Eur/usd - page 59
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Spain's Inflation Remains Stable In December
Spain's harmonized inflation remained unchanged at 0.3 percent in December, preliminary data from the statistical office INE showed Friday. The rate was forecast to rise marginally to 0.4 percent.
Consumer price inflation also held steady in December, at 0.2 percent.
Month-on-month, the harmonized index of consumer prices remained flat in December, while consumer prices edged up 0.1 percent.
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Euro zone corporate lending shrinks at record pace in Nov
Lending to companies in the euro zone contracted at the fastest pace on record in November, piling pressure on the European Central Bank to do more to revive the currency bloc's economy.
The ECB has cut interest rates to a record low, pumped extra liquidity into the banking system and announced a yet-to-be-used government bond purchase programme, but the measures have so far not reached all corners of the euro zone evenly.
"Worryingly, there is still no sign of any trend change in bank lending to euro zone businesses, which heaps pressure on the ECB to act," said Howard Archer, chief European economist at IHS Economics.
"Banks likely believe the economic situation and outlook in many euro zone countries still provides an uncertain and risky backdrop in which to lend, despite the euro zone eking out modest growth since the second quarter."
The ECB's upcoming health check of banks' balance sheets is exacerbating the situation, with lenders reluctant to take on more risk and trying to slim down their loan books instead.
ECB Vice-President Vitor Constancio said last month that about two-thirds of the weakness in bank lending is due to a lack of demand from firms and households, with credit supply having some impact on the slump.
The ECB is unlikely to launch new measures when it meets next week after its president, Mario Draghi, said earlier this week there was no need for immediate action.
But over the next couple of months, the ECB could, for example, decide to stop sterilising the value of its previous government bond purchases, especially as it has now failed to take out the full amount for three weeks in a row. This would leave more liquidity in the system.
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Eurozone manufacturing posts highest growth in 31 months
Business activity in the eurozone posted its strongest growth in 31 months in a fresh sign of recovery though France remained a sore point, a key survey showed Thursday.
Markit Economics' said its Eurozone Composite Purchasing Managers Index (PMI) for December rose to 52.7 from 51.6 in November, the third consecutive monthly rise.
"A strengthening upturn in the manufacturing sector is helping the euro area recovery become firmly established," said Markit's chief economist Chris Williamson.
The latest data pointed to an increase in production of approximately one percent in the last 2013 quarter.
"With producers reporting further growth of new orders, exports and backlogs of work, the stage is set for a good start to 2014, during which it seems likely that the manufacturing sector will help drive a meaningful, albeit still modest recovery," he added.
Germany, Italy and Spain recorded the strongest rises in output since early 2011 but France on the other hand saw a steepening downturn in part due to a fall in exports.
"This suggests that competitiveness is a key issue which the French manufacturing sector needs to address," Markit said.
Even Greece registered a 52-month high while France fell to a seven-month low.
With growth holding, levels of employment remained stable in December, seeing job creations in Germany, Italy and Ireland, and a slowing rate of job cuts in Spain and Greece. Unemployment quicked in France and Austria however.
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EUR/USD Forecast January 6-10
EUR/USD had a roller coaster week, ending 2013 on high ground only to crash in the wake of 2014. What’s next? The ECB rate decision is all important, especially Draghi’s press conference. In addition, service PMIs, German inflation data, retail sales, employment data will move markets. Here is an outlook on the interesting events ahead. Here is an outlook on the major events at the year’s end and the beginning of 2014 and an updated technical analysis for EUR/USD
According to the confirmed manufacturing PMIs, Germany and France continue to diverge, with the former expected to grow nicely and the latter to squeeze. Spanish data released last week posted a great start to 2014. Unemployment claims plunged by 107.6 thousand. In the US, data has been quite good, enabling the comeback of the dollar after retreating on thin volume in late 2013. The pair broke below long term uptrend support and stopped only before the week ended. Let’s start:
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EU won't seek law to separate banking activities: FT
The European Union is set to drop financial reforms that would force big banks to ringfence their retail departments from riskier investment operations, the Financial Times reported on Monday.
A draft European Commission paper, seen by the business paper, would no longer make banks automatically split operations and would give national supervisors more leeway in applying the reforms.
But the draft proposal, drawn up by EU Commissioner Michel Barnier, does add a "narrowly defined" ban on 30 big banks using their own money for trading, so-called proprietary trading.
The paper -- due to be published in late January or February -- will complete EU reforms to make banks safer and easier to wind down following the 2008 crisis.
The proposals follow up on the Liikanen Report into separating banks' riskier activities from the utility-like operations of retail banking.
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German inflation set to accelerate slightly in December
German annual inflation probably accelerated slightly in December albeit remaining below the European Central Bank's euro zone target, data from three federal states suggested on Monday.
Full data is due later in the day.
Inflation in Germany at the last reading was 1.3 percent annually, below the ECB's target of close to but just below two percent in 2013. But it is expected to accelerate this year which could cause a policy headache for the ECB and its one-size-fits-all interest rate policy.
Other euro zone countries are contending with slowing inflation.
Two federal state reports on Monday showed a slight increase while a third was unchanged.
In North Rhine-Westphalia (NRW), Germany's most populous state and traditionally a bellwether for the national data, the cost of living rose by 1.8 percent on the year in December, after gaining 1.6 percent in November.
In Hesse, home to Germany's financial capital Frankfurt, annual inflation accelerated to 1.2 percent in December from 1.1 percent in the previous month, while it held steady at 1.4 percent in Saxony.
Pan-German consumer price inflation is seen speeding up to 1.4 percent on the year in December from the 1.3 percent in November, according to the consensus forecast in a Reuters poll of economists. The data are due out at 1300 GMT.
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German Unemployment Declines as Recovery Strengthens
German unemployment declined for the first time in five months in December as companies’ confidence in Europe’s largest economy strengthens.
The number of people out of work decreased by a seasonally-adjusted 15,000 to 2.965 million, after gaining a revised 9,000 in November, the Nuremberg-based Federal Labor Agency said today. Economists predicted a drop of 1,000, according to the median of 28 estimates in a Bloomberg News survey. The adjusted jobless rate remained unchanged at 6.9 percent.
The Bundesbank predicts that gross domestic product will rise “strongly” in the coming months after the economy started slowly into the final quarter of last year. Business confidence as measured by the Ifo institute rose to the highest in 20 months in December as companies benefit from a gradual recovery in the euro area and strengthening domestic demand.
“The labor market has been running rather well in Germany: employment is increasing, it has been for quite a few years and it will continue,” said Enzo Weber, an economics professor at the University of Regensburg, who also heads two research departments at the labor agency’s IAB research institute. “The thing is, unemployment hasn’t really decreased. In the past two years it has remained stable or even increased a little.”
Joblessness fell by 5,000 in west Germany and 10,000 in the eastern part.
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Falling Euro Area Inflation Points To More Policy Action
The downward trend in Eurozone inflation will add to concerns that the region could suffer from a bout of deflation and increase the pressure on the European Central Bank (ECB) to take more action to support the economy, Capital Economics European Economist Ben May said.
While the ECB may refrain from providing additional policy support at this week's meeting, further action is expected in the months ahead, the economist said.
According to Capital Economics, euro area inflation is set to remain significantly below the central bank's 2 percent price stability ceiling for rather longer than the central bank expects.
The firm also said that unemployment in the currency bloc will likely remain high for the foreseeable future, particularly in the peripheral economies, keeping the wage growth muted.
Latest data from Eurostat revealed that inflation in the euro area eased to an all-time low of 0.8 percent in December from 0.9 percent in November. The decline mainly reflected a drop in core inflation to to a record low of 0.8 percent from 0.9 percent. Both energy and food inflation rose.
Separate data from the statistical office revealed that producer prices in the bloc fell 1.2 percent annually in November. Excluding energy, prices decreased 0.3 percent.
Meanwhile, the latest unemployment data from Germany suggest that the labor market in the biggest euro area economy ended the year on a high note. The number of unemployed persons fell by 15,000 in December, marking the largest monthly drop in around two years. However, the unemployment rate held steady at 6.9 percent, as expected.
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Greece must not slow reforms
European Commission President Jose Manuel Barroso on Wednesday urged Greece to stay the course of painful economic reforms as he inaugurated the country's six-month stint in the rotating EU presidency.
"This is not the time to slow down the pace of reforms," Barroso said, adding: "My point is very clear: (adjustment) programmes work, so we should not waste the efforts so far."
The Greek presidency is expected to focus on growth and jobs, the implementation of a historic banking union thrashed out by finance ministers at the end of 2013, as well as immigration and maritime policy.
However, the main event are European parliament elections to be held across the bloc in May.
Greece itself is heading into the new year with some optimism following six years of recession, with Samaras predicting the crisis-hit economy would need no further aid after it exits its bailout programme in 2014.
But others strongly believe that Greece's weakened economy will require more EU-IMF assistance.
Greek Prime Minister Antonis Samaras said the presidency inauguration was "a special day" for all Greeks.
"Greece is now back on its feet, Europe knows the way," the PM said.
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Euro Strengthens Amid Growth Signs Before ECB
The euro strengthened from near a five-week low against the dollar as signs the region’s economy is recovering fueled bets the European Central Bank will refrain from increasing stimulus at a policy meeting today.
The shared currency climbed against all except three of its 16 major counterparts after a euro-area report showed economic confidence improved last month to the highest since July 2011. The Bloomberg Dollar Spot Index climbed to a four-month high as signs the U.S. labor market is improving bolstered bets the Federal Reserve will end bond purchases this year. Australia’s dollar dropped against all its major peers, while its Canadian counterparts fell for a fourth day.
“I don’t think anyone is serious anticipating the ECB will cut rates today,” said Jane Foley, a senior currency strategist at Rabobank International in London. “Underlying that perception is a feeling the tools they have aren’t particularly valuable right now. That will support the euro.”
The euro climbed 0.3 percent to $1.3616 at 10:08 a.m. London time after dropping to $1.3554 yesterday, the weakest since Dec. 5. The common currency advanced 0.5 percent to 142.99 yen. The dollar rose 0.2 percent to 105.02 yen after climbing to 105.44 yen on Jan. 2, the highest since October 2008.
ECB officials meeting in Frankfurt will keep their benchmark rate at a record-low 0.25 percent, according to all 51 economists surveyed by Bloomberg News. Bonds from Europe’s peripheral nations have rallied this year amid signs the region’s debt crisis is abating.
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