Today How the EU Plans to Turn $26 Billion Into $390 Billion (Bloomberg)

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The Corner contextualizes the EU’s economy from Spain with exclusive analysis from market leaders.

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inflation deflation

The euro area’s deflation inflexion point

In Europe

LONDON | By Jim McCormick and Keith Parker (Barclays) | At the start of the year, we analyzed the risks of a prolonged bout of deflation in the euro area (Japan-style deflation in Europe getting harder to dismiss). Our broad conclusion was that the risks of deflation in the euro area were probably not materially different from the risks Japan faced in the mid 1990s. Perhaps more important, we felt investors should picture 1996-97 Japan when assessing the risks of euro area deflation today.

World economy

US economic perspectives: Buying time

Maury N. Harris, Drew T. Matus, et al. (UBS) | The National Retail Federation (NRF) has released its estimates for a 4.1% y/y rise in holiday sales—among the stronger growth forecasts in recent years. Although sales have fallen short of NRF expectations in each of the last two years, trends in income and confidence suggest better for this year. Falling energy prices also help.

National Retail Federation
World economy

PBoC delivered asymmetric rate cuts, what’s next?

By Jian Chang (Barclays) | The PBoC announced after the market close on Friday it was lowering the benchmark interest rates, effective 22 November 2014. The cut will be asymmetric, with the 1y lending rate down by 40bp to 5.6% and the 1y deposit rate down by 25bp to 2.75% (Figures 1 and 2). Meanwhile, the central bank further advanced its interest rate liberalization agenda. Banks can offer deposit rates at 20% above the benchmark rate, up from 10% currently (the upward flexibility was first introduced in June 2012, also along with a 25bp cut in the deposit rate). The bank also removed the benchmark guidance for the 5y savings rate.

Chinese economy PBoC

Investors find it hard to trust the ECB…

MADRID | The Corner | It seems Mario Draghi is preparing the markets and the ECB’s Government Council for further action as soon as next December. Investors are reluctant to trust Mr Draghi’s words, but they seem to be more confident lately. However, this “affair” will come to an end if the ECB does not take effective measures. According to market watchers at Link Securities, markets will closely monitor the ECB’s Government Council meeting, which will be crucial for investors to maintain their trust in the European institution.

World economy

US companies: When having too much money is a bad sign (II)

WASHINGTON | By Pablo Pardo | Having €2.83 trillion in the bank and not knowing what to do with it is a problem that everybody would love to have. But it is actually a really serious problem for 316.1 million Americans, especially for those whose income increased by 0.43% in 2013. And, by extension, for the other 6.8 bn of human beings in the planet. Behind this problem there is a lack of investment opportunities, without which investment in the US will remain in a state of weakness and heavily dependent on an inability to increase consumption.

World economy

US companies: When having too much money is a bad sign (I)

WASHINGTON | By Pablo Pardo | In the 1Q14, companies at Standard and Poor’s 500 spent more money to repurchase shares in comparison to the profits they had made during that period. And  third quarter data point in the same direction. Large American firms do this for several reasons, such as inflating their share price –because, the fewer number of shares, the more profits per share they’ll have, which in turn benefits  managers, who receive financial compensation in the form of company shares.

World economy

A tale of US rebalancing, a looming liquidity crisis and the yuan’s arrival

By Miriam L. Campanella via CaixinThe supply of U.S. dollars in the global economy is set to shrink, and the yuan could fill the void if Chinese leaders and international monetary institutions are prepared to act