Frankfurt Letter, week beginning July 4

-Echoes of the Brexit decision

Although the Brexit referendum is now over, its echoes still remain. The “domino effect” is considered to be one of the most worrisome consequences of the referendum result.

German Finance Minister Wolfgang Schaeuble warned on Wednesday about such an effect.

-Sentix Survey: The euro zone could break up within twelve months

According to the widely followed monthly survey of Sentix, the unexpected vote from U.K. citizens who voted to leave the European Union, is also likely to strongly shake the foundations of the euro again. Almost a third of investors responding in the sentix survey consider it possible that the euro zone could break up within the next twelve months.

-The European Central Bank (ECB)

Last week some media claimed that the ECB plans to loosen its Quantitative Easing (QE) rules.

According to these news, which is based on euro-area officials familiar with the discussions, the ECB is due to ease the rules for its bond purchases to ensure enough debt is available to buy in the aftermath of the Brexit vote.

-Economic data

Euro area annual inflation is expected to be 0.1 percent in June 2016, up from -0.1 percent in May 2016, according to a flash estimate from Eurostat, the statistical office of the European Union. The annual inflation rate rose for the first time since the beginning of the year.

Although the annual rate of inflation in the 19 countries that use the euro turned positive in June, it was still far short of official targets.

There was also positive news on the labor market.

According to Eurostat, the euro area seasonally-adjusted unemployment rate was 10.1 percent in May 2016, down from 10.2 percent in April 2016 and from 11.0 percent in May 2015. This is the lowest rate recorded in the euro area since July 2011.

The European Union (EU) unemployment rate was 8.6 percent in May 2016, down from 8.7 percent in April 2016 and from 9.6 percent in May 2015. This was the lowest rate recorded in the EU since March 2009.

-News from Germany

In May 2016, roughly 43.5 million persons resident in Germany were in employment, according to provisional calculations of the Federal Statistical Office (Destatis).

Compared with the same month a year earlier, the number of persons in employment increased sharply by 563 thousand or 1.3 percent.

Additionally, data from the Federal Labor Agency shows that the number of jobless fell by a seasonally adjusted 6 thousand to 2.69 million. The unemployment rate was unchanged at a seasonally adjusted 6.1 percent this month and the rate remains at an all-time low level.

-The weak ahead

This week, the markets are looking forward to obtaining details on the leaving process of the U.K. and new developments on the Brexit issue. There is uncertainty over the process despite the rules.





04 Jul,2016