Eur/usd - page 52
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EU fines banks record $2.3B over Libor
The European Union has levied a record antitrust fine of €1.71 billion ($2.3 billion) on six European and U.S. banks and brokers for rigging benchmark interest rates.
Deutsche Bank (DB) was hit with the single biggest penalty of €725.4 million for participating in illegal cartels to manipulate the Euro Interbank Offered Rate, or Euribor, and London interbank offered rate, or Libor.
"What is shocking about the Libor and Euribor scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other," said Joaquin Almunia, Europe's top antitrust official.
Other firms fined Wednesday were Societe Generale (SCGLF), Royal Bank of Scotland (RBS), JP Morgan (JPMPRD) and Citigroup (C, Fortune 500), and U.K.-based broker RP Martin.
Barclays (BCS) and UBS (UBS), who have already been fined by regulators in the U.K. and U.S. for Libor rigging, were spared further punishment by the European Commission because they cooperated with the antitrust investigation.
The scandal broke in the middle of 2012 when Barclays admitted trying to manipulate Libor, which together with related rates is used to price trillions of dollars of financial products around the world.
Before Wednesday's announcement, banks had already paid $3.6 billion in fines and a handful of traders have been charged with criminal offenses.
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ECB's Mersch Seeks Risk-weighted Contributions To Resolution Fund
European Central Bank Executive Board member Yves Mersch said on Wednesday that banks must make risk-weighted contributions to a European resolution fund that is proposed to deal with troubled lenders.
In a speech delivered in Berlin, Mersch said some banks have riskier business models than others. Hence, the charges that banks have to pay to the resolution fund must be risk-weighted, he added.
The policymaker also sought a clear demarcation between the duties of the ECB as the banking supervisor and those of the resolution authority. The ECB shall decide if a bank is viable or not, and then the resolution authority should work out the restructuring or winding-up plan for it, Mersch said.
He also said the ECB should not have no vote in the meetings of the resolution authority, but must be granted an observer status.
Further, Mersch said the central bank is still working on the finer points of the planned stress tests for banks. The stress test will likely cover a three-year horizon and will be based on two scenarios - baseline and stress scenarios, he noted.
The baseline scenario will be based on the European Commission's spring forecast and the 8 percent core capital requirement set in the central bank's asset quality review.
There has been no decision yet on the capital requirement to be set for the stress scenario, the policymaker added. That depends on how 'extreme' the stress scenario will be set, Mersch said.
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Spain Industrial Output Growth Eases In October
Spain's industrial production grew only 1.8 percent on a yearly basis in October, data from the statistical office INE showed Thursday. It follows a revised 3.7 percent rise in September.
On a seasonally adjusted basis, industrial output fell 0.8 percent annually, offsetting the revised 0.8 percent gain seen a month ago, which was the first growth in 30 months.
Month-on-month, production slipped for the first time in three months. Production was down 0.8 percent, versus a 0.2 percent rise in September.
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ECB Keeps Rate at Record Low as Officials Weigh Forecasts
The European Central Bank kept its benchmark rate unchanged at a record low after policy makers assessed new economic forecasts.
The Governing Council meeting in Frankfurt today left the main refinancing rate at 0.25 percent after cutting it by a quarter point last month. The decision was predicted by all 60 economists in a Bloomberg survey. Officials held the deposit rate at zero and the marginal lending rate at 0.75 percent.
ECB President Mario Draghi will release inflation and growth projections when holding a press conference at 2:30 p.m. They should add fuel to the debate over whether the central bank has done enough to prevent deflation and support the region’s economic recovery or whether it needs to turn to more unorthodox measures.
“If things get worse, the Council is ready, willing and able to act,” said Richard Barwell, senior economist at Royal Bank of Scotland Group Plc in London. While “various unconventional tools are on the table and the Council is prepared to use them,” Draghi will send a message “that there is no need to panic,” he said.
One option policy makers have discussed is a negative deposit rate. Other possible tools include asset purchases and long-term loans to improve credit flows to companies and households. The ECB may also decide to publish an account of their monthly meetings to hone communication.
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EUR/USD rises to fresh 5-week highs on Draghi comments
The euro rose to fresh five-week highs against the U.S. dollar on Thursday, following comments by European Central Bank Mario Draghi, as well as upbeat U.S. economic growth and jobless claims data.
EUR/USD hit 1.3640 during European afternoon trade, the pair's highest since October 31; the pair subsequently consolidated at 1.3626, gaining 0.26%.
The pair was likely to find support at 1.3524, the low of December 3 and resistance at 1.3682, the high of October 17.
Speaking after the ECB's monthly policy meeting, Mario Draghi said that the bank's policy stance was to remain accomodative for as long as necessary and that key interest rates are likely to remain at current or lower levels for an extended period of time.
Mr. Draghi added that the euro zone could experience a prolonged period of low inflation before the rate moves upwards close to the 2% target.
The ECB president also said the bank held 2013 growth expectations at -0.4% and raised the 2014 forecast to 1.1% expansion from 1%.
The comments came after the ECB held its benchmark interest rate at 0.25%, as expected.
Meanwhile, the greenback remained supported after the U.S. Commerce Department said gross domestic product increased at a seasonally adjusted annual rate of 3.6% in the three months to September, above expectations for growth of 3.0% and up from a preliminary estimate of 2.8%.
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ECB sees stronger growth for eurozone
The European Central Bank on Thursday voiced growing optimism the eurozone will return to growth next year before gaining further strength in 2015, despite high unemployment and low inflation.
ECB President Mario Draghi said the Frankfurt-based bank had raised its eurozone economic growth forecast to 1.1 percent for 2014 and predicted 1.5-percent growth the following year.
Economic activity should benefit "from a gradual strengthening of exports" and an improvement in domestic demand, said Draghi, pointing out however that "unemployment remains high".
For this year, the bank in its quarterly macroeconomic projections maintained its forecast that the 17-member eurozone economy, despite its budding recovery, would shrink by 0.4 percent.
Draghi also said that the eurozone may experience "a prolonged period of low inflation" before price rises will accelerate again.
The bank lowered its inflation forecast for this year and next, predicting a rate of 1.4 percent for 2013 and 1.1 percent in 2014.
Draghi also said the ECB forecast inflation of 1.3 percent in 2015.
The current low inflation rate has raised concerns of deflation, which led the ECB last month to cut its main interest rate to 0.25 percent, a record low it maintained on Thursday.
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German Construction Sector Expands For Seventh Month
The German construction sector expanded for the seventh consecutive month in November, helped by another strong growth in commercial activity, survey data released by Markit Economics revealed Thursday.
The seasonally adjusted purchasing managers' index (PMI) for the construction sector came in at 52.1 in November, staying above the no-change 50 mark for the seventh successive month. The index was, however, lower than the October reading of 52.6.
Driving the overall growth in activity, work on commercial building projects increased further, marking the seventh successive monthly growth. This was offset by a renewed decline in housing activity and a further contraction in civil engineering work.
Firms raised their employment levels further during the month, in line with greater output requirements, marking the eighth increase in staffing numbers in as many months. Input price inflation in the sector rose to the highest level in one-and-a-half years.
Meanwhile, new orders received by construction firms fell at a faster rate in November, with many firms reporting lack of opportunities to tender. In line with the fall in new business, firms remained pessimistic about the year-ahead outlook.
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Berlin sees progress on banking union
Germany is "confident" that EU ministers will make progress at talks next week on a planned banking union, a spokesman said on Friday, as the government hosted a high-level meeting.
Finance Minister Wolfgang Schaeuble was holding discussions on the subject in Berlin with his French, Italian and Spanish counterparts, as well as Eurogroup finance chief Jeroen Dijsselbloem, on Friday the finance ministry spokesman told reporters.
EU Commissioner Michel Barnier, ECB board member Joerg Asmussen and a representative of the EU's Lithuanian presidency were also attending, he said, adding that it was a "working meeting" to pave the way for Tuesday's EU finance ministers' talks in Brussels.
"We are confident that we will advance a fair bit" at next week's talks, the spokesman said.
No press conference is scheduled after Friday's gathering in the German capital, he added, saying there was also "no so-called compromise paper" on the table.
EU finance ministers have been trying to narrow differences on the proposed banking union, a new framework meant to prevent a repetition of the financial meltdown that plunged Europe into crisis.
Although they approved a first step in the plan -- the Single Supervisory Mechanism (SSM) to oversee eurozone banks -- in October, the ministers are under pressure to agree a Single Resolution Mechanism (SRM) by the end of the year.
The SRM would serve to close failing banks and would also need to be complemented by a deposit guarantee regime to protect savers.
Germany has opposed most of its EU partners over who should have the final say on the closure of banks under the new resolution regime.
But Schaeuble said last month in Brussels that the issues needing agreement would be resolved by Christmas.
To put the banking union scheme in place by 2015 as planned, Asmussen has said there must be a decision on SRM by year's end because it will still need to be approved by the European Parliament, whose mandate ends in April.
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German Factory Orders Fall Most Since Nov 2012
Driven by broad-based weakness in domestic and foreign demand, German factory orders fell at the fastest pace in a year in October, official data showed Friday.
Factory orders were down 2.2 percent in October from September, the most since November 2012, according to figures released by the Federal Ministry of Economics and Technology. The order growth have been in negative zone for six months so far this year, indicating a zig-zag trend.
The month-on-month decline was bigger than the 1 percent drop expected by economists and reversed the 3.1 percent increase seen in September. Domestic orders dropped 2 percent month-on-month in October. Likewise, foreign demand slid 2.3 percent.
Demand for investment goods logged a 5.2 percent fall. Meanwhile, orders for intermediate and consumer goods rose 2.2 percent and 0.6 percent, respectively.
Still, the underlying trend is slightly positive, said an ING Bank NV economist, Carsten Brzeski. Combined with the low level of inventories, industrial production should remain growth-supportive in the coming months.
The trend in the demand for industrial products remains upward, the ministry said. That indicates a continued positive development in industry in the coming months.
On a yearly basis, orders advanced 1.9 percent, which was considerably slower than the 4.1 percent rise forecast by economists.
The Bundesbank today lifted its growth projections for Germany as the economy picked up momentum largely supported by private consumption. The central bank now expects the gross domestic product to grow 0.5 percent this year, up from the 0.3 percent growth predicted in June.
The German economic growth has moderated, with recent GDP estimates revealing a slowdown in growth to 0.3 percent in the third quarter from 0.7 percent a quarter ago. The balance of exports and imports acted as a drag on growth, while spending and investment underpinned expansion.
Data from Destatis released earlier in the day showed that German exports fell 0.8 percent in the third quarter from last year.
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EUR/USD Forecast December 9-13
EUR/USD enjoyed the calm in Europe to push higher. German Trade Balance, Industrial production, as well as the ECOFIN and Eurogroup Meetings are the main highlights of this week. Here is an outlook on the major market-movers awaiting us ahead.
Last week, the ECB left policy unchanged in line with market forecast. The ECB has maintained ultra-low rates ECB President Mario Draghi announced in the press conference that cheap money will continue to flow, and key rates will remain low for an extended period of time. The ECB even marginally upgraded its growth forecast for 2014. Will the Eurozone succeed in enjoying a real recovery? In the US, Non-Farm Payrolls exceeded expectations and seemingly enable QE tapering. However, the jury is still out.
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