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Although Yellen has emphasized the economy isn’t meeting the Fed’s goals, the markets recovered from yesterday's decline.
It's always the same thing, on Fed's days, buy buy buy....
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Silva Trading EN | Financial Markets
"It is not enough to have a good mind. The main thing is to use it well." (Rene Descartes)
No decision on ECB action in June has been taken says Weidmann
EUR/USD gets excited and jumps 15 pips to 1.3670 as Bundesbank head and ECB man gives an interview with Sueddeutsche Zeitung.
From the little clues there it sounds like they are still undecided on the effects of negative rates and that could mean they are not quite on the agenda, though the refi rate seems firmly on the table. What is clear is that the ECB is going to be deciding policy on economic projections and I for one don’t hold them any higher than bank calls and forecasts. We’re at the mercy of the ECB beavers in their forecasting hidey holes.
Weidmann says not clear yet whether ECB will act in June: paper
It is not clear yet whether the European Central Bank will take fresh policy action at its upcoming June meeting, ECB Governing Council member Jens Weidmann has said.
Analysts in a Reuters poll expect the ECB to cut what little it has left of its main interest rate in June and push the deposit rate below zero in an attempt to stop the euro from rising and inflation from falling any further.
Weidmann told the Sueddeutsche Zeitung newspaper the ECB's loose monetary policy stance was appropriate to support the recovery, but its risks and side effects should be kept in mind, according to advance excerpts of an interview due to appear in Thursday's edition.
"The interest rate policy is the core of our monetary policy instruments. A central banker's attention would certainly focus first on this, if in the end it became necessary to act," Weidmann was quoted as saying. "But so far it is not clear whether we will have to act at all."
ECB President Mario Draghi said after the May meeting that the Governing Council was "comfortable with acting next time" - its June 5 policy meeting - but wanted to see updated economic projections from the bank's staff first.
Fresh policy action did not depend on current inflation rates, but on how prices developed over the medium term, Weidmann said, adding that there were no signs that the euro zone was in a deflationary downward spiral.
"Nothing has been decided yet," Weidmann said.
NO NEED FOR GOVERNMENT DEBT PURCHASES
Citing ECB sources, Sueddeutsche Zeitung said the central bank was considering cutting the interest rate on deposits below its current level of zero to -0.1 percent, which would mean charging banks to park their cash at the ECB.
Weidmann said the current debate focused less on the main refinancing rate and more on the deposit rate. A negative deposit rate could revive the interbank money market, encourage lending to companies and affect the exchange rate.
The ECB has gotten increasingly concerned about the strength of the euro and its impact on already low euro zone inflation.
Weidmann called for a calmer debate, saying the euro-dollar exchange rate had several times in the past been at similar levels and on a trade-weighted basis, it was only just above the level seen at the beginning of the currency union.
"An expansionary monetary policy can certainly - as a side effect - lead to a weaker euro exchange rate. But I am not in favour of a targeted exchange rate policy to weaken the euro," Weidmann, who also heads the Bundesbank, was quoted as saying.
Asked about government bond purchases by the ECB, Weidmann made clear that he had not changed his position recently, stressing that euro zone central banks were not allowed to finance governments and should interpret their mandate narrowly.
"In addition to that, there are now more than ever economic reasons not to buy government bonds," Weidmann said, referring to government bond yields in some periphery euro zone countries falling to record lows in recent months.
"Why should the ECB intervene in these markets now and try to push the rates even lower?," Weidmann asked. "The current market environment already has the effect of a government bond purchase programme."
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French private sector output slips into contraction
Output in the French private sector declined for the first time in three months during May, albeit marginally. The Markit Flash France Composite Output Index , based on around 85% of normal monthly survey replies, posted a three - month low of 49.3, down from 50.6 in April. Lower output was recorded across the service and manufacturing sectors ; in both cases the falls were the first since February . Rates of decline were slight and fractional respectively . New business received by French private sector firms decreased for the second month running during May.
full report
Steady growth signs lift European stocks and bonds
European stocks and government bonds rose on Thursday buoyed by another month of private sector growth, firmer Chinese data and signs the U.S. Fed will maintain some monetary support for the world's largest economy.
An unexpected pickup in Europe's service industry was offset by underwhelming factory activity, but was enough to show that the euro zone's fragile recovery has some traction.
Early readings from Germany, the bloc's industrial heartland, set a strong tone while France remained the laggard.
"This doesn't change the picture of the euro zone having one of its best growth spells in the past three years. It's broad-based, with the one exception being France," said Rob Dobson, senior economist at survey compiler Markit.
Riskier assets were in vogue after manufacturing data showed some signs of the economy stabilising in China. Meanwhile, minutes from the U.S. Federal Reserve's last meeting showed it was in no rush to raise interest rates.
European stocks rose 0.2 percent, with the main bourses in London, Frankfurt rising 0.3 percent respectively, and Paris up 0.1 percent.
Government bond yields also dipped, with expectations of further monetary easing from the European Central Bank supporting bond prices and allaying trepidation about EU elections.
The first polls for the European Union parliament since the bloc's debt crisis blew up open on Thursday, and an expected rise in eurosceptic parties threatens to destabilise some governments or sway them to delay any painful economic reforms.
Spanish and Italian 10-year yields were both 2 basis points lower at 3.00 and 3.18 percent, respectively, while German Bunds dipped 1 bps to 1.37 percent.
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Eurozone Private Sector Expands Strongly In May
The Eurozone private sector maintained growth momentum in May as new orders and output in services nullified the moderate weakness in manufacturing.
The flash composite output index came in at 53.9 in May, in line with expectations, but slightly down from 54 in April, figures from Markit Economics revealed Thursday.
However, the latest reading was the second-strongest seen over the past three years and leaves the average for the second quarter so far at the highest since the second quarter of 2011.
The flash manufacturing Purchasing Managers' Index declined to 52.5 from 53.4 in April and remained below the expected score of 53.2.
The services PMI, meanwhile, rose more-than-expected to 53.5 from 53.1 in April. The reading was forecast to rise to 53.
Chris Williamson, chief economist at Markit, said a slight easing in the euro area's rate of growth was seen in May but does not change the picture of a region that is enjoying its best spell of growth for three years.
Output and new business in the services sector hit the highest since June 2011. On the other hand, manufacturers experienced the slowest increase in both output and orders. The slowdown in manufacturing partially reflected the weaker export performance.
Rates of job creation in both manufacturing and services remained only modest. The cautious approach to hiring in part reflects the fact that, although rising, demand remains weak by the survey's historical standards.
Input costs increased at the fastest pace in three months, but selling prices dropped in May, signaling further squeeze on companies' profit margins.
The ongoing fall in output prices and survey results do little to dilute the belief that the European Central Bank will be taking stimulative action in June, IHS Global Insight's Chief European Economist Howard Archer said.
Jessica Hinds, a European economist at Capital Economics noted that the Eurozone's economic recovery only gained a little momentum in the second quarter and that growth will still not be strong enough to eliminate the risks of deflation.
Germany's private sector expanded strongly in May underpinned by an unexpected improvement in services, while France slipped into negative territory highlighting the diverging pattern among large member countries.
Archer noted that there is pressing need in both France and Italy to enact meaningful structural reforms.
The German composite output index remained unchanged at 56.1 in May. The services PMI rose to a 35-month high of 56.4 in May from 54.7 in April. Economists had forecast the index to drop to 54.5.
Meanwhile, the manufacturing PMI fell more-than-expected to 52.9 in May from 54.1 in the previous month. The expected score was 54.
The French private sector contracted for the first time in three months in May, driven by the weakness in both manufacturing and services.
The flash French composite output index fell to 49.3 in May from 50.6 in April. The manufacturing PMI declined more-than-expected to a 4-month low of 49.3 in May from 51.2 in April. The expected reading was 51.
Likewise, the services PMI dropped to 49.2, while it was forecast to remain unchanged at 50.4.
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Euro Falls to Three-Month Low on ECB Easing Speculation
The euro fell to almost a three-month low amid signals from European policy makers of willingness to undertake further monetary easing and as anti-establishment political groups seek to win power at polls this weekend.
The yen dropped the most in two weeks as a report signaling an improving outlook for Chinese manufacturing boosted stocks and damped haven demand. The dollar rebounded from a key technical level versus the yen as a report showed sales of existing homes rose in April. Thailand’s baht declined as the nation’s military chief staged a coup two days after imposing martial law. The 18-nation currency weakened as Bundesbank President Jens Weidmann said at event in Frankfurt that unconventional monetary policy measures will be considered.
“Euro is weaker because there’s mounting expectation that the European Central Bank is going to come out with aggressive policy in June,” Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York, said in a phone interview. ECB officials’ comments in line ECB President MarioDraghi’s remarks on May 8 are “validating market expectations. People like to confirm what they believe and that’s what’s going on.”
The shared currency declined 0.2 percent to $1.3656 per euro at 5 p.m. New York time. It reached $1.3635 yesterday, the lowest level since Feb. 13. The yen weakened 0.4 percent to 101.74 per dollar, dropping the most on a closing basis since April 1. Japan’s currency fell 0.1 percent to 138.93 per euro.
German GDP Growth Accelerates As Estimated
Germany's economic growth rebounded as previously estimated in the first quarter driven by domestic demand, the detailed report from Destatis showed Friday.
Gross domestic product grew 0.8 percent sequentially in the first quarter, up from 0.4 percent in the fourth quarter. The quarterly rate came in line with the provisional estimate published on May 15.
On a calendar-adjusted basis, GDP grew 2.3 percent year-on-year, faster than the 1.4 percent rise seen in the fourth quarter. This was the largest increase in over two years.
The price-adjusted GDP gained 2.5 percent, also faster than the 1.3 percent growth seen in the fourth quarter. The statistical office confirmed the annual figures.
The expenditure side breakdown of GDP showed that positive contributions were made by domestic demand only.
Gross fixed capital formation advanced at a faster pace of 3.2 percent on the previous quarter. Household final consumption expenditure climbed 0.7 percent on the fourth quarter. At the same time, general government expenditure grew only 0.4 percent.
However, the balance of exports and imports had a downward effect on the GDP growth. The increase in exports slowed to 0.2 percent from 2.5 percent, while the increase in imports accelerated to 2.2 percent.
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Italian Retail Sales -0.2% vs. 0.3% forecast
Italian retail sales fell unexpectedly last month, official data showed on Friday.
In a report, Istat said that Italian Retail Sales fell to -0.2%, from -0.2% in the preceding month.
Analysts had expected Italian Retail Sales to rise 0.3% last
German Ifo business climate 110.4 vs. 110.9 forecast
Germany’s Ifo business climate fell more-than-expected last month, data showed on Friday.
In a report, the Ifo Institute for Economic Research said its index of German business climate fell to 110.4, from 111.2 in the preceding month .
Analysts had expected the index to fall to 110.9 last month.