Eur/usd - page 84
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Everyone's Waiting For The Next ECB Action
The Managing Director of the IMF and the chief economist are making no bones about it. More action by the ECB is inevitable. It is "just a question of timing," says Lagarde and "sooner was better than later", chimed Blanchard, the chief economist.
The market is less sanguine. A recent Bloomberg poll found only about 2/3 of the economists surveyed expected the ECB to ease policy in June. The remainder appear roughly divided between those expecting a May move and those who do expect it to stand pat.
The Bloomberg survey found more economists expect the ECB to suspended the sterilization of the liquidity generated by the bonds purchased under Trichet's SMP program or a new long-term lending facility than QE or negative rates. A fifth of those survey expect a the end of the liquidity absorption efforts, which actually have been relatively smoothly conducted now for several weeks. Another fifth expect new lending facility. The survey found 16% expect QE and another 16% expect a rate cut.
The euro is firm, having traded above $1.39 briefly today, for the first time since March 19 and the backing up of US rates after the FOMC meeting and Yellen's faux pas of defining "a considerable period". EONIA remains elevated above 20 bp, about twice the year ago level (while effective Fed funds at at 8 bp, half of what they were a year ago). The rise in EONIA comes despite the rise in excess liquidity in the Eurosystem of more than 20 bln euros over the past week.
ECB officials continue to play down the generalized risk of deflation in region and claim that inflation expectations remain anchored. However, the real take away is that the ECB is decidedly split about taking more action. An anticipated bounce in the April CPI, for which a preliminary estimate will be made at the end of the month, is expected to buy time for Draghi to forge a broad agreement. A consensus is sought for such an important decision.
Much of the official talk has focused on quantitative easing and ECB officials, including Draghi have signaled a preference for some private sector assets, which the US and the BOE did not do in their QE exercise. In particular, the officials have been talking more about asset backed securities (ABS). The ECB and BOE published a joint paper today urging regulators to support and promote a revival of the ABS market, which Draghi had called "dead". In particular, they wanted "prudently designed" high quality product.
The point though is that the current ABS market seems too small for any serious QE program. Industry data indicate that total European issuance of securitized assets were about 251 bln euros in 2012 and the equivalent of 1.55 trillion euros in the US. In the first half of last year, Europe generated 83.5 bln of ABS, while the US packaged the equivalent of 880 bln euros.
Some of the European ABS are being used already for collateral for borrowing from the ECB, which means they cannot be included in the universe of securities the ECB could consider buying under QE. All told, the ABS that are eligible as collateral at the ECB have almost been halved from the 2010 peak.
To be sure, there is no shortage of debt and can be used for the creation of asset-backed securities. Total lending in the euro area is estimated at around 17 trillion euros. Earlier on in the crisis, the ECB did buy (~80 bln euros) of covered bonds, which are similar to ABS except that the issuing bank retains the risk on their balance sheets and are more favored by regulators.
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ECB Action: Just A Matter Of Time?
The Managing Director of the IMF and the chief economist are making no bones about it. More action by the ECB is inevitable. It is "just a question of timing," says Lagarde and "sooner was better than later", chimed Blanchard, the chief economist.
The market is less sanguine. A recent Bloomberg poll found only about 2/3 of the economists surveyed expected the ECB to ease policy in June. The remainder appear roughly divided between those expecting a May move and those who do expect it to stand pat.
The Bloomberg survey found more economists expect the ECB to suspended the sterilization of the liquidity generated by the bonds purchased under Trichet's SMP program or a new long-term lending facility than QE or negative rates. A fifth of those survey expect a the end of the liquidity absorption efforts, which actually have been relatively smoothly conducted now for several weeks. Another fifth expect new lending facility. The survey found 16% expect QE and another 16% expect a rate cut.
The euro is firm, having trading above $1.39 briefly Friday, for the first time since March 19 and the backing up of US rates after the FOMC meeting and Yellen's faux pas of defining "a considerable period". EONIA remains elevated above 20 bp, about twice the year ago level (while effective Fed funds at at 8 bp, half of what they were a year ago). The rise in EONIA comes despite the rise in excess liquidity in the Eurosystem of more than 20 bln euros over the past week.
ECB officials continue to play down the generalized risk of deflation in region and claim that inflation expectations remain anchored. However, the real take away is that the ECB is decidedly split about taking more action. An anticipated bounce in the April CPI, for which a preliminary estimate will be made at the end of the month, is expected to buy time for Draghi to forge a broad agreement. A consensus is sought for such an important decision.
Much of the official talk has focused on quantitative easing and ECB officials, including Draghi have signaled a preference for some private sector assets, which the US and the BOE did not do in their QE exercise. In particular, the officials have been talking more about asset backed securities (ABS). The ECB and BOE published a joint paper Friday urging regulators to support and promote a revival of the ABS market, which Draghi had called "dead". In particular, they wanted "prudently designed" high quality product.
The point though is that the current ABS market seems too small for any serious QE program. Industry data indicate that total European issuance of securitized assets were about 251 bln euros in 2012 and the equivalent of 1.55 trillion euros in the US. In the first half of last year, Europe generated 83.5 bln of ABS, while the US packaged the equivalent of 880 bln euros.
Some of the European ABS are being used already for collateral for borrowing from the ECB, which means they cannot be included in the universe of securities the ECB could consider buying under QE. All told, the ABS that are eligible as collateral at the ECB have almost been halved from the 2010 peak.
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EUR/USD Forecast Apr 14-18
EUR/USD made an impressive comeback, breaking above the downtrend channel. Will the ECB talk the euro down, or is 1.40 the next target? Final CPI numbers and an important German survey are the highlights. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.
The pair was already advancing nicely when the relatively dovish FOMC Meeting Minutes extended the dollar sell off, and the pair shot even higher. A successful bond auction from Greece also helped and the euro ignored the weaker than expected inflation numbers from France and from other countries and some attempts to talk down the euro. Is 1.40 still the line in the sand?
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ECB says further euro strengthening would trigger looser monetary policy
A further strengthening of the euro exchange rate would require more loosening in the European Central Bank's monetary policy to keep the overall policy stance as accommodative as it is now, ECB President Mario Draghi said on Saturday.
Draghi said that euro appreciation over the last year was an important factor in bringing euro zone inflation down to its current low levels, accounting for 0.4-0.5 percentage point of decline in the annual rate, which stood at 0.5 percent year-on-year in March.
"I have always said that the exchange rate is not a policy target, but it is important for price stability and growth. And now, what has happened over the last few months is that is has become more and more important for price stability," Draghi said at a news conference.
"So the strengthening of the exchange rate would require further monetary policy accommodation. If you want policy to remain accommodative as now, a further strengthening of the exchange rate would require further stimulus," he said.
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Greece's Eurobank to seek 2.86-bn euro capital hike
Greece's Eurobank on Saturday said its board had approved a 2.86-billion-euro ($4-billion) capital increase, in the latest move by one of the country's biggest lenders to bolster its reserves.
"The general meeting approved...the increase of the share capital of the bank by up to 2.864 billion euros," the bank said in a statement.
Up to 9.54 billion in new shares will be issued and according to reports, the capital hike is expected to be completed by May.
The offer price per share cannot be lower than 0.30 euros, the bank said. Shares in the bank closed down 4.2 percent on Friday at 0.43 euros.
Greek lenders are in the process of shoring up their balance sheets following a recent recommendation by the central bank.
Two other top banks -- Piraeus and Alpha -- have respectively raised 1.75 billion and 1.2 billion euros.
The Bank of Greece last month said the four main Greek lenders -- National Bank, Piraeus, Alpha and Eurobank -- needed nearly 6.4 billion euros in additional capital.
The board of National Bank is expected to convene next week to discuss a two-billion-euro capital increase in May, reports said.
The banks had been recapitalised last year as part of the Greek EU-IMF bailout.
A sum of 50 billion euros from Greece's EU-IMF rescue loans was earmarked for their recapitalisation after heavy losses suffered by Greek banks which wrote down privately-held Greek government bonds in 2012.
Eurobank was unable to attract enough private funds and was recapitalised by the state.
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EUR/USD weekly outlook: April 14 -18
The dollar ended the week close to three-week lows against the euro on Friday as dovish Federal Reserve minutes tempered expectations that U.S. interest rates would rise sooner than had been anticipated.
EUR/USD ended Friday’s session at 1.3884, after touching session highs of 1.3905 earlier. The pair ended the week with gains of 1.04%, the largest weekly increase since September.
The pair is likely to find support at 1.3835, Thursday’s low and resistance at 1.3900.
The euro eased back from session highs against the dollar on Friday after data showed that U.S. producer prices rose 0.5% in March, the largest increase in nine months and ahead of expectations for a 0.1% increase.
A separate report showed that the University of Michigan’s U.S. consumer sentiment index rose to 82.6 this month, its highest level since July.
But the greenback remained under pressure after the minutes of the Fed’s March meeting indicated that an interest rate increase is unlikely to be warranted for some time.
The Fed’s March meeting minutes, released on Wednesday, showed that policymakers discussed whether to keep interest rates at record lows until inflation moves higher, and did not elaborate on a possible timeframe for when rates could start to rise.
Last month the U.S. central bank reduced the monthly pace of asset purchases by $10 billion, to $55 billion, and repeated it is likely to continue paring the program in “further measured steps.”
In mid-March Fed Chair Janet Yellen had indicated that interest rates could start to rise around six months after the end of the Fed’s bond purchasing program, suggesting a rate hike could occur in the early part of 2015.
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Europe's top banks cut 80,000 more staff in post-crisis overhaul
Europe's largest banks cut their staff by another 3.5 percent last year and the prospect of a return to pre-crisis employment levels seems far off, despite the region's fledgling economic recovery.
Spurred into action by falling revenue, mounting losses and the need to convince regulators they are no longer "too big to fail", banks across the globe have shrunk radically since the 2008 collapse of U.S. bank Lehman Brothers sparked the financial crisis.
Last year, the tide of bad news began to turn for European banks, which are among the region's largest employers.
Helped by recovering economies and receding fears for the euro zone's future, the benchmark Stoxx Europe 600 Banks index .SX7P rose 19 percent, outpacing the 17.4 percent increase in multi-sector stocks.
But despite the improved outlook, Europe's 30 largest banks by market value cut staff by 80,000 in 2013, calculations by Reuters based on their year-end statements showed.
Recruitment consultants warn workers' hopes for a turnaround this year could be misplaced, bad news for countries like Spain where tens of thousands of bank layoffs have helped drive unemployment to 26 percent.
However, while painful for the people who have lost their jobs, the reduction of large banks' workforces through a combination of asset sales and redundancies means banks won't have as big an impact on overall employment in future crises.
Antoine Morgaut, chief executive for Europe and South America at recruiter Robert Walters (RWA.L) does not expect the industry's employment to ever return to what it was in its heyday of 2008. Then, the 25 of the top 30 banks with comparable figures employed about 252,000 more than the 1.7 million they do today. "It's been a bubble for 20 years," said Morgaut.
"In specialty areas we are seeing a bit of an upside but it is quite marginal and it will stay like that for the next six to nine months," he added.
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ECB would need to go beyond ABS market for potential QE -Draghi
The European Central Bank could not rely solely on purchases of asset-backed securities (ABS) if it resorts to unconventional steps to boost inflation, given the limited supply of the securities, ECB President Mario Draghi said on Saturday.
If the ECB starts injecting money into the economy using asset purchases, it is expected to choose a mix of government and private assets, including ABS, which collapsed during the financial crisis and are still recovering.
"The present size of the ABS market is about 100 billion (euros) so it is relatively small," Draghi told a news conference in response to a question on how useful the ABS market could be in the ECB's unconventional policy measures.
"We may even consider other unconventional measures."
Speaking on the sidelines of the IMF-World Bank spring meetings in Washington, where the issue of weak euro zone inflation took center stage, Draghi said bond purchases had to be guided by European Union law and take into account European companies' preference for financing themselves through bank loans rather than issuing bonds.
"We have to have these two dimensions in mind when we design a programme," he said.
The ECB has twice embarked on bond purchases, first buying up covered bonds used to back mortgages and then purchasing limited sovereign bonds to keep markets turning over during the worst of the financial crisis.
But it has never ventured into pumping money into the financial system via bond purchases, something which is now on the table as inflation veers dangerously low.
Other ECB officials attending the Washington meetings, including Vice President Vitor Constancio, also said that the ECB would look at all instrument classes, not only private assets.
A Eurosystem official, speaking on condition of anonymity, said this referred to purchases of government bonds on the market because sovereign bonds were the only market deep and liquid enough to make the required impact.
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Euro edges back as ECB steps up verbal campaign
The euro got off to a shaky start on Monday after the European Central Bank fired another warning shot at bullish investors and arrested the single currency's week-long surge, saying it will be forced to ease monetary policy further if the euro keeps going up.
In the clearest signal yet that he was unhappy with the direction of the currency, ECB President Mario Draghi on Saturday told a news conference that "a further strengthening of the exchange rate would require further stimulus."
ECB policy member Christian Noyer hammered home the message on Monday saying: "The stronger the euro is, the more accommodative policy is needed".
Investors took heed in Asian dealings, sending the common currency down broadly.
The euro dipped 0.2 percent to $1.3850 after rising almost uninterrupted last week to gain 1.3 percent, its largest weekly gain since September.
The common currency slid 0.4 percent to 140.62 yen from levels above 141.00 and reached near one-month lows against the Swiss franc at 1.2135 francs.
Further weighing on the euro, Ukraine gave pro-Russian separatists a Monday morning deadline to disarm or face a "full-scale anti-terrorist operation" by its armed forces, raising the risk of a military confrontation with Moscow.
"Draghi and the situation in Ukraine are going to keep the euro heavy," said Greg Gibbs, strategist at RBS in Singapore.
"But the reaction is pretty muted given the strength of Draghi's comments on the weekend."
Gibbs said while the market thinks further ECB stimulus is inevitable, other factors such as solid demand for peripheral euro zone debt were underpinning the euro for now.
The latest setback in the common currency helped lift the dollar index, pushing it further away from a three-week trough plumbed last Thursday. The index was last up 0.2 percent at 79.612.
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Euro-zone industrial output rises slightly
Industrial production across the 18 countries that share the euro rose slightly in February, although output in many of the currency area's troubled southern members declined.
The modest nature of the industrial expansion, together with its narrow spread, underline the weakness of the euro zone's recovery as policy makers at the European Central Bank mull new measures to counter a period of very low inflation.
The European Union's statistics agency Monday said output rose by 0.2% from January, and by 1.7% from February 2013. The rise in output was in line with expectations. Eurostat also revised its calculations for January, and now estimates production was unchanged during the month, having previously recorded a decline of 0.2%.
The rise in output may reassure members of the European Central Bank's governing council that the modest growth they expect to see this year is materializing. But there were signs of continued weak consumer demand, a sign that inflationary pressures are likely to remain weak.
Production of durable consumer goods fell by 1.2% from January, and were down 0.6% from February 2013. Durable goods such as washing machines and other items of household equipment are the type of nonrecurring purchases that consumers postpone if they expect to see price falls.
The euro zone has largely relied on exports to sustain its return to growth since the second quarter of last year, but with domestic demand still weak, the competitiveness of its goods and services on world markets is increasingly threatened by the strength of the euro.
European Central Bank President Mario Draghi on Saturday ratcheted up his warnings about the strong euro, saying a further rise in the exchange rate would trigger additional monetary easing to keep inflation from falling too low.
"A strengthening of the exchange rate requires further monetary stimulus. That is an important dimension for our price stability," Mr. Draghi said at a news conference during meetings of the International Monetary Fund.
The rise in output wasn't widespread across the currency area, with declines recorded in Italy, Greece, Portugal, the Netherlands and four other members. Output rose most rapidly in Ireland, while the pickup was also driven by increases in Germany, France and Spain.
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