EUR USD (1.4730) The ECB announced a fall in lending to companies
in the eurozone yesterday, for the first time on record. Indeed, lending
to households and to businesses both fell in September by 0.3 percent
year-on-year. Banks in the currency bloc tightened credit conditions
for those pursuing loans by eight percent last month, which made the
ninth continuous quarter of tightening conditions. Admittedly, the rate
of tightening is decreasing in the eurozone, falling to eight percent
from 21 percent in the previous month, but net bank-lending falls
nevertheless. The trend is worrying and raises the question of how
any sustainable recovery shall originate, even if the ECB has
sponsored its member banks with unprecedented financing support.
But the decrease in lending to eurozone enterprises may only signal a
detour in the way they now acquire financing. European corporations
are increasingly turning to debt issuance as an alternative to outright
borrowing from banks, which had previously financed some 70 percent
of their projects. Debt issuance in the eurozone stands at around
€20bn year-to-date – almost three times the entire amount issued last
year. In opening itself up more to capital market financing, Europe is
becoming more like the US in at least one way; there only 20 percent
of corporate financing is granted through bank lending.
Yesterday’s setback in the euro allowed us an entry into a bullish
strategy. We’ll adjust the risk-limit slightly upward today, to 1.4660,
and set an objective to 1.4990.