in a budget of around 450 billion for 2024.



UK and Switzerland sign post-Brexit financial services deal​

  • The U.K. and Switzerland on Thursday signed a post-Brexit financial services deal designed to bring two of Europe’s largest banking centers closer together.
  • British Finance Minister Jeremy Hunt told CNBC that the “first-of-its-kind” deal was a win for post-Brexit Britain that “wouldn’t have been possible to sign” inside the European Union.
  • “This is a new type of trade agreement that we can use as a model for future agreements that we have with other markets as well,” Hunt said.


ECB must not jump the gun with rate cuts, Finland's Valimaki says​

HELSINKI/FRANKFURT, Jan 16 (Reuters) - The European Central Bank is making progress in lowering inflation to 2% but needs more evidence before rate cuts come on the agenda and policymakers should wait "a bit longer" rather than move prematurely, Finnish policymaker Tuomas Valimaki said.

The ECB ended its quickest interest rate hike cycle in September and with inflation now slowing, the topic of policy easing is creeping up the agenda, though investors and policymaker differ greatly on the timing of the first move.



Keep calm and carry sterling​

LONDON, Feb 12 (Reuters) - The U.S. dollar is very much in the driving seat of the foreign exchange market right now, but there is another currency reeling in yield-hungry traders just as the Federal Reserve and a raft of other central banks prepare to cut rates: the pound.

British consumers, businesses and politicians might be feeling gloomy about the prospect of UK interest rates remaining high for quite a bit longer than elsewhere - not least because inflation has proven much stickier.

But for currency traders, it is a boon. At 5.25%, UK rates are among the highest in the Group of 10 (G10) major economies, bar those in New Zealand and the United States, at 5.5%.

The Bank of England is adamant that inflation is too far above its 2% target to risk a premature cut, and data this week, if in line with expectations, is unlikely to move the dial.

Meanwhile, investors are preparing for the Fed to possibly cut as early as May, along with the European Central Bank, while across emerging markets, the rate cycle has already tilted towards cuts.


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