In Between Days: EuroDisney

by CC November 10, 2011 11:17 pm • Commentary


BRUSSELS — Europe’s economic outlook received a fresh dose of gloom Thursday, when the European Commission warned that the Continent’s economies were stalled and faced the risk of a double-dip recession.

The commission’s latest growth forecasts intensified concerns that, as some members of the euro currency union take tough austerity measures to appease the debt markets, they are stifling any chance for economic growth that might help pull them out of financial distress. The commission predicted that, as a result of the contraction, the region’s government debt levels would edge up next year.

“The recovery in the European Union has now come to a standstill, and there is a risk of a new recession,” Olli Rehn, the European commissioner for economic and monetary affairs, told reporters in Brussels.

“This forecast is in fact the last wake-up call,” he added.


The euro’s low for the year was in January. In fact, the euro has held up shockingly well in recent months, even as events in the euro zone have come to a head. Given the potential for nightmarish outcomes — including the end of the euro zone itself — you’d think the euro would be a lot lower.

One explanation that gets floated a lot for this is that European banks are selling foreign assets and bringing home euros to patch the gaping holes in their balance sheets left by sovereign-debt meltdowns. That has artificially bolstered the euro in its time of need.

Jens Nordvig, currency guru at Nomura, takes a look at this concept today and finds it about half-right: There’s been a lot of euro repatriation lately, but not necessarily by banks:

While we think deleveraging by European banks is crucially important in some EUR-crosses (EURCZK, EURHUF and EURPLN in particular), we don’t think it will drive EURUSD.

First, there is little evidence that European banks have been able to reduce assets meaningfully in recent months, based on timely US data.

Second, since European banks’ USD assets are generally funded in USD, there is no direct FX impact on EURUSD from this form of deleveraging.

But repatriation by Eurozone equity investors may have been an important support for EURUSD in recent months.

We don’t have all the official data yet, but our estimates suggest that $100-125bn may have been repatriated by Eurozone equity portfolio investors in Aug-Oct.

This is an outsized figure, and may have helped avoid a much bigger decline in EURUSD since August.

Looking ahead, we are skeptical that this repatriation flow will continue to provide strong support for the Euro.

Macroeconomic deterioration has already led to significant underperformance of Eurozone assets vs US assets (excluding FX effects)

The potential for more radical policies from the ECB may over time lead resident investors to seek ‘safety’ outside the Eurozone.


Walt Disney topped analysts’ expectations for its quarterly profit and revenue on Thursday as advertising held strong at its ESPN sports channel and other media networks, sending shares higher after the closing bell.

The company, which also operates the ABC network and a movie studio, reported earnings excluding items of 59 cents per share in its fiscal fourth quarter, an increase from 45 cents a share a year earlier.

Net income for the quarter rose 30 percent to $1.09 billion from $835 million.


Nvidia Corp. (NVDA), a maker of graphics processors, reported third-quarter sales and profit that topped analysts’ estimates, lifted by demand for chips used by computer gamers and designers. Shares rose as much as 6.8 percent.

Sales in the period that ended Oct. 30 rose 26 percent to $1.07 billion, the Santa Clara, California-based company said in a statement today. That compared with the average analyst estimate for $1.06 billion in revenue, according to Bloomberg data. Excluding certain costs, profit was 35 cents a share, topping projections of 31 cents.

Tomorrow’s Tape- WSJ


  • The bond market is closed for Veterans Day.
  • At 8:15 a.m. ET, Fed Vice Chair Janet Yellen speaks.
  • At 9:55 a.m. we get the University of Michigan’s consumer sentiment index for November. Economists think sentiment rose to 62 from 57.5 in October.
  • At 2:45 p.m., San Francisco Fed President John Williams speaks.