The question is whether the economic fundamentals in the Eurozone are improving enough to boost earnings. Investors seem to think so, and we are coming around to the same opinion. Let’s review the latest relatively upbeat financial indicators:
(1) Bank lending. Over the past three months through January, private-sector lending by monetary financial institutions (MFIs) jumped to €612.8 billion at an annual rate, the best pace since October 2008. Unfortunately, €422.8 billion of that total was lending mostly to other financial institutions. Nevertheless, lending to non-financial corporations was €88.8 billion over this three-month period, the first positive reading since November 2011. Mortgage lending rose to €114.0 billion, the most since June 2011.
Last June, the ECB became the largest central bank to experiment with a negative rate on bank deposits at the central bank. Last September, it cut the rate on bank deposits deeper into negative territory, to -0.2% from -0.1%. This may be starting to have the desired effect of stimulating lending.
(2) Monetary aggregates. The growth rates of M1, M2, and M3 slowed significantly during 2013 through early 2014. They’ve rebounded since then. During January of this year, M1 is up 9.0% y/y, the highest since June 2010. M2 is 4.0% higher than a year ago, up from a recent low of 2.0% during April 2014. Negative money market rates in the Eurozone may be causing investors to park more of their liquid assets in bank deposits, providing more lendable funds to the banks.
Today's Morning Briefing: Game of Thrones. (1) Low-intensity vs. high-intensity crises. (2) Putin’s latest gambit aimed at provoking Israel to attack Iran? (3) Will the Iranian deal bomb or lead to a bomb? (4) The Prime Minister’s existential speech. (5) Eurozone is back in fashion. (6) Cheaper for a reason? (7) Will the fundamentals improve enough to boost earnings? (8) Several upbeat indicators in the Eurozone. (9) Most Eurozone sectors are cheaper than in the US. (10) Ice patch or soft patch? Business surveys were very weak in the US last month. (11) “Leviathan” (+ + +).
