I Could Say I Told You So: But I Won't

Surprise, surprise: the latest Euro business confidence survey turns downwards. I could say I told you so, but I will resist the temptation, since you doubtlessly know as well as I do that one month you can go down, and the next one you can go up: the jury is still out. But I still think this is hardly surprising news:

European business confidence dropped in December for the first time in five months as a buildup of unsold goods and the appreciation of the euro led some executives to scale back production plans.

A business confidence index based on a survey of 25,000 companies in the 12 nations using the euro fell to minus 8 in December from a revised minus 6 in November, the European Commission said in Brussels. Consumer sentiment was unchanged.

An index of production expectations fell to 6 from 10, a sign that the euro's jump is denting the sales outlook for exporters such as Volkswagen AG, Europe's biggest carmaker. Exports, which account for a fifth of the economy, were behind Europe's rebound to 0.4 percent growth in the third quarter. "If the euro rises strongly from here, it will have a considerable impact on the economy,'' said Ulrich Scheinost, chief economist at the German ZVEI electrical and electronics industry association, whose 1,400 members include Siemens AG, Germany's largest engineering company.

Europe's single currency and equity prices were little changed following today's confidence report and bought $1.2673 at 12:21 p.m. today in Brussels. The euro has climbed 17 percent since September and yesterday rose as high as $1.2813. The Dow Jones Stoxx 600 Index was 0.34 point lower at 232.49 points. Today's figures chime with other reports in the past week casting doubt on the strength of the recovery in Europe. Optimism among French consumers was unchanged at a six-year low in December and an index tracking growth in Europe's services industry fell for the first month in nine. "The gloom hanging over the euro-zone's economic prospects has deepened,'' said Martin Essex, senior economist at Capital Economics in London.
Source: Bloomberg

This, however certainly is news:

The euro had its biggest decline against the dollar in three weeks in London on speculation the European Central Bank will express concern about the strength of its currency after a 21 percent surge in the past year.

Jean-Claude Trichet, who became ECB president in November, may say for the first time that the euro's advance risks hurting the region's economy after he chairs the central bank's monthly meeting tomorrow on interest rates in Frankfurt.

Investors are "now talking about the possible threats of intervention'' Kamal Sharma, a currency strategist at Dresdner Kleinwort Wasserstein in London, said in a televised interview with Bloomberg News. "Trichet may try to damp down speculation of any significant further rallies in the euro.''
Source: Bloomberg

Well he may try, but if it was that easy central banking would be a doddle. Sure the markets will pause for thought, but it seems unlikely that the downward drift of the dollar will be staunched. After all, at the end of the day how much money is the ECB prepared to print to back up its inclination? We have, when all is said and done, an anti-inflation bias here in Europe. (We could however query whether this shift is a matter of intellectual conviction, or whether it comes at the behest of the French government. The ECB was previously, you will recall, committed to passing the pain to get the structural reforms: what exactly has changed?) Meantime Bernake and Greenspan have a blank cheque book at their disposal and they are determined to avoid deflation if they can. Verdict: no contest.