Eur/usd - page 63
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EU bank resolution fund must come earlier: ECB official
A European fund for winding up failed banks must be fully up and running earlier than envisaged, European Central Bank executive board member Benoit Coeure said on Wednesday.
"The period of ten years for moving towards a genuinely common SRF (Single Resolution Fund) is too long and should be shortened, possibly to five years," Coeure told an interparliamentary conference in Brussels.
A copy of his speech was made available by the ECB.
The SRF, to be paid into by banks, will gradually become up and running from 2016, but will not be fully operational for years.
By 2026, it should amount to around 55 billion euros ($75 billion).
Other top ECB officials have also called for the SRF to be operational earlier.
European member states are currently trying to hammer out the rules for a new banking union in order to avoid a repetition of the bloc's banking crisis that pushed countries such as Ireland and nearly Spain into bailouts.
The new regime not only includes a Single Supervisory Mechanism or SRM, which will be housed within the ECB, but also a resolution mechanism or SRF for winding up failed banks.
The SRF will shoulder the costs of winding up the banks.
In December, EU finance ministers endorsed a blueprint for a common bank resolution regime and fund.
But that intergovernmental deal has come under fire for bypassing the EU's established legislative processes.
Coeure shared such misgivings.
"As a Union institution, the ECB supports, as a matter of principle, recourse to the Union method and thus to Union law. The recourse to an intergovernmental agreement should only be seen as a temporary solution," he said.
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Eurozone Govt Debt Narrows For First Time In Six Years
The gross debt of Eurozone governments narrowed in the third quarter, marking the first decline in nearly six years, in a further sign that the region's long-drawn debt crisis is easing, data released by Eurostat revealed Wednesday.
Total government debt in the 17-country bloc dropped to 92.7 percent of gross domestic product (GDP) at the end of the September quarter from 93.4 percent in the second quarter. It was the first decline since the fourth quarter of 2007.
Loans amounted to 17.9 percent of GDP during the quarter, compared to 18.1 percent in the preceding three-month period.
The ratio of securities and deposits edged up to 79.3 percent from 79.2 percent, while the value of currency and deposits remained unchanged at 2.7 percent of GDP.
In the European Union (EU), the debt-to-GDP ratio increased modestly to 86.8 percent in the September quarter from 86.7 percent in the second quarter.
Among the EU member states, the highest debt-to-GDP ratios were recorded in Greece, Italy, Portugal and Ireland. The lowest rates were recorded in Estonia, Bulgaria and Luxembourg.
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Euro rises to hit session high after robust German data
The euro rose to a session high against the dollar on Thursday after data showed Germany's private sector grew at its fastest pace in more than 2-1/2 years in January.
The single currency was up 0.7 percent, having hit a high of $1.36425 after the German survey, rising from around $1.36025 beforehand.
Earlier the euro got a lift from the French PMI survey which showed business activity shrank less than expected in January.
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The Euro Zone Hasn't Looked This Good Since June 2011
The early economic numbers out of Europe are looking very encouraging.
Earlier, we learned that the euro zone flash purchasing managers' index jumped to 53.2 in January, the highest level since June 2011.
Any reading above 50 signals expansion.
This is a preliminary measure. Still, it is up significantly from 52.1 in December, and it is well ahead of the 52.5 expected by economists.
The euro zone's services sub-index improved to a four-month high of 51.9 and the manufacturing sub-index hit a 32-month high of 52.7
“The euro zone’s recovery gained further momentum in January," said Markit economist Chris Williamson. "The upturn in the PMI puts the region on course for a 0.4-0.5% expansion of GDP in the first quarter, as a 0.6-0.7% expansion in Germany helps offset a flat-looking picture in France. Elsewhere across the region growth has improved to its fastest since early-2011, meaning the periphery is showing clear signs of starting 2014 on a firm footing."
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Euro Rises Most in 4 Weeks on Manufacturing Increase
The euro advanced the most in almost four weeks against the dollar as a measure of manufacturing in the region rose to the highest in more than 2 1/2 years, boosting optimism that growth in Europe is gathering pace.
Argentina’s peso dropped the most in 12 years, leading a plunge in Latin American currencies, after the central bank scaled back its intervention to control the rate in a bid to preserve international reserves. The dollar extended a decline after a gauge of the national economy came in below forecast. South Africa’s rand fell to a five-year low against the dollar.
“The purchasing managers’ index (CFNAI) numbers stagnated late last year, which called into question the euro region’s upward momentum,” Robert Sinche, a global strategist at Pierpont Securities Holdings LLC in Stamford, Connecticut, said in a phone interview. “But now we have some very solid readings. Some of the fears that things might be stagnating a bit in Europe have now been replaced by renewed optimism.”
The euro rose 1 percent to $1.3681 at 1:24 p.m. New York time, the biggest intraday advance since Dec. 27. The 18-nation euro traded little changed at 141.54 yen. The yen increased 1 percent to 103.43 per dollar.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, fell 0.3 percent to 1,032.31, ending a seven-day advance, the longest winning streak since May.
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Spain Producer Prices Rise For First Time In Three Months
Spanish producer prices rose for the first time in three months in December, the statistical office INE said Friday.
Producer prices increased 0.6 percent on a yearly basis in December, reversing the 0.5 percent fall in the prior month and 0.2 percent decrease in October.
Month-on-month, producer prices advanced 1.1 percent in December, following a 0.8 percent drop in the previous month.
Cost of consumer goods remained flat from the prior year, while energy prices surged 4.9 percent. On the other hand, prices of capital goods and intermediate goods fell 0.4 percent and 2.3 percent, respectively.
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Major Central Banks To Stop US Dollar Liquidity Operations
World's leading central banks are in the process of stopping their US dollar liquidity provisions for lenders, which were put in place during the financial crisis that started in 2008.
The European Central Bank, in cooperation with the Bank of England, the Bank of Japan and the Swiss National Bank, has decided to end the conduct of US dollar liquidity-providing operations, the Frankfurt-based ECB said on Friday.
"In view of the considerable improvement in US dollar funding conditions and the low demand for US dollar liquidity-providing operations,... central banks will gradually reduce their offering of US dollar liquidity-providing operations," the ECB said.
The central banks will continue to conduct US dollar liquidity-providing operations with a maturity of three months until April 30. They will also continue with the one-week tender until July 31.
The ECB said it will assess the need to continue the one-week tender beyond July 31. The central bank pointed out that the recently established standing swap lines provide a framework for the reintroduction of US dollar liquidity-providing operations if warranted by market conditions.
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ECB's Draghi Sees Gradual Recovery, No Deflation
European Central Bank President Mario Draghi said on Friday that euro area recovery is gradually taking place and there is no threat of deflation in the region.
Speaking at the 44th World Economic Forum Annual Meeting in Davos, Switzerland, Draghi said,"The recovery is gradually taking place but the risks are to the downside."
The ECB's very accommodative monetary policy is being passed into the real economy, he said.
Growth remains weak, fragile and uneven despite booming stock markets and a shift in recovery from exports to consumption, the ECB chief noted. Unemployment has stabilized but remains very high, he added. He also sought a change in laws in many countries to tackle youth unemployment.
The central bank head reiterated that Eurozone inflation is likely to remain below 2 percent target for the next two years. While he does not foresee deflation in the currency bloc, he said risks could rise if very low inflation persists.
"We would use all the instruments that our mandate permits" to fight any deflation threat, Draghi said.
Stressing on the importance of structural reforms, Draghi asked Greece, Portugal, Spain and Italy not to relax their efforts and urged other core European economies to make progress. He also said that fiscal consolidation must be maintained and must be made pro-growth by cutting taxes and government spending, while increasing infrastructure investment.
Stating that the European banking scene is "dramatically better" than a year ago, the ECB president said the upcoming stress tests will further improve confidence in the banking system by increasing transparency.
"Shedding light on banks' balance sheets should help them raise capital," Draghi said. "And of course banks that should go, should go."
Regarding bank supervision, Draghi said the goal is to have one supervisor and one regulator for all banks in Europe. "The ECB's view is that there should be an accelerated timeline for breaking the link between banks and sovereigns," he said. The creation of a European fund, independent of national governments, to backstop banks in difficulty should achieve this, he added.
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EUR/USD Forecast Jan. 27-31
EUR/USD had an exciting week, dropping to new lows only to rally to high ground. Is it set to continue gaining or is it still looking for a direction? German business data, Eurogroup meetings, German inflation and employment data as well as the Eurozone’s unemployment rate. Here is an outlook on the major events and an updated technical analysis for EUR/USD.
Talk about deflation is still prevalent in the old continent, with the IMF warning about it again. Nevertheless, the euro seemed to focus on positive news. The euro zone’s manufacturing and services sectors surprised to the upside. Germany continued to advance, remaining well above the 50 mark. While France remained below these levels, it still beat expectations. This helped the euro advance. In the US, a disappointing housing figure was enough to give the pair another push higher. However, it closed well below the highs. Let’s start:
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Euro Rally Begins on Better Data – Will EONIA Rates Force ECB Action?
The Euro proved resilient the past week, gaining one percent or more against four of the other seven major currencies, while holding its own against the top two performers, the Japanese Yen and the Swiss Franc. The EURJPY (-0.94%) and EURCHF (-0.72%) tumbles can largely be attributed to a global shift to safer assets, with equity markets sliding and high-rated sovereign debt rallying (German Bunds, US Treasuries).
Yet as concerns cropped up elsewhere, in emerging markets and the Asian-Australasian theatre (EURAUD +2.12%, EURNZD +1.51%) as well as North America (EURCAD +2.12%, EURUSD +1.00%), the Euro’s fundamental backdrop strengthened. The January PMI figures, coming off of a mixed batch in December – which prompted the Euro’s early-January tumble – came in well above expectations, further supporting our core theme for 2014: faster rates of growth return to the European continent.
Markets may not necessarily treat any data this week with more importance than the January CPI figures due on Thursday and Friday. The German Consumer Price Index is expected to see some turbulence: the monthly figure is due lower by -0.4% after a +0.4% gain in December; but the yearly figure is forecast to increase to +1.5% from +1.4%. On Friday, the Euro-Zone CPI Estimate (JAN) will rise to +0.9% from +0.8% (y/y), according to consensus forecasts.
In all, these data are not reassuring enough so as to deter “deflation” conversation from popping up, which has tended to be bearish for the single currency given the European Central Bank’s response – to cut its main interest rate to a record low of 0.25%. Even so, the ECB may not react immediately if the inflation data remain tepid.
At the World Economic Forum in Davos, Switzerland, ECB President Mario Draghi explicitly said that "I don't see deflation in the euro area…medium-term inflation expectation remain firmly anchored at +2%." Translation: low inflation isn’t reflecting declining growth conditions (diminishing demand, putting downside pressure on prices), but something else – weak credit growth.
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