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EU Confidence Hits 7-Year High (Just Don't Tell The Record Number Of Unemployed)
Pre-crisis levels of confidence... never before seen bond yields... stocks surging back toward record highs... just don't tell the record number of unemployed Europeans...
Peripheral bond yields continues to plunge (as ECB QE hopes are front-run en masse)...
Remember what happens when the ECB actualy switches from promises to actions...
Lower pane is the weekly purchases of bonds by the ECB and the upper pane is the now all-important spread between Italian and Spanish bonds and the German Bund - higher being more risky.
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Eurozone Construction Output Growth Eases In February
Eurozone construction output growth eased sharply in February, data from Eurostat showed Tuesday.
Construction output grew only 0.1 percent from January, when it was up by 1.6 percent. The decline was driven by a 0.4 percent fall in building construction, while civil engineering advanced 1.1 percent.
On a yearly basis, construction output advanced 6.7 percent in February, but slower than the 8 percent increase seen in January.
In EU28, construction output gained 0.1 percent month-on-month in February, and 5.5 percent from the same period of last year.
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EUR/USD gives back gains on U.S. data, market eyes Draghi
The euro gave back earlier gains against the dollar on Tuesday as investors took positive data in both Europe and the U.S. in stride, eagerly awaiting European Central Bank President Mario Draghi to appear in public later this week and shed light on monetary policy.
In U.S. trading, EUR/USD was up 0.05% at 1.3800, up from a session low of 1.3785 and off a high of 1.3825.
The pair was likely to find support at 1.3673, the low from April 4, and resistance at 1.3830, Monday's high.
ECB President Mario Draghi warned earlier this month that further gains in the euro would trigger additional monetary easing to keep inflation rates in comfort zones.
The annual rate of euro zone inflation slowed to 0.5% in March, the lowest since November 2009.
Euro zone inflation has now been in the ECB’s danger zone of below 1% for six straight months, adding to pressure on policymakers to implement fresh stimulus measures to shore up the region's fragile recovery.
On Thursday, Draghi is due to speak in Amsterdam, and markets remained in standby mode ahead of then.
Earlier Tuesday, ECB Executive Board member Benoit Coeure said the bank still had room to lower its key interest rates.
“We have several instruments in the event that it is necessary to loosen monetary policy. We still have room to cut the key interest rate," he said.
Coeure added the strong euro "risks slowing the return of inflation to a level close to and below 2%, which is our definition of price stability."
Elsewhere in Europe, data revealed consumer confidence hit its highest level in six-and-a-half years
The European Commission reported earlier that consumer confidence improved to -8.70 in April, beating market calls for a -9.05 reading.
Meanwhile in the U.S., industry data revealed that existing home sales fell by 0.2% in March to 4.59 million units. beating expectations for 4.55 million units.
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French manufacturing PMI 50.9 vs. 51.9 forecast
France’s manufacturing PMI fell more-than-expected this month, preliminary data showed on Wednesday.
In a report, Markit Economics said that French manufacturing PMI fell to a seasonally adjusted 50.9, from 52.1 in March.
Analysts had expected French manufacturing PMI to fall to 51.9.
French Services PMI 50.3 vs. 51.4 forecast
French service sector activity fell more-than-expected this month, official data showed on Wednesday.
In a report, Markit Economics said that French Services PMI fell to a seasonally adjusted 50.3, from 51.5 in March.
Analysts had expected French Services PMI to fall to 51.4.
Euro extends gains after euro zone PMI surveys
The euro extended gains against the dollar and the yen on Wednesday after data showed that the recovery in the euro zone private sector continued this month, but pointed to a divergence between Germany and France.
EUR/USD hit highs of 1.3845, the strongest since April 17 and was last up 0.26% to 1.3841.
The pair was likely to find support at 1.3784, Tuesday’s low and resistance at 1.3865.
The euro zone manufacturing purchasing managers’ index rose to 53.3 this month from 53.0 in March, compared to expectations for an unchanged reading.
The bloc’s services PMI rose to 53.1 from 52.2 the previous month, better then forecasts for 52.4.
The recovery in the euro zone’s largest economy accelerated this month, with activity in both the manufacturing and service sector strengthening.
Germany’s manufacturing PMI rose to 54.2 from 53.7 in March, ahead of expectations for a reading of 54.0. The country’s services PMI increased to 55.0 from 53.0, better than the 53.4 forecast by analysts.
But growth in the French private sector lost momentum this month, with the country’s manufacturing PMI falling to 50.9 from 52.1 in March, and weaker than the 51.9 expected by analysts.
The French services PMI dropped to 50.3 from 51.5 in March.
EUR/JPY touched highs of 142.00, the highest since April 4 and was last up 0.16% to 141.87.
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Market trying to stay short ahead of Draghi speech tomorrow but will he disappoint?
4/15 1.3813
4/16 1.3813
4/17 1.3814
4/18 1.3818
4/21 1.3793
4/22 1.3804Inflation below 0.5% could force the ECB to act
A move below 0.5% in headline CPI, the ECB’s mandate, would be seen as a trigger point beyond which the ECB will be unable to simply stand by and keep talking about the potential for further easing measures, says Simon Smith of FxPro.
In the interview below, Smith also addresses the US economy “spring bounce”, the lack of a weakening bias and other topics. Enjoy:
Simon has over seventeen years experience of macro forecasting and investment strategy research. Prior to joining FxPro in May 2010, Simon was a consultant with Thomson Reuters, having spent four years as Chief Economist at Weavering Capital. He has held economic and strategy positions with Standard & Poor’s, together with consultancy firms 4Cast and MMS International. Simon holds an MSc. in Economics from the University of London and a BSc. from Brunel University.
1. Euro-zone: Next week’s flash CPI estimate for April will be closely watched by traders and policymakers. Do you think the ECB has a “line in the sand” regarding CPI and Core CPI under which more monetary stimulus is imminent?
By nature, they are a consensual organisation and from that we have seen from recent pronouncements and press conferences that they are leaning towards the possibility of further measure to counteract deflation, but from what I gather they are still not sure what form these may take. You have to remember that the ECB’s mandate is built on headline CPI, so this is what ultimately matters, but I think a move below 0.5% would be seen as a trigger point beyond which the ECB will be unable to simply stand by and keep talking about the potential for further easing measures. They will be forced to act, but the effectiveness of their actions is another matter.
2. Given the recent economic numbers coming out of the US after the cold winter months, do you see the current improvement as a big bounce that will turn into accelerated growth? Or is it just a return to the same growth levels seen before the winter?
I think ultimately it is going to be the trends in business investment that dictates whether the bounce moves beyond simply a catch-up from the weakness seen earlier in the year. I think this is what has been lacking, with non-residential investment just over 2% last year. With funding low and cash balances high, then we should be seeing this a lot higher and once we do, there will be a much broader belief in the underlying recovery.
3. The BOJ has not really reacted to the sales tax hike. If they do not announce new measures, can we expect the yen to strengthen?
I don’t think that we should be surprised that they have not specifically reacted, given that it has been a long time coming and the impact in terms of near-term growth is largely going to iron out as future consumption has been brought forward ahead of the increase. There is certainly not an underlying weakening bias to the yen as we cannot assume that this is the default position for the market. The onus really remains more on the government in terms of convincing markets and others that this time is different, which they have so far failed to achieve. There are wider structural forces that continue to suggest a weaker yen (demographics, deteriorating current account), but they are currently insufficient to create a weakening bias that is going to break us out of the current ranges.
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Eurozone deficits improve, debt mounts as crisis fades
Eurozone public finances improved in 2013 as the economy finally turned the corner on a record recession but total debt levels remained dangerously high, official data showed on Wednesday.
The average eurozone government deficit -- the shortfall between revenue and spending -- came in at 3.0 percent of output last year.
That was in line with the European Union ceiling and down from 3.7 percent in 2012, the Eurostat statistics agency said.
The overall figures are broadly in line with growing signs that the worst of the eurozone debt crisis, which at one point threatened to destroy the euro, is over although several member countries will be applying budget rigour and deep economic reforms for years to come.
Public finances in bailed out Greece and Portugal sent signals of marked improvement on Wednesday, Spain signalled faster recovery, and France -- seen as lagging on reforms -- detailed new policies to put its economy in shape.
Total accumulated debt increased to 92.6 percent of gross domestic product, up from 90.7 percent, rising even further above the European Union 60-percent limit.
The continued increase in total debt levels reflects the high cost of the economic slump and debt crisis as governments borrowed heavily in an effort to stabilise their economies.
Christian Schulz at Berenberg Bank said the figures were positive overall, showing that the debt crisis austerity programmes were "paying off."
Adjusted figures excluding the cost of bank recapitalisation efforts were even better, giving a 2.8 percent deficit for last year, Schulz said in a note.
"With growth returning, increasing tax revenues and falling (spending) should drive the eurozone's deficit even lower in coming years," he argued.
For the full 28-nation European Union, the average public deficit was 3.3 percent, down from 3.9 percent, while total debt increased to 87.1 percent of GDP from 85.2 percent, Eurostat said in a report based on submissions by the EU member states.
- Germany best, France lags -
Powerhouse economy Germany once again put in the best performance, with its public finances in balance last year.
In marked contrast, France, struggling for growth and under pressure from Brussels to meet the 3.0 percent target, stood out with a deficit of 4.3 percent.
France was supposed to have kept the 2013 deficit to 4.1 percent but with the economy in difficulty, the European Union in June agreed to give Paris two extra years, until 2015, to bring it back down to the EU ceiling.
In Paris, the government announced Wednesday a new programme to get the deficit down to 3.8 percent this year and 3.0 percent in 2015 by cutting spending and boosting the economy.
French public spending, equal to 56.7 percent of economic output this year, will fall to 53.5 percent in 2017.
Other EU countries coming in above the 3.0 percent limit were led by Slovenia on 14.7 percent.
Twice-bailed out Greece had a deficit of 12.7 percent, Ireland 7.2 percent, Spain 7.1 percent, non-euro Britain 5.8 percent, Cyprus 5.4 percent, with Croatia and Portugal on 4.9 percent and Poland on 4.3 percent.
The European Commission said separately that Athens had achieved a 2013 primary budget surplus -- the balance before interest and stripping out bank support and other payments -- equal to 0.8 percent of GDP.
This was a significant achievement, meeting a key target for its international creditors to consider additional help.
The EU's 3.0- and 60-percent deficit and debt limits are regarded as prudent targets, the levels states should maintain so they are not overly vulnerable to crises and can manage the public finances in a sustainable fashion.
However, the majority of the 28 member states have breached those limits repeatedly, and for many years in some cases, and were forced to pay a heavy price by the debt crisis.
Wednesday's figures showed Ireland with total debt of nearly 124 percent of GDP while Portugal, also bailed out with Dublin, was on 129 percent.
Greece, only now returning to growth after six years in a recession which has shrank the economy by a quarter, is saddled with a staggering debt mountain equal to 175 percent of GDP, Eurostat said.
Even Germany, held up as the model for all others, has total debt at 78.4 percent, falling, while France is on 93.5 percent and rising.
Britain, one of the fastest growing major economies, came in at 90.6 percent for 2013.
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