Eur/usd - page 72
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ECB May Repeat Japan Mistake That Triggered Lost Decade
The central bank failed to sound a deflation alert.
“At present there is no reason to expect that overall prices will drop sharply and exert deflationary pressure on the entire economy,” policy makers wrote in their monthly report, signed off by the governor.
That governor was Yasuo Matsushita and the report was published in January 1998. Within six months, Japan’s consumer prices excluding food began falling in a trend that would mark the next 15 years.
The concern now for economists from Barclays Plc to Morgan Stanley and JPMorgan Chase & Co. is that European Central Bank President Mario Draghi risks making the same mistake as the Bank of Japan -- publicly playing down a deflation threat -- and ultimately may have to introduce quantitative easing.
Among a series of similarities between 1990s Japan and modern-day Europe: Weak economic expansion after a series of shocks? Tick. A reluctance by banks to lend? Tick. A rising exchange rate? Tick. A debatable monetary-policy stance? Tick.
“The risk of a Japanification of the euro area is high and rising,” said Joachim Fels, chief international economist at Morgan Stanley in London, who puts the odds of a price decline at about 35 percent. “Deflation wasn’t on Japan’s radar either.”
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EUR/USD Drifting Lower Ahead of ECB Meeting on Thursday
The EUR/USD finished lower on Wednesday in light trading. Many of the major players are on the sidelines ahead of tomorrow’s European Central Bank monetary policy meeting. Traders are a little nervous ahead of the meeting because of the possibility the central bank will announce additional stimulus.
Early in the session, Spain reported lower than expected services PMI. Italy and the Euro Zone, however, beat estimates. Euro Zone Retail Sales were up 1.6% versus estimates of 0.9%. Finally, revised GDP was unchanged at 0.3%.
The GBP/USD traded higher on Wednesday. This morning, the U.K. reported that Services PMI rose slightly to 58.2 versus estimates of 58.0. Most major players are on the sidelines ahead of tomorrow’s Bank of England monetary policy meeting.
The U.S. Dollar weakened after private jobs forecaster ADP reported that the private sector added 139K new jobs to the economy. Traders were looking for 159K. The ISM also reported that ISM Non-Manufacturing PMI came in lower than expected at 51.6.
April Gold prices traded flat to lower. Investors are still holding on to gold as they await further developments in Ukraine. Traders are also focusing on the action in the stock market and the U.S. Dollar. A sell-off in stocks could drive up long hedge interest. A falling dollar will make gold more attractive to foreign investors.
Overbought technical conditions and a rise in inventory supply helped pressure April crude oil futures today. The chart pattern suggests the market may be headed toward a retracement zone at $100.34 to $99.19.
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EUR Outlook: What To Expect From The ECB
What is interesting about the euro's recent price action is that the currency sold off when the tensions in Ukraine escalated but failed to rally when the fears began to ease. While concerns that the crisis is far from over can partially explain the euro's underperformance, selling ahead of the European Central Bank rate decision is also putting pressure on the currency. There's a war of words happening between the U.S. and Ukraine with Russia threatening to confiscate U.S. assets if sanctions are imposed. Talks have been held between U.S. Secretary of State Kerry and the Russian Foreign Minister Lavrov but the tit for tat means the situation could deteriorate quickly. Germany, the largest country in the Eurozone relies heavily on Russian oil and according to Philipp Missfelder, a member of the German government, sanctions on Russia would be damaging to Germany. This risk is certainly one that the central bank will take into serious consideration at Thursday's meeting.
For the most part, there haven't been any major changes in the Eurozone economy since the February meeting and if the ECB didn't feel that it was necessary to increase stimulus last month, they won't find a reason to do so this month. Back in February, Draghi did not express any renewed concerns about the economic outlook or low inflation and at the time, this steady stance drove the euro up one full cent. As shown in the table below, since then, consumer spending rebounded and confidence increased. German unemployment rolls dropped by a smaller amount but the unemployment rate for the Eurozone remained unchanged. Service sector activity accelerated but manufacturing activity slowed. Inflationary conditions seem to have improved with core consumer prices in the Eurozone rising slightly last month. On balance, there was slightly more improvement than deterioration but the edge is extremely small. For this reason, not only do we expect no changes in monetary policy but also ECB President Draghi's press conference should sound virtually identical to the previous month. The ECB still maintains a bias to ease and will remind us that they stand ready to take additional action if needed but given the recent pressure on the currency, that could sufficiently trigger a relief rally. Of course, there's always a downside risk - the euro would sell off if the ECB increases its level of dovishness but based on the following data, they have little reason to do so.
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French Unemployment Rate Drops Modestly In Q4
France's unemployment rate decreased moderately in the December quarter, after staying steady in the preceding two quarters, data published by statistical office Insee revealed Thursday.
The ILO (International Labor Organization) measure of unemployment rate for metropolitan France and overseas departments decreased to a seasonally adjusted 10.2 percent in the fourth quarter from 10.3 percent recorded in each of the preceding three quarters. Compared to the fourth quarter of 2012, the jobless rate was unchanged.
Insee further noted that the employment rate remained steady 64.1 percent in the fourth quarter compared to both the third quarter as well as the fourth quarter of 2012.
In metropolitan France alone, the jobless rate was 9.8 percent at the end of last year, which was a tad lower than the third quarter's figure of 9.9 percent. Year-on-year, the jobless rate in the metropolitan area stayed unchanged.
Data released by the French Labor Ministry last month showed that unemployment increased further in January and hit a new record high.
The number of persons without a job rose by around 8,900 compared to December 2013, hitting an all-time high of 3.32 million. Year-on-year, the number of job-seekers climbed 4.4 percent.
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German factory orders rise 1.2% in January, above exp. for 0.7% gain
German factory orders rose more-than-expected in January, fuelling optimism over the health of the euro zone’s largest economy, official data showed on Thursday.
In a report, Deutsche Bundesbank said factory orders increased by a seasonally adjusted 1.2% in January, beating expectations for a gain of 0.7%.
Factory orders declined by 0.2% in December, whose figure was revised from a previously reported decline of 0.5%.
Year-over-year, German factory orders increased at an annualized rate of 8.4% in January from a year earlier, above forecasts for a 7.5% gain, after rising at a rate of 6.1% in December.
Following the release of the data, the euro held on to modest gains against the U.S. dollar, with EUR/USD rising 0.05% to trade at 1.3740.
Meanwhile, European stock markets remained higher. The EURO STOXX 50 rose 0.4%, France's CAC 40 advanced 0.5%, Germany's DAX picked up 0.2%, while the FTSE 100 added 0.1%.
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EURUSD Surges As Draghi Disappoints Again
Promises, promises. A lack of easing, aside from a promise of "lower for longer", has driven EURUSD back above 1.38 as the market is once again disappointed by Draghi's lack of exuberance.
But apart from that, Draghi is "nailing it"...
We are sure a stronger currency will work wonders for the recovery...
Just how cornered is Draghi - well you decide - after these comments...
So why no "stimulus" - what's he worried about?
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Just look at the color. Red is the most but sometime is not real and sometime is real.
Decline In German Wholesale Prices Worsens In January
Germany's wholesale prices declined at the fastest rate in three months in January, figures from the Federal Statistical Office showed Friday.
The wholesale price index dropped 1.7 percent year-on-year, after a 1.3 percent fall in December. It was the fastest decline since October's 1.8 percent decrease.
Month-on-month, wholesale prices slid 0.1 percent in January, reversing a 0.3 percent gain in the previous month.
The base year for the wholesale price index was changed to 2010 from 2005 starting January. In the old series, prices had fallen 1.8 percent annually, but rose 0.4 percent monthly in December.
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Draghi’s failure to take action sees the euro rally, and the AUD is a big winner
This week began steadily. Events in Russia/Ukraine dominated the headlines, but the impact on financial markets remained fairly limited. UK PMIs printed broadly in line with expectations, helping to support GBP/USD above 1.6650 early in the week. US data, including Personal Income and Spending, Manufacturing PMI, ISM Manufacturing all printed better than market expectations, but GBP/USD held on.
As expected, the Bank of England left interest rates and QE unchanged on Thursday. GBP/USD jumped to 1.6739 on the announcement that the central bank would reinvest the £8.1bn principal from its maturing March 2014 gilt.
It came back off almost as quickly, but the news provided good support to GBP/USD throughout the day and heading in to the end of the week. Cable then tracked EUR/USD higher as ECB President Draghi spoke following the ECB’s decision to leave interest rates in the EZ on hold, trading to a high of 1.6775 in advance of the US Non-Farm Payrolls data.
Markets were looking for an increase in February payrolls of 151,000, and for the unemployment rate to remain at 6.6%, with the bad weather taken into account.
The ECB left key interest rates on hold yesterday. More interestingly, ECB President Draghi continued to sit on the fence in his accompanying press conference, saying that the inflation outlook is currently no worse than it was last month and pointing out that there had been normalisation in short-end money markets.
There were some growing expectations heading into the press conference that Draghi would announce a suspension of the bank’s Securities Market Program (SMP), a government bond purchase facility that has been in place for almost four years. He didn’t, and instead said that the bank would continue to monitor the situation and that sterilisation remains an option.
The lack of any action, and the failure to signal future action, saw EUR/USD gap higher through stops under and over 1.38 and onwards to a high of 1.3872. Not everyone is totally convinced Draghi will be able to keep kicking his can down the road, and many feel that at some point soon, action will be needed to stave off the threat of deflation.
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German Industrial Production Climbs In January Led By Construction
German industrial production increased for a third straight month in January, as a mild winter boosted construction output, and signaled accelerating momentum in euro area's biggest economy.
Industrial production rose a seasonally-and-calendar-adjusted 0.8 percent month-on-month, following a 0.1 percent rise in December, which was revised from a 0.6 percent fall, the Federal Ministry for Economic Affairs and Energy said Friday. The January growth figure was in line with economists' expectations.
Manufacturing output rose 0.3 percent and construction output surged 4.4 percent.
Industrial production is at the start of a marked upward trend, the ministry said in a statement. The strong expansion in construction helped by a mild winter contributed to production growth, it added.
Year-on-year, industrial production rose 5 percent in January, following a 3.4 percent expansion in December, which was revised from 2.6 percent. The increase was much above the 3.9 percent gain forecast by economists.
"Germany's January industrial production numbers provide some hope that the economy's main growth engine is starting to pick up some revs," Capital Economics economist Jonathan Loynes said.
"We still think that the strong euro could temper the pace of recovery even in Germany's supposedly super-competitive industrial sector."
Recent data have given strong signals for German manufacturing and construction sectors. Factory orders recovered at a faster than expected pace of 1.2 percent in January, helped by both domestic and foreign demand, figures from the ministry showed yesterday.
A survey by Markit Economics revealed that German construction sector growth improved further in February despite seeing the sharpest fall in order intakes since April 2013.
Earlier this week, the Purchasing Managers' survey showed that the German manufacturing sector continued its upturn in February, and expanded more than initially estimated. Output and new orders continued to increase in February. Increased production requirements resulted in further job creation during the month.
Falling unemployment, rising consumer confidence and low inflation have underpinned a rebound in German consumer spending. The economy grew 0.4 percent in the fourth quarter and the government expects it to expand 1.8 percent this year.
The European Commission has raised the country's growth forecast for this year to 1.8 percent from 1.7 percent and the projection for 2015 was lifted to 2 percent from 1.9 percent.
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