Tuesday, October 27, 2009

Alarming signs of deflation in Europe - contracting lending - freefall in export

Bank lending in the eurozone contracted for the first time ever, down at a 0.3% annual rate in Sept 2009 after a feeble +0.1% in August. It “was the first time the annual growth rate had turned negative since
comparable statistics began in 1992.

The euro was launched in 1999. Although the data showed signs of a pick-up in lending to households in September 2009 compared with August 2009, this could fuel policymakers’ fears that a weakened banking sector is failing to provide industry with the credit needed to reboot the economy.”

Weakness and defaults continue to grow on loans given by European banks to Eastern European nations. They are emerging as the "subprime area" of Europe.

Euro zone exports are in freefall and with high export exposure there is a price to be paid. East European nations are the worst hit by the export crash. The following chart illustrates the rapid decline in European exports:

Source: The European Central Bank's October 2009 monthly Bulletin (Click on the chart to get a bigger image).

The statistics from the BIS last week—global bank lending has contracted by $6 trillion since the start of the crisis.

Europe likes to pretend it is immune but this is clearly not the case. Will the European Central Bank begin cutting interest rates? And will it try to push the EURO into the abyss? An updated Elliott Wave count of the major currencies and the position of the Commercials gives the answers. See our latest currency and interest rate analysis at http://www.elliottwavetechnician.com/.

Geir Solem

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