Eurozone – Disinflation story to continue
European PMIs for November rose slightly to 47.1 from 46.5 prior, indicating a bottoming of sentiment albeit at low levels. Similarly, consumer confidence improved from -17.9 to -16.9, while Germany’s IFO (research institute) expectations survey increased from 84.7 to 85.2. This week’s CPI on Thursday is likely to fall from 2.9% to 2.7% YoY, whereby consensus sees core inflation to fall from 4.2% to 3.9%, and the MoM headline print to even fall by -0.2%. Nonetheless, ECB speakers continued to push back against the markets pricing of rate cuts and declared the fight against inflation is not yet over. Markets price cuts of 25bps by June and 85bps by December 2024.
Germany – Budget Fiasco
German courts ruled that the transfer of €60bn Covid-funds into special-purpose vehicles funding the climate transition was unlawful, resulting in an immediate budget hole of ca. €30bn. The €60bn spending power only corresponds to about 1.5% of GDP and would be split over several years, but the ruling questions amounts over €800bn held in government approved German SPVs (Special Purpose Vehicles) and puts the three-party coalition on a weak footing. The government has now decided to suspend the debt-brake in hindsight for 2023 to bridge the gap, but we believe this will be questioned by the opposition centre-right party CDU. The outlook is uncertain but presents downside risks to the German economic and political outlook, as the 2024 budget to be agreed before year-end may be unlawful too. Bloomberg consensus sees German GDP growth at 0.4% in 2024, below the Eurozone aggregate of 0.7%.
Algebris Investments’ Global Credit Team
This document is issued by Algebris (UK) Limited. The information contained herein may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of Algebris (UK) Limited.
Algebris (UK) Limited is authorised and Regulated in the UK by the Financial Conduct Authority. The information and opinions contained in this document are for background purposes only, do not purport to be full or complete and do not constitute investment advice. Under no circumstances should any part of this document be construed as an offering or solicitation of any offer of any fund managed by Algebris (UK) Limited. Any investment in the products referred to in this document should only be made on the basis of the relevant prospectus. This information does not constitute Investment Research, nor a Research Recommendation. Algebris (UK) Limited is not hereby arranging or agreeing to arrange any transaction in any investment whatsoever or otherwise undertaking any activity requiring authorisation under the Financial Services and Markets Act 2000.
No reliance may be placed for any purpose on the information and opinions contained in this document or their accuracy or completeness. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document by any of Algebris (UK) Limited , its members, employees or affiliates and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions.
The distribution of this document may be restricted in certain jurisdictions. The above information is for general guidance only, and it is the responsibility of any person or persons in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. This document is for private circulation to professional investors only.
© 2023 Algebris (UK) Limited. All Rights Reserved. 4th Floor, 1 St James’s Market, SW1Y 4AH.
