EUR BoP: Deteriorating basic balance – Nomura

Analysts at Nomura note that the euro area’s current account surplus (SA) increased slightly (EUR23.9bn) in August and FDI flows were largely balanced (-EUR4.6bn), but because portfolio outflows accelerated, the basic balance of the BoP deteriorated in August, which is in line with EUR weakness during the period.

Key Quotes

“August BoP data showed foreign investors’ flows into euro area securities remained weak and there were outflows. Foreign investors sold EUR11.0bn of euro area equities, while they also sold EUR29.7bn of euro area LT bonds. Net selling of LT bonds continued for the fourth month in a row.”

“In August, EUR traded weakly as concerns over the EM market grew, especially as the Turkish crisis developed. As risk sentiment deteriorated, foreign investors reduced their exposure to euro area bonds and equities, partly to do with stronger linkages between Turkey and the euro area economy than other advanced economies.”

“Foreign investment by euro area investors also slowed, but small net purchases of foreign equities (EUR2.3bn) and LT bonds (EUR17.2bn) continued, and net portfolio flows recorded EUR71.3bn of net outflows, their largest in 29 months.”