Eur/usd - page 19
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Europe Main Beneficiary of Flows from Emerging Markets
The US dollar stands at the fulcrum. Investment flows are leaving emerging markets, with currencies from Brazil,India,Indonesia and Mexico being hit the hardest over the last few sessions. The MSCI Emerging Market Index is off 4.5% over the past five sessions and the rout continues.
Falling commodity prices, country specific challenges, as in India, Indonesia, Brazil, and Turkey, coupled with anticipation that the days of low interest rates in the high income countries are largely behind us, is spurring a reversal of fortune for the emerging markets, as an asset class. Those countries with current account deficits are particularly vulnerable to this switch.
Reports indicate that those funds are not moving to the US, where expectations for Fed tapering next month running high, lifting the 10-year yields to almost 2.90% yesterday. Rather, reports indicate that Europe has been the biggest beneficiary of inflows over the past week or two. In fact,it may not just be a flow from the emerging markets into Europe, but there also has been an outflow from US fixed income and equity funds too.
It seems to reflect two related forces. First, is market positioning. It does appear that many global investors were under weight Europe, preferring US and Japanese equities through much of the first half and into Q3. Second, this left many investors ill-prepared for the European reflation story, which has gained traction over the past couple of weeks.
The Bundesbank monthly yesterday, highlight the conditionality around the ECB's forward guidance is typically BBK behavior, and might not have been a significant factor if it were not for market conditions and positions. Specifically, the BBK has once again, seemingly gone out of its way, to outflank the ECB.
Various measures by the ECB in response to the crisis, from SMP to OMT, including Greek aid and its funding gap, bank supervision, and now the forward guidance, the BBK appears to have been consistently overruled (formally or informally). The BBK does not let it go and accept the compromises as part and parcel of monetary union. Indeed, the BBK's criticisms of the ECB policies shows monetary union itself is far from complete.
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German minister's Greek aid comments spark pre-election backlash
German Finance Minister Wolfgang Schaeuble said on Tuesday for the first time that Greece will need another bailout, triggering a storm of protest from opposition parties five weeks before an election in Europe's biggest economy.
While analysts have long predicted more aid will be required, albeit on a smaller scale than previous bailouts totalling about 240 billion euros ($320 billion), Chancellor Angela Merkel has tried to keep Greece out of her campaign to avoid angering German voters who fear they will foot the bill.
Just hours before Schaeuble spoke, Merkel was quoted in a regional newspaper as saying there was no point in discussing additional aid to Greece before the end of next year, when its second rescue package will expire.
But at a campaign event in northern Germany, her outspoken minister departed from that line, breaking what had been seen as an election campaign taboo.
"There will have to be another programme in Greece," Schaeuble said.
A Greek finance ministry official told Reuters a new bailout would involve sums far smaller than in previous rescues and would focus on plugging an expected funding shortfall over 2014-2016.
"Greece and its lenders are examining several ways to plug any funding gap that Greece will face over the next few years," the official said on condition of anonymity.
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EUR/USD Advances Sharply to Six-Month High
EUR/USD (daily chart) has made a tentative breakout above a major resistance level around the 1.3400 price region, exceeding June’s high and establishing a six-month high in the process. This sharp advance is the latest bullish development within a substantial bullish trend that has been in place since early July, when price formed a double-bottom bounce from the 1.2750 level. The bullish trend has since broken out above successively higher resistance levels, including 1.3000, 1.3150, 1.3300, and now the key 1.3400 level. This latter breakout especially highlights the overall euro strength and dollar weakness that has characterized the currency markets for more than a month. If the currency pair is able to sustain the bullish momentum, strong immediate resistance resides around the 1.3500 area, with any further breakout above that targeting 1.3700 resistance to the upside, around the February high.
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Merkel Has Some Words Of Encouragement... Or Is That Warning?
Germany's Angela Merkel visited the German concentration camp in Dachau - the first such visit by a sitting German Chancellor- where one may say, she could have picked her words a tad more wisely:
US civil war counterfactual aside, the stunned European population was confused by the implication of her words: is it that Germany will keep ploughing German funds to keep a pacifist, socialist dream alive (which is really just a front to keep Deutsche Bank and its $50+ trillion in derivatives solvent) even as hours ago her own Finance Minister admitted that a third (and certainly not last) bailout of Greece is now just a matter of time... or was it simply a warning to Greece, Cyprus and anyone else contemplating a true recovery, one which begins with their own currency, and maybe with a few Panzers crossing the border?
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EUR/USD Aug. 21 – Suffers from hangover on Greek worries
The action continues in EUR/USD. After breaking to a new 6 month high yesterday, the pair is suffering from a “hangover” and loses the 1.3415 level. Worries about Greece are beginning to mount once again, and the markets remain nervous towards the release of the FOMC meeting minutes later in the day. Where next for EUR/USD?
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar
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Cat out of bag, ECB and Germany play down talk of third Greek bailout
The European Central Bank joined Germany on Wednesday in playing down talk of a third bailout package for Greece, but reaffirmed the euro zone would help the country trim debt as long as it stuck to its latest aid program.
Speaking in Athens a day after German Finance Minister Wolfgang Schaeuble bluntly predicted Greece would need a new bailout, ECB executive board member Joerg Asmussen said he had not discussed the issue at talks with senior Greek officials.
He referred instead to the euro zone's pledge last year to support Greece until it can tap markets again, provided it sticks to its current bailout obligations and posts a budget surplus before interest payments.
"This is a decision taken in November last year, it is public knowledge, and there's nothing new and there's nothing to add," he said. "If we look at how things unfold, we will know not before spring next year if the country has reached a primary surplus on an annual basis."
In Berlin, German officials sought to distance themselves from Schaeuble's comments, which broke a pre-election taboo by describing a new rescue as inevitable.
Greece has already been bailed out twice since 2010 with 240 billion euros worth of agreements coordinated by the ECB, European Union and International Monetary Fund.
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ECB's Weidmann warns against dangers of euro exit
European Central Bank council member and Bundesbank President Jens Weidmann warned in a magazine interview on Wednesday against the dangers of a country leaving the eurozone.
"What vexes me is how recklessly people invoke such a scenario," Weidmann told the German monthly Capital in a pre-release of an interview to be published on Thursday.
An exit from the euro would have grave consequences for the countries affected, as well as for everyone else," the German central bank chief warned.
"Monetary union is not some sort of club, which you can easily quit and then quickly sign up to again.
"Whoever suggests it underestimates the interconnectedness of the different eurozone economies. An exit would also have far-reaching consequences for our banks and companies," Weidmann said.
Weidmann reiterated his reservations about the ECB's bond-buying programme, credited with marking a turning point in the eurozone's long-running crisis.
And he also insisted that the central bank's much-lauded decision to issue so-called "forward guidance" regarding the future direction of eurozone interest rates was not the mini-revolution that many said it was.
"We're not tying ourselves to a particular path in interest rates independent of what is going on around us," Weidmann said.
"Forward guidance is an instrument with which we can better communicate our monetary policy course in uncertain times. But it doesn't mark a new era. It will not alter our monetary policy action," he insisted.
In July, ECB President Mario Draghi announced that eurozone interest rates -- already at historical lows -- would remain "at present or lower levels for an extended period of time.
"Our exit (from low interest rates) is very distant."
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Swiss Trade Surplus Falls More Than Forecast
Switzerland's trade surplus declined more than expected in July, the latest figures released by the Federal Customs Administration showed Thursday.
The surplus fell to CHF 2.38 billion in July from CHF 2.8 billion in June. Economists had forecast the surplus to decline to CHF 2.6 billion.
Swiss exports declined 1.9 percent month-on-month on a seasonally adjusted basis in July following a 3.1 percent increase in June. On a year-on-year basis too, exports were down 1.9 percent after adjusting to working day variations.
On an unadjusted basis, exports gained 3 percent from a year earlier.
Imports, meanwhile, increased 3.2 percent month-on-month, recovering from a 2.6 percent slump in June. Annually, imports rose 1.9 percent on working day adjusted basis and increased 6.9 percent on an unadjusted basis.
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European stocks rally on German data, Fed minutes; Dax up 1.04%
European stocks rallied on Thursday, after the release of better-than-expected German data and as the minutes of the Federal Reserve's latest meeting indicated that policymakers remain divided on when to start scaling back the bank's stimulus program.
During European morning trade, the EURO STOXX 50 rallied 1.10%, France’s CAC 40 gained 0.96%, while Germany’s DAX 30 jumped 1.04%.
Markit research group said Germany's manufacturing purchasing managers' index rose to a two-year high of 52.0 in August, from a reading of 50.7 the previous month. Analysts had expected the index to rise to 51.2 this month.
Germany's service sector PMI rose to a six-month high of 52.4 this month, from a reading of 51.3 in July, beating expectations for a rise to 51.8.
In the U.S., the minutes of the Fed's July meeting showed that officials were "broadly comfortable" with plans to scale back the bank’s USD85 billion-a-month stimulus program.
However, policymakers remain divided over the timing of possible tapering, with almost all committee members agreeing that a change in the purchase program was not yet appropriate.
Financial stocks were broadly higher, as French lenders BNP Paribas and Societe Generale advanced 1.02% and 0.52%, while Germany's Deutsche Bank rallied 1.29%.
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Eurozone growth hits 26-month high, says PMI survey
Eurozone business activity grew at its fastest pace for 26 months in August, according to a closely-watched survey.
The Markit composite purchasing managers' index - which includes manufacturing and services - rose to 51.7 points, from 50.5 in July.
A number higher than 50 indicates growth.
The news boosted European stock markets, which rose in early trading, despite falls in Asia amid fears the US may scale back its stimulus programme.
Markit said the PMI for the services sector, which accounts for the bulk of economic activity, rose to 51 in August to a 24-month high, from 49.8 in July.
The manufacturing sector PMI hit a 26-month high of 51.3 points, up from 50.3 in July.
However, a breakdown of the figures showed that while Germany continued to expand thanks to stronger export activity, France contracted, falling to 47.9 in August from 49.1 in July.
"So far, the third quarter is shaping up to be the best since the spring of 2011," said Chris Williamson, Markit's chief economist.
"The upturn is being led by Germany," he said. "A big question mark still hangs over France's ability to return to sustained growth."
And he cautioned that rising unemployment indicated there were continuing problems. "The job shedding in part reflects the need to keep costs down and remain competitive, but there is still some uncertainty about the outlook," Mr Williamson said.
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