Lousy German bond auction:
Germany saw one of its poorest debt sales on Wednesday in what was seen as a failed auction by many market participants amid fears the eurozone’s debt crisis is spreading all the way to Berlin. Marc Ostwald, at Monument, said “I cannot recall a worse auction … If Germany can only manage this sort of participation, what hope for the rest. Yields are at completely the wrong level.” Mr Oswald said the bid-to-cover ratio was only 0.65 times as the German debt agency sold just €3.644bn of its new 10-year Bund of the €6bn targeted. The Bundesbank retained a massive €2.356bn, which it will plan to sell over the coming days in the hope market sentiment improves. If the Bundesbank retention is included, the bid-to-cover ratio was a modest 1.1 times. Many market participants consider this an auction failure although some say technically it is not, as by retaining its own bonds the Bundesbank has pushed the bid-to-cover ratio above 1.0 times. The average yield for the 10-year bonds was 1.98 per cent.
Lousy eurozone economic indicators:
Eurozone industry saw the biggest one month fall in orders in almost three years in September, as worries about the region’s escalating debt crisis hit demand. New orders plunged by 6.4 per cent compared with August, according to Eurostat, the European Union’s statistical office. It was the biggest month-on-month fall since December 2008, when the global economy was reeling from the collapse of Lehman Brothers investment bank. Then, orders dropped by 10.2 per cent.
The data suggested the region’s debt crisis had undermined economic confidence even more than feared, resulting in business and consumers cutting back investment and spending. Earlier this week, the European Commission reported its index of eurozone consumer confidence had fallen in November for the fifth consecutive month to the lowest level since August 2009.
With orders data providing an early indication of trends in economic activity, September’s figures added to evidence that the eurozone has fallen into recession. Italy, where the eurozone debt crisis intensified from August, saw the biggest drop in industrial orders – of 9.2 per cent – between August and September. But France and Spain saw drop of 6.2 per cent and 5.3 per cent respectively, and Germany saw a 4.4 per cent contraction in orders.
Eurozone purchasing managers’ indices for November, also published on Wednesday, indicated overall economic activity is contracting at a significant pace – although the rate of decline appeared to have stabilised. The “composite” index, covering manufacturing and services, rose from 46.5 in October to 47.2 – the third consecutive month below the 50 level, which divides an expansion in activity from a contraction.
Merkel says ECB mandate can’t be changed:
In a forceful speech to the Bundestag lower house of parliament, Chancellor Angela Merkel issued one of her starkest warnings yet against fiddling with the central bank’s strict inflation-fighting mandate . . . “The European currency union is based, and this was a precondition for the creation of the union, on a central bank that has sole responsibility for monetary policy. This is its mandate. It is pursuing this. And we all need to be very careful about criticizing the European Central Bank,” Merkel said. “I am firmly convinced that the mandate of the European Central Bank cannot, absolutely cannot, be changed.”
The European Commission has released the “Green Paper on the feasibility of introducing Stability Bonds,” the draft of which I included in one of my Monday posts.
Merkel tells the EC to mind its own business:
German Chancellor Angela Merkel slapped down a new European Union push for bonds issued jointly by the 17 euro nations, saying Tuesday that they wouldn’t resolve the debt crisis and now is the wrong time to discuss them. Merkel dug in on her resistance to calls for an instant solution to the crisis hours after the EU’s top economic official tried to sell a skeptical Germany on Brussels’ new drive for so-called “eurobonds,” which the EU’s executive Commission is now calling “stability bonds.” Merkel has staunchly opposed anything resembling eurobonds, which the Commission’s head argues would be an effective way to avoid disaster as many countries’ borrowing costs spiral higher in the debt crisis.
The chancellor noted in a speech to Germany’s main employers’ association that so-called eurobonds “have just come very much back into fashion.” But she was unbending in her opposition to introducing them, saying that what’s important is to address shortcomings in the construction of the eurozone. “If at all, this discussion belongs at the end — so I don’t find it particularly fitting that we are now once again conducting it in the middle of the crisis, as if it were the answer to this crisis,” Merkel said. “In the long term, it isn’t.”
Merkel also underlined her resistance to mounting pressure for a major bond-buying campaign by the European Central Bank as a way of relieving pressure on other countries’ borrowing costs. She said of hopes of an immediate solution to the crisis: “I say yet again: there won’t be one.”
The EC Green Paper is one part of the EC’s “package enabling new action for growth, governance and stability” announced today: