David J. Powell 
The Trader’s Guide to the Euro Area [PDF ebook] 
Economic Indicators, the ECB and the Euro Crisis

The euro area remains in a state of flux and appears to be
unsustainable in its present form. The outcome of the crisis may be
unknown for years and a judgement on the project’s success or
failure may be out of reach for decades.

In the meantime, analysts, portfolio managers and traders will
still have daily, weekly, quarterly and annual benchmarks. They
will have to analyze economic developments in the euro area and
their impacts on financial assets. The objective of this book is to
provide a framework for that analysis that is comprehensible to
most financial market participants.

The book begins with a focus on coincident and leading economic
indicators for the euro area. The following section looks at
euro-area institutions. The next chapter focuses on the euro
crisis. It attempts to provide an explanation of its origins and a
glimpse of the potential outcomes. In addition, the tools needed to
analyze the crisis as it evolves are presented. The last
sections provide information unique to the economies of Germany,
France, the U.K., Switzerland, Sweden and Norway.

Inhaltsverzeichnis

Acknowledgements ix

CHAPTER 1

Introduction 1

CHAPTER 2

Gross Domestic Product 5

The Expenditure Approach 5

The Output Method 10

The Income Method 11

GNP vs. GDP 11

Release Schedule 12

Trend Growth 15

The Business Cycle 16

Monetary Conditions Index 19

Effects of Monetary Policy on GDP 19

Effects of the Exchange Rate on GDP 21

Exchange-Rate Defl ators 23

CHAPTER 3

Coincident Indicators 27

PMI Surveys 27

Industrial Production 31

CHAPTER 4

Leading Indicators 35

Financial Conditions Index 35

The U.S. Business Cycle 38

ZEW Survey 39

Ifo Survey 41

M1 Money Supply Growth 52

CHAPTER 5

Inflation Measures 57

Consumer Price Index 57

Producer Price Index 63

Labor Costs 65

Money Supply 68

Inflation Expectations 76

CHAPTER 6

The European Central Bank 83

Traffic Light System 86

Mandate 88

Two-Pillar Strategy 90

Monetary Policy Implementation 91

Intervention in the Currency Markets 93

Taylor Rule 95

CHAPTER 7

Other Institutions 101

Council of the European Union 101

European Parliament 102

European Commission 102

Ecofin 103

Eurogroup 103

European Council 104

CHAPTER 8

Euro Crisis 105

Origins 105

Optimal Currency Area Th eory 109

Fiscal Consolidation 111

Quantitative and Qualitative Easing 112

Government Bond Purchases 115

Measures of National Solvency 117

Target2 Balances 121

Resolution 123

Departure from the Euro Area 127

Tools for Analyzing Debt Sustainability 127

CHAPTER 9

Germany 133

Labor Market 133

Political Institutions 137

Political Parties 139

CHAPTER 10

France 143

CHAPTER 11

United Kingdom 145

The Bank of England 145

Quantitative Easing 153

GDP 155

Inflation Measures 157

House Prices 158

Political Institutions 164

CHAPTER 12

Switzerland 167

The Swiss National Bank 167

KOF Leading Indicator 168

CHAPTER 13

Sweden 171

CHAPTER 14

Norway 175

Bibliography 179

Index 197

Über den Autor

David Powell (London, UK) is a Senior Economist at Bloomberg LP based in London where he writes the daily Bloomberg Brief on economic developments in Europe, as well as publish a weekly Bloomberg Currency Chart Book with analysis of foreign-exchange market, forecast macroeconomic variables for the euro-area and G-10 exchange rates, present views on the European economy and currencies to Bloomberg clients around the globe, write real-time analysis of European economic indicators for Bloomberg First Word, and discuss economic and financial market developments on Bloomberg TV. Prior to this David was a G-10 Currency Strategist, Vice President at Bank of America — Merrill Lynch where he forecasted G-10 FX rates with primary responsibility for Norway, Sweden, Switzerland, and the UK, presented the views of the currency strategy team to the European client base and internally, developed trade recommendations based on fundamental and technical analysis, contributed analytical pieces to the weekly and monthly publications of the global FX strategy group, wrote morning commentary on the currency markets and verbally delivered to the trading floor and analysed high frequency economic data for the FX traders and sales force. He holds a master’s degree from the London School of Economics, where he wrote his dissertation on the creation of monetary union in Europe, and a bachelor’s degree from New York University.