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Euro zone retail sales rise 0.4% in April
Retail sales in the euro zone rose more than expected in April, easing concerns over the region’s economic outlook, official data showed on Thursday.
In a report, Eurostat said retail sales increased by a seasonally adjusted 0.4% in April, compared to expectations for a 0.1% gain. Retail sales increased 0.1% in March, whose figure was revised down from a previously reported gain of 0.3%.
Year-over-year, retail sales in the euro zone rose at an annualized rate of 2.4% in April from a year earlier, easily surpassing expectations for a 1.3% gain and after rising 1% in March.
Following the release of the data, the euro held on to modest gains against the U.S. dollar, with EUR/USD rising 0.1% to trade at 1.3613.
Meanwhile, European stock markets remained mixed. The Euro Stoxx 50 dipped 0.1%, France's CAC 40 added 0.1%, Germany's DAX edged down 0.15%, while London’s FTSE 100 tacked on 0.1%.
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Euro falls after ECB sets negative deposit rate
The euro fell below $1.36 Thursday after the European Central Bank said it would cut interest rates, pushing the negative deposit rate into negative territory in an effort to encourage lending.
The euro EURUSD -0.21% dropped to $1.3574 from $1.3605 late Wednesday. The euro inched up against the dollar in the seconds ahead of the decision and swung between slight gains and losses after the interest-rate cuts were announced.
The decision will be followed by ECB President Mario Draghi’s press conference at 8:30 a.m. Eastern, where he could introduce liquidity measures and will detail the central bank’s new inflation projections. The latter are key since the ECB’s goal in setting monetary policy is achieving medium-term inflation of just under 2%.
The ECB cut its key lending rate to 0.15% from 0.25% and slashed the deposit rate to -0.1% from 0%, which means banks will effectively have to pay to keep reserves at the central bank. The marginal-lending rate was lowered to 0.4% from 0.75%
Euro Falls Versus Most Major Peers After ECB Stimulus
The euro fell against most of its major peers after the European Central Bank became the first major central bank to charge fees on deposits and unveiled extra growth-boosting measures.
The 18-nation currency fluctuated against the dollar after touching a four-month low. The Bloomberg Dollar Spot Index briefly jumped, touching a two-month high, after a report showed the fewest Americans since June 2007 filed unemployment-benefit applications over the past month.
“While largely in line with expectations and while not nearly as aggressive as it could have been, the overall suite of policy-easing measures will continue to weigh on the euro even if we don’t see a precipitous drop,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said in a telephone interview.
The shared currency dropped as much as 0.7 percent to $1.3503 before rising 0.1 percent to $1.3616 at 10:54 a.m. New York time.
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The Euro fall was just after ECB anouncement.
Now life goes on as if nothing had
EUR/USD rallies as forward guidance backfires
EUR/USD rallies back to the pre-ECB trading range. So far, it hasn’t moved above resistance at 1.3650, but we could certainly see it make another attempt. Perhaps this will wait for after the Non-Farm Payrolls, no matter the actual outcome.
The reason for the rally is a critical change in the ECB’s forward guidance, which counters the historic announcement of a negative deposit rate and a wide array of measures that the central bank announced. What’s next for the pair?
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Euro Survives -- Next Up, NFP
Euro Survives Negative Rates, What to Expect for NFP
For the first time ever, banks in Europe will be required to pay the ECB for the right to park their reserves with the central bank. While smaller countries have introduced negative rates in the past, this is the very first time that it is implemented on a large-scale basis by one of the world's most important central banks. This negative deposit rate is the boldest step that the ECB has taken so far to stimulate growth and inflation in the region's economy. But a negative rate was not the only announcement made by the central bank Thursday. Mario Draghi introduced a package of measures that included a series of rate cuts, 2 targeted longer-term refinancing operations, the end of sterilization of their SMP program, an extension of their fixed rate allotment and preparations for outright purchases of ABS securities. Most importantly, when asked about the potential for more stimulus including Quantitative Easing, Draghi said "we're not finished."
This package of aggressive measures and the central bank's willingness to do more should have been negative for the euro and it was initially but by the end of the North American trading session EUR/USD recovered all of its losses to end the day in positive territory. This counterintuitive price action has left many traders confused. However if we take a look at how the EUR/USD behaved after the rate cut in November, the U-turn in the currency pair is not without precedent. Thursday, just as in November, investors were impressed by the central bank's radical measures and based on the rally in equities they believe the active approach to monetary policy will be enough to stimulate growth. Also, Draghi said interest rates are pretty much at their lower bounds, which means they are not considering additional rate cuts. At the same time, the steps taken by the ECB Thursday are more benign than the Quantitative Easing measures implemented by the Federal Reserve, Bank of Japan and the Bank of England. So while the ECB maintains a dovish bias and has made it clear that they are not done easing, for the time being investors perceive Thursday's announcements to be positive for the Eurozone economy and for the euro.
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ECB's Draghi Signals More Action If Needed
After announcing the historic move of cutting interest rates to negative territory on Thursday, European Central Bank President Mario Draghi said the bank is not over with action in its battle against sticky low inflation and stands ready to take non-standard measures, if required.
"The key ECB interest rates will remain at present levels for an extended period of time in view of the current outlook for inflation. This expectation is further underpinned by our decisions today," Draghi said in the introductory statement to his customary post-meeting press conference.
"Moreover, if required, we will act swiftly with further monetary policy easing. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate should it become necessary to further address risks of too prolonged a period of low inflation."
Earlier on Thursday, the central bank cut its interest rates, taking the main refi rate to a record low 0.15 percent and the deposit rate into the uncharted negative territory at -0.10 percent. The ECB thus became the first leading central bank to adopt negative interest rates. The marginal lending rate was lowered to 0.40 percent.
Draghi also announced EUR 400 billion targeted longer-term refinancing operations, or TLTROs, that will mature in September 2018. Under the plan, financial institutions can borrow money from the ECB, totaling 7 percent of their total loans to the non-financial private sector.
The bank will conduct two successive TLTROs, in September and December 2014. The rate will be set at the main refi rate plus a fixed spread of 10 basis points.
Responding to questions from reporters, Draghi said the ECB has reached the 'lower bound' on interest rates for all practical purposes. However, "we are not finished yet", he said, adding that the bank is ready to undertake unconventional measures, if needed.
Today's ECB package was significant and the Governing Council was unanimous in its decision, Draghi said. He also said that the bank is confident that the latest measures will help to bring inflation close to 2 percent.
"In pursuing our price stability mandate, today we decided on a combination of measures to provide additional monetary policy accommodation and to support lending to the real economy," Draghi said.
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Bundesbank Lifts German Growth Outlook; Cuts Inflation Estimate
Germany's central bank on Friday raised its growth projection for 2014 and lowered its inflation forecast.
The largest Eurozone economy is forecast to grow 1.9 percent this year, instead of 1.7 percent estimated in December. In 2015, growth will rise to 2 percent, it said, unchanged from the prior estimate.
For 2016, Bundesbank projects 1.8 percent growth.
EU harmonized inflation for Germany is seen at 1.1 percent this year and 1.5 percent next year and then up to 1.9 percent in 2016. The forecast for 2014 was revised down from 1.3 percent.
The Bundesbank's experts project that, excluding energy, the rate of inflation is set to increase to more than 2 percent by 2016.
Bundesbank President Jens Weidmann said, "Heightened geopolitical tensions or a renewed flare-up of the crises in the euro area would dampen GDP growth not only through the external trade channel, but also by affecting confidence."
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Spain Industrial Production Growth Strongest In 4 Years
Spain's industrial production rose the most in more than four years in April, figures from the statistical office INE showed Friday.
The industrial production index rose a seasonally-and-calendar adjusted 4.3 percent year-on-year, following a 0.9 percent rise in the previous month. It was the fastest increase since March 2010, when output grew 4.8 percent.
Month-on-month, production climbed 1.6 percent in April, recovering from a 0.4 percent decline in the previous month.
On an unadjusted basis, industrial production dropped 1.9 percent annually in April, after an 8.1 percent surge in the previous month.
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Germany’s Industrial Output Accelerates in April, Pointing to Solid Growth
Industrial output in Germany surged in April as the country continued to lead other euro area economies towards solid recovery.
The industrial output accelerated 0.2 percent from March, where it plunged by 0.6 percent, reported the Federal Statistics Office. A Bloomberg survey of economists had estimated production to increase by 0.4 percent. On an annual basis, output grew 1.8 percent in April from a year ago when an adjustment is made for working days.
Germany’s central bank expects the gross domestic product to grow at a much slower pace in the second quarter despite recent data that showed factory orders increased in April. This is mainly due to the weak growth and disinflation in the euro zone, which is Germany’s biggest trading partner.
“There was a soft patch in March, potentially because of calendar effects,” Heinrich Bayer, a Bonn-based economist at Postbank AG told Bloomberg. “We see the German industry growing even if not with the speed we have seen in the first quarter.”
Manufacturing output grew 0.1 percent, while consumer goods output grew 1.1 percent. Production of intermediate goods rose 0.1 percent while construction declined 1.2 percent.
The Bundesbank is expected to announce its new economic predictions on Friday. In December, the central bank forecast the economy to expand by 1.7 percent in 2014 and by 2 percent next year, with inflation expected to hover around 1.3 percent this year and 1.5 percent in 2015.
Markit Economics reported that a measure of German services and manufacturing activity stood close to the highest level in three years in April. Unemployment rose unexpectedly, while business confidence and retail sales declined in April.
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