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German manufacturing PMI falls less than forecast in August
Manufacturing activity in Germany expanded at a faster rate than expected in August, easing concerns over the health of the euro zone’s largest economy, preliminary data showed on Thursday.
In a report, market research group Markit said that its preliminary German manufacturing purchasing managers’ index dipped to a seasonally adjusted 52.0 this month from a final reading of 52.4 in July. Analysts had expected the index to decline to 51.8 in August.
Meanwhile, the preliminary services purchasing managers’ index inched down to a seasonally adjusted 56.4 this month from July's 37-month high of 56.7. Analysts had expected the index to fall to 55.7 in August.
The seasonally adjusted Markit Flash Germany Composite Output Index, which measures the combined output of both the manufacturing and service sectors declined from 55.7 in July to a two-month low of 54.9 in August.
A reading above 50.0 on the index indicates industry expansion, below indicates contraction.
Commenting on the report, Oliver Kolodseike, Economist at Markit said, “The PMI data available for the third quarter so far point to a swift recovery in GDP from the ground lost during the second quarter."
Following the release of the data, the euro added to gains against the U.S. dollar, with EUR/USD inching up 0.08% to trade at 1.3273, compared to 1.3259 ahead of the data.
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EUR/USD moves off 11-month lows ahead of Yellen speech
The euro moved up from 11-month lows against the dollar on Thursday, mainly as investors sold the greenback for profits to wait for Federal Reserve Chair Janet Yellen's speech before the annual Jackson Hole economic symposium on Friday.
In U.S. trading, EUR/USD was up 0.19% at 1.3284, up from a session low of 1.3242 and off a high of 1.3289.
The pair was likely to find support at 1.3242, the session low, and resistance at 1.3412, Friday's high.
The Federal Reserve released the minutes of its July policy meeting on Wednesday, and the document revealed that interest rates could come sooner rather than later if the labor market continues to recover, which initially bolstered the dollar.
Profit taking sent the greenback edging lower on Thursday, as many investors bet Fed Chair Janet Yellen will provide dovish words in a Jackson Hole speech on Friday to complement the hawkish minutes in order to convey to markets that even though rates will rise, monetary authorities will make sure they do so gradually.
Upbeat U.S. data took a back seat to Yellen expectations in late-morning trading on Thursday.
The Federal Reserve Bank of Philadelphia said that its manufacturing index topped a three-year high of 28.0 this month from July’s 23.9 reading. Analysts had expected the index to decline to 19.2 in July.
Separately, market research group Markit said that its preliminary U.S. manufacturing purchasing managers’ index increased to a four-year high of 58.0 this month from a final reading of 55.8 in July. Analysts had expected the index to ease down to 55.7 in August.
Data also showed that U.S. existing home sales increased 2.4% to 5.15 million units last month from 5.03 million in June. Analysts had expected existing home sales to dip 0.4% to 5.02 million units in July.
Also on Thursday, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending Aug. 16 decreased by 14,000 to 298,000 from the previous week’s revised total of 312,000.
Analysts had expected jobless claims to fall by 12,000 to 300,000 last week.
Meanwhile in Europe, data showed that activity in the euro zone’s manufacturing sector slowed to a 13-month low in August, with the euro zone manufacturing PMI down to 50.8 from 51.8 in July. Economists had forecast a decline to 51.3.
The region’s services PMI slid to 53.5 from 54.2 in July, in line with forecasts.
Activity in Germany’s factor sector slowed but remained solid, while manufacturing activity in France contracted for a sixth successive month.
Elsewhere, the euro was up against the pound, with EUR/GBP up 0.21% at 0.8007, and up against the yen, with EUR/JPY up 0.26% at 137.93.
On Friday, expect markets to move on speeches delivered by Fed Chair Janet Yellen and ECB President Mario Draghi at the annual economic symposium in Jackson Hole, Wyoming.
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thanks for the news
France Leading Index Remains Unchanged In June: Conference Board
France's leading index, which measures the future economic activity, remained unchanged in June from the previous month, results of a survey by the Conference Board showed Friday.
The leading index remained flat in June, after a revised 0.2 percent fall registered in the previous month. Out of the seven components, three of them contributed positively to the index.
Among the sub-indices, the yield spread, new unemployment claims, and the stock price index were the largest positive contributors. During the six-month period to June, the index moved up 0.2 percent.
The coincident index, which reflects the current economic activity, edged up 0.1 percent in June, as all four components contributed positively to the index. According to revised data, the index remained unchanged both May and April.
Draghi: ECB can't solve unemployment by itself
The European Central Bank stands ready to take more unconventional action if needed, but it can’t solve the euro zone’s unemployment problem all by itself, Mario Draghi said Friday.
In a speech at the Kansas City Federal Reserve’s annual symposium in Jackson Hole, Wyo., the ECB president argued that increased flexibility on fiscal policy across the euro zone and efforts to overhaul the region’s labor markets remain crucial.
“Everyone in society is affected by high unemployment. For central banks it is at the heart of the macro dynamics that determine inflation, and even when there are no risks to price stability it increases pressure on us to act,” Draghi said, according to a summary of the speech made available by the ECB.
“The key issue, however, is how much we can really sustainably affect unemployment, which depends on whether the drivers are predominantly cyclical or structural,” Draghi said.
On the cyclical front, Draghi struck a familiar tone: The monetary policy measures announced by the ECB in June “should provide the intended boost to demand,” he said, adding that the central bank stands ready to take further action if warranted. “Acknowledging the downward path of inflation, the Governing Council would also use unconventional instruments to safeguard the firm anchoring of inflation expectations over the medium- to long-term,” he said.
Many economists expect persistently below-target inflation to eventually push the ECB to undertake outright quantitative easing. The euro-zone’s weak economic recovery faltered in the second quarter, re-igniting fears the region is headed for a prolonged stretch of weak growth and chronic high unemployment.
The ECB chief, who has previously chided politicians for dragging their feet on structural reforms, also called for fiscal policy to play a “greater role” alongside monetary policy.
“The euro area has suffered from fiscal policy being less effective and available, especially compared with other advanced economies, reflecting the fact that the central bank in those countries could act and has acted as a backstop for government funding,” Draghi said.
Draghi argued that there is “existing flexibility” on fiscal policy in the euro area that could be used to “better address the weak recovery” and make room for the cost of structural reforms. There’s also leeway for a more “growth-friendly” composition of fiscal policies, including, for example, lowering the tax burden in a budget-neutral way. Stronger coordination of fiscal poicies could also make for a more “growth-friendly” overall fiscal stance in the euro zone.
Still, monetary and fiscal measures can’t replace structural reforms, Draghi said.
“The way back to higher employment is a policy mix that combines monetary, fiscal and structural measures, which requires a coherent strategy at the union and national levels,” Draghi said. “This will allow each member of our union to achieve a sustainably high level of employment.”
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thanks for the news.
EUR/USD forecast for the week of August 25
The EUR/USD pair fell during the course of the week, breaking the back of three hammers that had formed in the previous weeks. Because of this, this market looks like it’s extraordinarily weak, and it could in fact continue to go much lower. We believe that this market will more than likely continue down to the 1.30 handle, which is an area that has much more significant on a longer-term chart as it is a large, round, psychologically significant number and has proven to be supportive in the past as well as resistive. With that, we should be talking about a significant amount of order flow there, and ultimately a reason to get involved for longer-term, big-money players.
The 1.30 level could very well be the absolute bottom, but if we break down below there, things get truly ugly for the Euro. Remember, the European Central Bank needs a relatively weakened Euro in order to boost economic activity, and with that we are very bearish of the Euro in general. The marketplace should offer plenty of selling opportunities every time we bounce, but the real question is going to be whether or not the bounces will be big enough in order for the longer-term trader to take advantage of them. In our opinion, that’s probably not going to be the case. We ultimately believe that the longer-term trader will probably catch the bigger move, perhaps a bounce. But we are very cautious to get involved until we see a clear-cut signal from the longer-term perspective. At this point in time, it’s just going to be simpler and much easier to short this market on the shorter-term charts.
You also have to keep in mind that we are in the middle of summer, and as a result not all major firms are putting a lot of money into the marketplace. The real answers will be shown in September as to what the market will probably do. With that being the case, we are hesitant to get involved long-term traders standpoint, but very cognizant of what’s happening on the weekly chart as it could give us a nice long-term trade soon.
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ECB Chief Signals More Monetary Stimulus To Support Recovery
European Central Bank President Mario Draghi said the bank is willing to take more actions to anchor inflation expectations and stimulate demand.
At the Federal Reserve Bank of Kansas City's annual conference Jackson Hole, Wyoming, Draghi on Friday said he is confident that the package of measures announced in June will indeed provide the intended boost to demand.
Draghi said the bank stands ready to adjust our policy stance further.
He noted that the recovery in the euro area remains uniformly weak. The uncertainty over the strength of the recovery is weighing on business investment and slowing the rate at which workers are being rehired, Draghi said.
"The risks of "doing too little" - i.e. that cyclical unemployment becomes structural - outweigh those of "doing too much," Draghi added.
He said the preparations for outright purchases in asset-backed security markets is fast moving forward and it should contribute to further credit easing.
Turning to fiscal policy, he said the existing flexibility within the rules could be used to better address the weak recovery and to make room for the cost of needed structural reforms.
"It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this, while taking into account our specific initial conditions and legal constraints," the central banker said.
He suggested that it may be useful to have a discussion on the overall fiscal stance of the euro area that could help to develop a more growth-friendly overall fiscal stance.
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EUR/USD Forecast August 25-29
EUR/USD suffered for yet another week, dropping to an 11 month low and dipping below long term downtrend support. What’s next for the common currency? A key German survey and all important inflation figures are the highlights of this week. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.
Euro-zone PMIs were quite mixed, but still pointed to some weak growth, despite the already visible impact of the tensions with Russia on the economic zone. In the US, a USD rally that commenced with strong housing data intensified with the not-too-dovish FOMC minutes. At Jackson Hole, Yellen did not say anything new, and this allowed yet another fall in EUR/USD. Is this divergence set to continue setting the tone?
French economy minister urges alternative to German austerity
The time has come for France to resist Germany's "obsession" with austerity and promote alternative policies across the euro zone that support household consumption, firebrand French Economy Minister Arnaud Montebourg said on Sunday.
Deficit-reduction measures carried out since the 2008 financial crisis have crippled Europe's economies and governments need to change course swiftly or they will lose their voters to populist and extremist parties, Montebourg told a socialists' meeting in eastern France.
"France is the euro zone's second-biggest economy, the world's fifth-greatest power, and it does not intend to align itself, ladies and gentlemen, with the excessive obsessions of Germany's conservatives," Montebourg said.
"That is why the time has come for France and its government, in the name of the European Union's survival, to put up a just and sane resistance [to these policies]."
Montebourg said consensus was growing among economists and politicians worldwide on the need for growth-oriented policies and mentioned his German socialist counterpart Sigmar Gabriel and Italy's premier Matteo Renzi as potential allies.
He cited former president Charles de Gaulle and former British prime minister Margaret Thatcher as having effectively spoken up to change the course of EU policies they opposed.
Montebourg said he had personally asked President Francois Hollande for "a major re-direction of our economic policy". The government should now focus less on cutting debt than on supporting households to revive consumption, a traditional economic driver, he said.
Montebourg, who makes no secret of his own presidential ambitions, is known for his frequent attacks on austerity, but his latest comments are likely to embarrass Hollande, who despite mounting pressure said just days earlier he would not back away from his policy based on spending cuts and corporate tax breaks.
Hollande's business-minded policies have alienated many left-wing lawmakers and voters already frustrated with his failed pledge to curb unemployment. He is now the most unpopular president in over half a century, with an approval score of 17 percent in the latest Ifop poll.
Hollande's office declined to comment on what Montebourg said. A source close to Prime Minister Manuel Valls said Montebourg had gone too far.
"Firstly, there are declarations on economic policy and secondly, statements on our European partner Germany that are extremely harsh. Therefore, considering the line has been crossed, the prime minister has decided to act," the source said, giving no further details.
In an interview published on Saturday, Montebourg had already warned the austerity measures pursued by France and its European peers were strangling growth.
Six years after the collapse of banking group Lehman Brothers and the start of the global economic crisis, the United States and Britain have returned to growth while euro zone economies are still shrinking or stagnating, he noted on Sunday.
"There is a disease specific to the euro zone, a serious disease, persistent and dangerous," Montebourg said, arguing that fiscal and monetary austerity would not help end the crisis but had only worsened and extended it.
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