Daily Agenda: Slowing Euro Zone Argues for Another Jolt of Stimulus

European Commission cuts GDP forecasts; Facebook earnings better than expected; Deutsche Bank fined by U.S. regulators.


The European Commission painted a grim picture of the common currency zone’s prospects today in a report that included cuts in gross-domestic-product and inflation estimates. The revised GDP expectations for 2016 shifted to 1.8 percent versus a prior 1.9 while consumer prices are not expected to rise at a rate of 2 percent before 2018. With slumping demand in emerging markets and low activity measures that threaten recovery in still-fragile southern members such as Spain, the arguments for more stimulus from the European Central Bank when it meets later this month are mounting.

Facebook wallops estimates. Third-quarter earnings released after equity markets closed Wednesday by Menlo Park, California–based social-media giant Facebook included revenue growth of 41 percent versus the same quarter in 2014, with earnings per share of $0.57 versus consensus estimates for $0.52. Total active users for the social media behemoth rose to over 1.5 billion.

Deutsche Bank fined. Yesterday the Federal Reserve announced that a settlement had been reached with Deutsche Bank over business activities involving U.S. government-sanctioned nations. The fines levied by the Fed and New York’s Department of Financial Services total $258 million.

Factory activity slumps in Germany. September factory-order data in Germany released today registered a 1.7 percent contraction versus August levels, marking the third consecutive monthly decline for the indicator. According to the German Ministry of Economy, the decline in non-euro zone orders was the primary driver, with demand by international customers declining by nearly 9 percent between July and September.

BOE keeps rates unchanged. With an 8–1 vote in favor of keeping rates at historic lows the Bank of England’s Monetary Policy Committee today signaled that cooling growth in key developing markets and low inflation continue to present headwinds for the U.K. economy. The bank also announced reduced inflation and GDP estimates for 2015 and 2016. In the ensuing press conference, Bank of England governor Mark Carney reiterated that long-term prospects for growth in the country remain sound. Portfolio Perspective: Cautious Optimism for European Equities — Pieter Taselaar and Thijs Hovers, Lucerne Capital Management

We are in the midst of the third-quarter European earnings season. So far the message has been cautiously optimistic. Most of our core holdings have reported encouraging updates so far. It appears to us, from both the macro and the micro data that we are analyzing, that the recovery is broadening, albeit at a slow pace. IFO expectations are hitting 18-month highs, October PMIs were encouraging, and the recent lending growth has been positive, particularly in the Netherlands and Italy. Our investment team’s numerous conversations with corporate management teams have also highlighted improving end-market trends within certain industries and interestingly, we are already seeing some stabilization in China. Although we are fundamental bottom-up stock pickers, we pay close attention to the macro picture. The potential for further ECB stimulus along with cheaper energy costs for a net-importing region, a lower European currency, a functioning and well-capitalized banking system and compelling valuations all provide a good backdrop for our strategy.


Pieter Taselaar and Thijs Hovers are senior portfolio managers for Lucerne Capital Management in Greenwich, Connecticut.