Eur/usd - page 34
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Draghi Sticks to Stance--Ready to Do More if Needed
The ECB has not changed its policy or its guidance.
The ECB is prepared to do more if needed and the risks to growth remain on the downside. The overall assessment is the same as before. Inflation is subdued, as are monetary aggregates and credit. He noted that Q2 growth was partly a recovery from the weather induced weakness in Q1, but that Q3 has begun off softer. Balance sheet adjustments continue to weigh on activity.
Draghi also presses governments to do their part and reduce deficits and debt levels and to enact structural reforms. When specifically asked about the euro, Draghi noted that the central bank does not target the exchange rate, but is attentive to developments. He did not show concern about the euro's appreciation in recent months. This gave short-term players another excuse to push the euro higher.
The euro had dipped in Asia, to slip through yesterday's low. Off this test on the $1.3500, the euro has moved higher and has moved above yesterday's high. We think the euro has potential toward $1.37. By embracing "a vast array" of instruments, Draghi does leave the door open to another LTRO. There will be more details about the Asset Quality Review to be conducted as a preliminary step toward the single supervisory and resolution mechanism in the second half of this month.
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Euro Rallies as Draghi Refrains From Added Measures
The euro strengthened the most in two weeks against the dollar after European Central Bank President Mario Draghi refrained from signaling that additional measures were needed to boost the region’s recovery.
The 17-nation currency advanced versus all except two of its 16 major counterparts after Italian Prime Minister Enrico Letta won a confidence vote in parliament, avoiding the need for another election. The yen rose for a second day against the dollar as U.S. lawmakers made no progress toward resolving a partial government shutdown and an industry report showed American companies added fewer workers than economists forecast. Australia’s dollar fell as the nation reported a trade deficit.
“It doesn’t seem like there’s any action imminent, even though he did mention that all options are on the table,” Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York, said in a telephone interview, referring to Draghi and the ECB. “We had a weaker-than-expected ADP number out of the U.S. and that just reinforced the Fed’s decision to delay tapering.”
The euro advanced 0.4 percent to $1.3579 at 5 p.m. in New York, reaching the biggest one-day gain since Sept. 18. The single currency was 0.3 percent weaker at 132.20 yen after falling as much as 0.9 percent. The yen strengthened 0.7 percent to 97.36 per dollar.
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European Economics Preview: Eurozone Retail Sales Data Due
Retail sales and final PMI from euro area are due on Thursday, headlining a light day for the European economic news.
At 3.00 am ET, U.K. Halifax house price figures are due. Economists forecast prices to rise 0.5 percent month-on-month in September after climbing 0.4 percent in August.
In the meantime, Turkey's consumer and producer prices are due. Annual inflation is seen slowing to 7.75 percent in September from 8.17 percent in August.
At 4.00 am ET, Eurozone final composite PMI is due. The reading is expected to match the flash estimate of 52.1 in September.
Half an hour later, U.K. CIPS/Markit services PMI is due. Economists forecast services PMI to remain unchanged at 60.5 in September.
At 5.00 am ET, Eurostat is scheduled to issue retail sales figures. Eurozone retail sales are forecast to grow 0.2 percent month-on-month in August, following a 0.1 percent rise in July.
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Eurozone recovery gathers pace at end of third quarter
The September PMI surveys provided further evidence that the eurozone recovery gathered pace, after the region pulled out of the longest recession in its history. There were also reassuring signals on the jobs front as the rate of losses eased to a very modest pace, raising the possibility of employment starting to recover in the near future.
The final Markit Eurozone PMI® Composite Output Index rose to a 27-month high of 52.2 in September, up from 51.5 in August and above the earlier flash estimate of 52.1.
The level of the headline index has improved in each month since March and remained above the 50.0 mark – signalling expansion – throughout the third quarter. The September reading rounded off the strongest quarterly growth rate for the eurozone since the second quarter of 2011.
Rates of output expansion were identical in the manufacturing and service sectors, as growth at manufacturers eased from August’s high and the recovery in service sector business activity caught up by hitting a 27-month record.
Underpinning the latest expansion in eurozone economic output was a second straight month of rising inflows of new business. Moreover, the rate of growth in new orders was the sharpest since June 2011.
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Europe's Youth Unemployment Crisis In One Grim Map
Earlier this week Benja Serra Bosch, a highly educated 25-year-old Spanish man, became an unfortunate embodiment of Spain's youth unemployment crisis after a post he wrote on Facebook about cleaning toilets in London went viral.
Bosch is far from the only Spaniard forced to emigrate to find work (the unemployment rate for those under 25 in the country sits at a record high of 56%), and, worse still, the problem is hardly limited to Spain.
This map from Reuters shows the current levels for the crisis in Europe:
Reuters
Spain is beaten, perhaps unsurprisingly, by Greece, but Croatia isn't far behind. Italy, Portugal and Cyprus also struggle. On the other side of the scale, Germany, Austria and the Netherlands have youth unemployment rates that are just a fraction of Spain's.
German producer prices in August 2013: –0.5% on August 2012
In August 2013 the index of producer prices for industrial products fell by 0.5% from the corresponding month of the preceding year. While prices of consumer non-durable goods increased by 2.6% prices of energy were 2.0% low and intermediate goods 1.5% low compared with August 2012. In July 2013 the annual rate of change all over was unchanged.
Compared with the preceding month the index decreased by 0.1% in August 2013 (also –0.1% in July and in June 2013).
Federal Statistical Office (Destatis) also presented the results of the recalculation of the index of producer prices on base 2010 = 100.
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European stocks drop on shutdown day four
The Stoxx Europe 600 index XX:SXXP -0.35% fell 0.2% to 308.87, on track for a third straight day of losses. On the week, the benchmark was poised to close 1.1% lower.
Shares of Nokian Renkaat Oyj FI:NRE1V -7.19% slumped 8.2% after the tire maker warned sales and operating profit in 2013 will be lower than previously estimated, due to a weaker Russian ruble exchange rate and softer Russian demand for tires.
Mining firms were also on the decline, as metals prices were mixed. Shares of Anglo American PLC UK:AAL -0.54% dropped 1%, BHP Billiton PLC UK:BLT -0.86% BHP -0.74% AU:BHP -1.32% slipped 1%, and Rio Tinto PLC UK:RIO -0.83% RIO -1.47% AU:RIO -0.51% gave up 0.8%.
The broader losses in Europe came as lawmakers in the U.S. scrambled to pass a budget for the new fiscal year, which started on Tuesday. President Barack Obama said late Thursday he has canceled plans for a weeklong trip to Asia amid the budget debacle.
Investors worry that the impasse will have an impact on discussions about raising the country’s debt ceiling in mid-October, but House Speaker John Boehner indicated on Thursday he is willing to work with Democrats to pass an increase in the borrowing limit. U.S. stock futures pointed to a slightly higher open on Wall Street.
Due to the shutdown, the monthly nonfarm-payrolls report won't be released on Friday as scheduled.
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Italian Senate panel recommends Berlusconi expulsion from Senate
A cross-party Italian Senate committee on Friday voted to recommend that center-right leader Silvio Berlusconi be expelled from the Senate following his conviction for tax fraud in August.
The proposal for Berlusconi's expulsion, taken by a majority decision by a committee dominated by the former prime minister's political opponents, will have to be ratified by a vote of the full Senate which is expected within the next three weeks.
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Europe Week Ahead: BoE Meeting, German Exports, -Orders, -IP, Spanish-, Italian IP
With a semblance of calm returning to the European political scene and financial markets, and only second-tier data on the agenda next week, the focus should remain firmly on the US. Still, there will be a number of hard data releases in the Eurozone, and we expect a continuation of the current positive mood to prevail, especially after July IP disappointed in most countries. August activity figures can thus be expected to catch up with improving business confidence surveys in most cases, including for German new orders and industrial output, which are both expected to print monthly increases over 1%. Spanish and especially Italian IP should recover further as well if we are to believe the forward-leading indicators published since the summer. While our forecasts are consistent with a moderation in Eurozone GDP growth (from 0.3% QoQ in Q2, to 0.1% QoQ in Q3), near-term risks remain tilted to the upside, as reflected for instance in the strong expansion in retail sales in July-August.
The meeting of the BoE’s Monetary Policy Committee (MPC) should be a non-event with the central bank firmly on hold as economic figures – improving further or stabilising at very high levels, including the PMIs – remain consistent with strong GDP growth in Q3. The big surprise this week came from Governor Carney’s comments as he said that “given the recovery has strengthened and broadened, I don't see a case for quantitative easing and I have not supported it”. Meanwhile the yields on 10Y Gilts have dropped by around 30bp from their peak, courtesy of the Fed’s non-taper decision and US budget deadlock, removing a sense of urgency at the MPC in terms of clarifying the forward guidance thresholds and ‘knock-outs’. Still, the MPC does not forecast the unemployment rate to fall below the 7% threshold before Q316 and the market has remained unconvinced. Therefore the next key deadline will be the release of the quarterly inflation report on 13 November to see how recent data can influence the BoE’s assessment of the economy.
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