Euro Zone Survey Forecasts Recession

Devan Biswas
03 Oct, 2012
New York City

European markets were in a holding pattern ahead of the central bank meeting tomorrow. The latest survey of businesses showed a decline in activities and indicated recessionary trend in the region. Central banks in Europe and UK are set to hold rates at meeting tomorrow.

[R]3.15 PM Frankfurt – European markets were in a holding pattern ahead of the central bank meeting tomorrow. The latest survey of businesses showed a decline in activities and forecasted recessionary trend in the region. Central banks in Europe and UK are set to hold rates at meeting tomorrow.[/R]

European markets hugged flat line as investors consolidated gains and dialed back expectations on Spain.

However the region is mired in slowing economies and elevated unemployment and struggling under heavy debt loads.

Stocks were under pressure at the opening and managed to trade higher in cautious trading. Broader market indexes are consolidating recent gains after a 3-month old rally that swept most markets in double digits gains.

FTSE 100 index added 0.2% or 13.4 to 5,823, DAX index gained 0.3% or 19.90 to 7,326 and CAC 40 index was nearly unchanged at 3,415.

The latest private survey on business activity and new orders for three months ending in September showed a decline, according to Markit Economics.

Purchasing managers’ index was revised higher to 46.1 from its previous estimate of 45.9. Any value below 50 indicates a decline in activities.

The composite index for the euro zone was below 50 for the eighth month in a row and activities fell sharply in France and in Germany were nearly unchanged. The latest survey offered yet another evidence of the recessionary trend in the region.

The E.C.B. governing council is set for its meeting in Slovenia on Thursday and no major policy initiatives are expected to be announced.

The central bank is expected to hold rate at record low of 0.75% and any more decline in rates is not likely to impact borrowing costs in peripheral nations.

The Bank of England is also scheduled to announce its interest rate decision on Thursday. However, the bank is expected to hold rates and also not offer any new stimulus measures as the latest economic data in the UK indicate improving outlook.

Inter-bank lending rate in Europe and UK dropped to a new low as cash liquidity in the financial system remain at a record high.

The 3-month bank-to-bank euribor lending declined to 0.218% from 0.220% and the Libor rate fell to a low of 0.1464% from 0.1485%.

The rates have been on a free fall since the European Central Bank decided to pump large amount of cash in the system and eliminated paying interest on overnight deposits and removed the minimum 0.25% rate.