Euro: Recovery holds as currency softens – BNY
BNY’s Geoff Yu argues that the Eurozone recovery remains intact even as the Euro (EUR) weakens. Manufacturing PMIs and business surveys in Germany and across Europe point to strengthening demand, while fiscal stress and a softer European Central Bank (ECB) stance weigh on the currency. The bank maintains its view that the Euro will decline despite stronger economic performance.
Growth resilient as Euro slides
"Last month, we argued that the Eurozone economy was recovering, led by broad-based gains in manufacturing. The Eurozone manufacturing PMI held at a four-year high in September, while factory output is expanding at its fastest pace in nearly five years. New orders and backlogs continue to rise, pointing to a clear strengthening in demand."
"Stronger data and another ECB rate hike haven’t prevented a 1.4% decline in the EUR’s nominal effective exchange rate since the beginning of September. The decline began well before concerns about France’s fiscal position became a central source of weakness and volatility. At the time, the euro was overvalued and interest-rate expectations appeared stretched, while limited short positioning and hedging left room for adjustment."
"Lagarde has already acknowledged that current front-end interest-rate levels would “slow growth.” Recent moves in global bond markets are tightening financial conditions further through the fiscal channel, a point echoed by ECB Chief Economist Philip Lane. The French government has announced fiscal consolidation measures, with legislation expected to pass in Q4."
"Consequently, expectations for year-end ECB rates have fallen below pre-decision levels, adding to EUR weakness."
"Unlike in 2011–2012, we see no spillover from OAT volatility into FX markets. Ten-day realized EURUSD volatility remains within its range since May, even as realized volatility in OAT futures has spiked. The ECB’s retreat from firm rate guidance has already helped dampen volatility."
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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Exclusive Report - Sources say Apollo has submitted a non-binding offer to German energy company Uniper
Germany plans to sell up to 74.12% of its stake in Uniper, with Apollo joining the bidders. Other parties vying for the stake include EPH, Equinor, and KKR. The sale could value the company at around 10 billion euros. Background: Uniper was taken over by the German government in 2022 under a 13.5-billion-euro (15.1 billion USD) rescue package, following the energy crisis triggered by Russia’s invasion of Ukraine which heavily impacted the company's finances. Since the bailout, Berlin has recouped approximately 3.5 billion euros from Uniper, including repayments and dividends. As Germany’s largest gas importer, Uniper's potential sale could be one of Europe’s biggest utility transactions this year, highlighting the strategic importance of the company in the region's energy security. Comments on the deal: Energy supply has increasingly become a major geopolitical and strategic concern globally, as highlighted by supply disruptions from the Iran conflict and recent sabotage attempts targeting power infrastructure. Given Uniper's central role in German energy security, its future ownership is under close scrutiny. The German finance ministry, which oversees the government’s 99.12% holding in Uniper—advised by UBS and JPMorgan—is aiming to sell up to 74.12% to comply with the EU mandate to reduce its stake to a “blocking minority” by 2028. According to earlier Reuters reporting, Czech energy group EPH, controlled by billionaire Daniel Kretinsky, and a consortium comprising Brookfield and Canadian CPPIB, have already submitted indicative offers. Equinor and a consortium of KKR and German utility RWE have also reportedly made bids. KKR, RWE, and Equinor declined to comment. In terms of process, Uniper is being sold through a dual-track sale, where the government is also exploring a potential IPO. This public listing is reportedly favored by Uniper’s unions, who fear potential break-up of the company under new ownership. Apollo and Uniper both declined to comment for Reuters. A source involved in the talks said bidders are expected to learn in the coming weeks whether they advance to the next round. All sources requested anonymity as they are not authorized to speak publicly. (1 USD = 0.8933 euros)
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