Market Outlook - BNP PARIBAS - Investment Services India

Key Data Preview12.510.07.55.02.50.0-2.5Chart 9: Eurozone M3 & Bank Lending (% y/y)(% y/y)Bank Lending toPrivate SectorM392 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11Sources: Reuters EcoWin Pro% y/y Sep (f) Aug Jul JunM3 3.0 2.8 2.1 1.9M3 (3-mth Avg.) 2.6 2.3 2.1 2.1Private Sector Loans 2.6 2.6 2.4 2.5Key Point:M3 growth is being distorted by financial marketturbulence. Growth in private sector bank lendingremains subdued.BNP Paribas Forecast: Still SubduedEurozone: Monetary Developments (September)Release Date: Thursday 27 OctoberThe ‘headline’ y/y growth rate in M3 jumped in August, to2.8% from 2.1%, the highest rate since July 2009. The m/mrise in M3 was 1.2%, the third largest since the inception ofEMU in 1999 and the biggest since October 2008 during aperiod of exceptional financial market turbulence.Renewed turbulence contributed to the jump in M3 growth inAugust, with the ECB citing portfolio adjustments out ofriskier assets and into M3 as a key factor.The growth rate in private sector bank lending also came inslightly higher than expected in August, rising from 2.4% to2.6% y/y, the first acceleration in three months.Still, the underlying trend remains subdued and based on thedeterioration in the economic outlook and the signals oftighter credit conditions in the ECB’s Bank Lending Surveyfor Q3, a slowdown is likely going forward.Mortgage loans to households had been the main driver ofthe acceleration in lending growth but the growth rate hasbeen slowing since the spring. Consumer credit has beendeclining in y/y terms since early 2009, with the contractiongathering momentum in recent months.Lending growth to the non-financial corporate sector hasrisen, reaching its highest rate in two years (1.6%). But thissector tends to lag the trends in household data.Chart 10: Eurozone: Economic Sentimentin the Big FourSources: Reuters EcoWin ProOct (f) Sept Aug JulEconomic Sentiment 92.6 95.0 98.4 103.0Industry -9 -6 -3 1Services -2 0 4 8Consumer -20 -19 -17 -12Key Point:Still declining.BNP Paribas Forecast: Further DeteriorationEurozone: Economic Sentiment (October)Release Date: Thursday 27 OctoberEconomic sentiment in the eurozone has been falling fastersince February. The pace slowed in September, but on acumulative basis, only the Lehman crisis provokedcomparable falls in sentiment. Economic sentiment inSeptember reached 95.4 points, nearly 6 points below itslong-term average and 13.4 points below its peak in March.The four largest eurozone economies were all affected by thesharpest decreases. Only German sentiment remains abovethe long-term average.The downturn was particularly noticeable in the services andindustry sectors due to declines in order books anddeteriorating expectations. Only industry sentiment remainedabove its average in September.October’s flash estimates for consumer confidence,published this week, show a further weakening of confidence,although the decline is less pronounced than in the pastcouple of months. Consumer confidence is not a very strongleading indicator for overall consumption, but it reflectsoverall sentiment in the economy.October sentiment is likely to show further declines. Industryand services employment will be particularly interesting asthey will reflect whether or not industrial respondents see thecoming downturn as temporary.Market Economics 20 October 2011Market Mover60www.GlobalMarkets.bnpparibas.com