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Euro-zone inflation falls to 0.5% in May from 0.7% in April
Euro-zone inflation falls to 0.5% in May from 0.7% in April
Euro zone unemployment rate falls to 11.7% in April
The euro zone’s unemployment rate fell unexpectedly in April, easing concerns over the region’s growth prospects, official data showed on Tuesday.
In a report, Eurostat said that the euro zone’s unemployment rate ticked down to a seasonally adjusted 11.7% in April from 11.8% in March. Analysts had expected the jobless rate to hold steady at 11.8%.
The data showed that among the member states, the lowest unemployment rates were recorded in Austria (4.9%), Germany (5.2%) and Luxembourg (6.1%), and the highest in Greece (26.5% in February 2014) and Spain (25.1%).
Following the release of the data, the euro turned higher against the U.S. dollar, with EUR/USD rising 0.04% to trade at 1.3603, compared to 1.3593 ahead of the data.
Meanwhile, European stock markets remained lower. The Euro Stoxx 50 fell 0.15%, France’s CAC 40 dipped 0.1%, Germany's DAX slumped 0.25%, while London’s FTSE 100 declined 0.4%.
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Euro Gains From Near 3-Month Low as Inflation Data Disappoints
The euro rose against most of its major counterparts as traders speculated any stimulus measures this week from the European Central Bank won’t be enough to further weaken the 18-nation currency.
The shared currency rose from close to its lowest level in more than three months versus the dollar even as a report showed the jobless rate in the euro area was near a record in April. Demand for the dollar held amid an increase in Treasury yields before jobs data forecast to show an improving U.S. labor market. Australia’s dollar advanced after the Reserve Bank said growth appeared to be accelerating.
“Expectations are quite high for Thursday’s meeting, so the risk now tends to one of mild disappointment,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London.
The euro gained 0.3 percent to $1.3642 at 8:16 a.m. New York time, after slipping 0.3 percent yesterday. The currency fell to $1.3586 on May 29, the weakest since Feb. 13. The euro advanced 0.3 percent to 139.63 yen. The U.S. currency was little changed at 102.35 yen after gaining 0.6 percent yesterday.
“Many short euro positions are in place at the moment,” said Arne Lohmann Rasmussen, head of foreign-exchange research at Danske Bank A/S in Copenhagen. “If the ECB disappoints and perhaps only cuts the refi rate you will see a move higher in euro-dollar.” Short positions are bets a currency will weaken.
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EUR/USD Rebounds Despite Worse-Than-Expected Euro Zone Inflation Data
Volume was light and volatility remained tempered on Tuesday as the EUR/USD rebounded from earlier weakness. Although the European Central Bank is not expected to make its key stimulus announcement until Thursday, June 5, today’s price action suggests the market may have fully priced in a possible move to negative interest rates by the central bank.
On Tuesday, the Euro rallied against the U.S. Dollar after a report showed Euro Zone inflation slipped to 0.5% in May from 0.7% in April, missing analyst estimates of 0.6%. Since the market seems to have been boosted by the news, a case can be built for it having been already baked into the market.
Today’s price action suggests the volatility may be substantial once the ECB releases its stimulus plans in a couple of days. This is because of the number of shorts who may be trapped in the market at the low end of the EUR/USD’s price range. If the ECB delivers what the market is anticipating then these short sellers will be forced to cover in a big way, creating a massive rally.
The GBP/USD remained relatively steady on Tuesday as investors position themselves ahead of the Bank of England monetary policy meeting on Thursday. The price action suggests investors largely believe the BoE will leave its benchmark interest rate unchanged as well as its current level of monthly stimulus. Members may discuss exit strategies or ways to end the stimulus as well as the timing of an interest rate hike, but this will not be known until the minutes are released later in the month.
August Gold prices remained under pressure but downside momentum appears to be slowing because of oversold technical conditions. Key support seems to be $1240.00. The lack of selling pressure suggests short-sellers may have exhausted themselves on the downside and may now be looking for any excuse to take profits after the thirteen day sell-off. A substantial break in the equity indices may revive hedge buying or it may send some of the stock market profits into gold which could give the precious metal a temporary boost.
July Crude Oil prices stabilized after a five-day decline as investors positioned themselves ahead of Wednesday’s U.S. Energy Information Agency supply and demand report. With inventories near record highs, traders are becoming a little concerned that a drop in demand will push them over the top, sending prices falling.
Today’s session began with traders in the sell-mode but the market was underpinned by some decent numbers from China’s factory and services sector which had their best showings in months. The final HSBC/Market purchasing index (PMI) rose to 49.4 in May, reaching a four-month high.
Overall volume in key commodity and foreign currency markets is light ahead of Thursday’s ECB meeting. Many economists expect President Mario Draghi to announce policy measures to combat the drop in inflation. These measures include negative interest rates and cheap loans to banks.
Today, the U.S. released a report highlighting better-than-expected factory orders. The report showed new orders for factory goods climbed 0.7 percent in April, rising for the third straight month and beating expectations for a 0.5 percent increase.
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Eurozone Inflation Eases; Unemployment Falls
Eurozone inflation slowed more-than-expected in May, signaling more actions from the European Central Bank this week to stimulate the economy and to settle fears of deflation.
The unemployment rate in the currency bloc declined unexpectedly in April. Nonetheless, unemployment remains at a high level as companies are still cautious over adding staff and meet rising orders with existing employees.
Headline inflation fell to 0.5 percent in May from 0.7 percent in April, flash estimates published by Eurostat showed Tuesday. The rate was forecast to ease marginally to 0.6 percent.
Inflation has been below the European Central Bank's target of 'below, but close to 2 percent' for the sixteenth consecutive month.
Similarly, excluding food, alcohol and tobacco, core inflation slowed to 0.7 percent from 1 percent a month ago. It was below the expected 0.9 percent. Final data is due on June 16.
At an ECB forum in Portugal last week, ECB President Mario Draghi said the bank remains alert to the risks to a prolonged period of low inflation and expressed readiness to take action if required.
The seasonally adjusted jobless rate fell to 11.7 percent, the lowest since November 2011, from 11.8 percent in March. Economists had expected the rate to hold steady at 11.8 percent for the fourth straight month.
The number of unemployed totaled 18.751 million in April, down by 76,000 from March. The figure fell by 487,000 from a year-ago.
The youth jobless rate, which applies to the under 25s, also eased in April, falling to 23.5 percent from 23.6 percent logged in the previous two months.
Austria and Germany posted the lowest rates among the member states, while Greece and Spain remained on the top of the list with highest rates.
The Eurozone jobs problem is far from over as unemployment remains damagingly high and it seems unlikely to come down substantially for some time to come, IHS Global Insight's Chief European Economist Howard Archer said.
A gradual downward creep in unemployment seems most likely over the coming months, he noted.
Data from Italy today showed that the unemployment rate remained unchanged at 12.6 percent in April. The jobless rate had reached 12.7 percent early this year, which was the highest since records began in 1977.
Spain's labor ministry today said registered unemployment decreased by 111,916 in May. The number of unemployed totaled 4.57 million. On a seasonally adjusted basis, unemployment fell by 24,604. The decline was the biggest for the month since 1998.
The EU 28 jobless rate fell to 10.4 percent in April from 10.5 percent in the previous month.
The ECB is said to consider taking interest rates to negative zone and unveil conditional liquidity for banks when the Governing Council meets this Thursday.
While today's data support the assessment that a much bolder quantitative easing programme is warranted, Jennifer McKeown, a European economist at Capital Economics doubts that the ECB will be operationally or ideologically prepared to announce it this week.
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EUR/USD edges lower ahead of E.Z. data, ECB
The euro edged down against the U.S. dollar on Wednesday, still hovering close to three-and-a-half month lows as markets were jittery ahead of euro zone service sector data due later in the day, as well as Thursday's policy statement by the European Central Bank.
EUR/USD hit 1.3608 during late Asian trade, the session low; the pair subsequently consolidated at 1.3611, slipping 0.12%.
The pair was likely to find support at 1.3553, the low of February 7 and resistance at 1.3668, the high of May 27.
The single currency had strengthened mildly on Tuesday, after data showed that the unemployment rate in the single currency bloc ticked down to 11.7% in April, from 11.8% the previous month, confounding expectations for the rate to remain unchanged.
But sentiment on the euro remained vulnerable after Eurostat said consumer price inflation in the euro zone increased by 0.5% last month, down from 0.7% in April and missing expectations for a reading of 0.7%.
The rate stands well below the ECB target of near but just under 2% and the report added to expectations that the ECB will take steps to tackle low consumer price growth, which is threatening the fragile recovery in the euro zone.
Meanwhile, the greenback found some support after official data on Tuesday showed that U.S. factory orders rose 0.7% in April, beating expectations for a 0.5% gain, after an upwardly revised 1.5% increase in March.
The euro was fractionally higher against the pound, with EUR/GBP edging up 0.09% to 0.8143.
Later in the day, the U.S. was to release the ADP report on private sector job creation, as well as a report on trade balance.
German Services PMI 56.0 vs. 56.4 forecast
German service sector activity fell unexpectedly last month, official data showed on Wednesday.
In a report, Markit Economics said that German Services PMI fell to 56.0, from 56.4 in the preceding month.
Analysts had expected German Services PMI to remain unchanged at 56.4 last month.
Euro Zone Services PMI 53.2 vs. 53.5 forecast
Euro zone service sector activity fell unexpectedly in the last quarter, industry data showed on Wednesday.
In a report, markit said that Euro Zone Services PMI fell to 53.2, from 53.5 in the preceding quarter.
Analysts had expected Euro Zone Services PMI to remain unchanged at 53.5 in the last quarter.
EUR/USD remains lower with ECB in focus
The euro remained slightly lower against the U.S. dollar on Wednesday, as earlier euro zone data and expectations for further easing measures by the European Central Bank continued to weigh, although mixed reports from the U.S. limited the greenback's gains.
EUR/USD hit 1.3600 during U.S. morning trade, the session low; the pair subsequently consolidated at 1.3610, slipping 0.13%.
The pair was likely to find support at 1.3562, the low of February 12 and resistance at 1.3668, the high of May 27.
The euro came under pressure after Markit earlier said that Germany's services purchasing managers' index fell to 56.0 in May from 56.4 in April, confounding expectations for the index to remain unchanged.
Separately, Spain's services PMI fell to 55.7 in May, from a reading of 56.5 the previous month, while Italy's services PMI rose to 51.6 last month, from 51.1 in April.
Sentiment on the euro also remained vulnerable after Eurostat on Tuesday said consumer price inflation in the euro zone increased by 0.5% last month, down from 0.7% in April. The rate missed expectations for a reading of 0.7% and stands well below the ECB target of near but just under 2%.
The report added to expectations that the ECB will take steps to tackle low consumer price growth, which is threatening the fragile recovery in the euro zone.
In the U.S., the Institute of Supply Management said its non-manufacturing index rose to a nine-month high of 56.3 in May, from a reading of 55.2 the previous month, compared to expectations for a rise to 55.5.
The data came after payroll processing firm ADP said non-farm private employment rose by 179,000 in May, below expectations for an increase of 210,000. April's figure was revised down to a gain of 215,000 from a previously reported increase of 220,000.
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ECB pushes ahead with major euro-zone bank review
The European Central Bank is making steady progress in its review of the health of major euro-zone banks, a key step on the path to a closer banking union for the currency bloc bruised by a financial crisis, Daniele Nouy, the head of the new pan-euro area banking supervision authority, said Thursday.
The ECB is conducting a penetrating asset quality review (AQR) of largest euro area banks before it starts supervising them directly, which is scheduled for November this year. The AQR aims at ensuring that all banks' coming under the ECB's supervision have sound balance sheets with no hidden risks.
"Let me emphasize that the actual execution of the AQR is on track," Ms. Nouy said in a speech at a seminar on banking supervision in Helsinki.
Once the comprehensive results for the AQR and for parallel European-wide bank stress tests are published in October, they will reveal capital shortfalls at some banks, Ms. Nouy added. These "banks will have to build up capital buffers, thereby leading to a more resilience in the financial system," she said.
The AQR scrutinizes minutely the banks' loan portfolios and valuations of their most exotic financial derivatives while the stress tests gauge the banks' ability to withstand various adverse operational scenarios. Some 6,000 official supervisors and auditors hired from private-sector consultancies are now working on the AQR on site at banks, Ms. Nouy said.
Ms. Nouy, a former senior French bank regulator, started as the chief of the ECB's supervisory arm in January this year. The supervisory arm will monitor directly some 130 largest euro area banks which represent nearly 85% of total banking assets in the euro zone. It will also supervise indirectly with input from national supervisors all euro-zone banks.
The heads of European Union governments decided to give the ECB its new and powerful supervisory role in June 2012. The decision was part of a quest to harmonize banking practices within the 18-country bloc using the common currency and to restore credibility to a European banking sector which has been shaken badly by a bursting of various asset price bubbles and a sovereign-debt crisis since 2008.
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