Tag Archives: Eurozone

U.S. Dollar Falls After Fed More Dovish Than Expected; NZ Dollar Soars

Here’s today’s ‘Just A Minute’ bringing you a 60 second summary of what’s happening in the financial markets:

Main Trading Event Of The Day: UK Retail Sales @ 08.30 GMT

WHAT WE’RE WATCHING TODAY

U.S. Dollar Falls After Fed More Dovish Than Expected; NZ Dollar Soars

The U.S. dollar fell to its lowest in nearly two weeks against a basket of major currencies after the Federal Reserve hinted at yesterday’s meetings that U.S. interest rates will stay low for a while. The latest economic projections suggested that the Fed sees rates rising more in 2015 and 2016 than it had previously forecast, but officials lowered their long-term rate target. The Fed also sounded comfortable with the inflation outlook despite recent signs of a pick-up in price pressure. After the meetings, the dollar slipped 0.3 percent on the day to 80.378, and fell as far as 80.353, a level not seen since June 9. Against the yen, the greenback was almost flat on the day at 101.91 JPY, down from a one-week high of 102.38 yen hit on Wednesday before the Fed’s announcement, while the euro was slightly lower at $1.3589 after it touched $1.3600 EUR on Wednesday. The Fed cut its monthly bond buying program by a further $10 billion to $35 billion in a widely expected move and expressed confidence that the economic recovery remained on track.

The New Zealand dollar soared to a record high against a basket of currencies after the Fed’s dovish stance, rallying nearly 1 percent to hover around six-week highs of $0.8736 NZD. The outlook for higher New Zealand interest rates was reinforced by data showing the economy grew a solid 1.0 percent in the first quarter from the previous quarter, a result that cemented New Zealand as one of the fastest-growing developed economies. The Australian dollar was steady on the day at $0.9404 AUD, having gained 0.7 percent on Wednesday.

Eurozone: Is Deflation On The Horizon?

Professional services firm EY has warned that although the euro zone economy is set to grow in 2014, the threat of looming deflation in the region persists. The region will grow 1.1 percent this year, according to EY’s forecasts, followed by expansion of 1.5 percent in 2015. Growth is seen picking up pace between 2016 and 2018. Strengthening exports and a pickup in domestic demand will drive a return to modest investment growth but the recovery is likely to be felt more in some countries than others. The threat of deflation has been a key issue in European policymakers’ minds in recent months. The European Central Bank (ECB) announced measures to tackle the issue at its most recent policy meeting, including imposing a negative interest rates on banks for their deposits. Inflation in the euro zone rose by just 0.5 percent in the year in May, significantly below the ECB’s target of 2 percent. The inflation slowdown has been due to lower energy costs and increasing euro strength and there are now real concerns that inflation could turn to deflation, as firms start to bid down prices and wages in order to compete for orders. Deflationary pressures could have a knock on effect on consumer spending, just as confidence was starting to build. Exporters may also be in for another tough year as the euro remains stubbornly strong. The euro is currently trading around $1.35 against the dollar, down from peaks of $1.39 earlier in the year.

Emerging Markets: The Asset Class Of Choice?

Analysts are predicting that increasing comfort with the outlook for China’s economy will make emerging market equities the best performing asset class in the second half of 2014. Recent Chinese economic data indicates a stabilisation in the world’s second-largest economy, assisted by targeted stimulus measures. This is positive for emerging markets, many of which are dependent on exports to the mainland. May retail sales, for example, rose 12.5 percent on year, above analyst expectations for a 12.1 percent increase. While fixed asset investment rose 17.2 percent on year for the January-to-May period, just above expectations for a 17.1 percent rise. Emerging markets equities are up 3.9 percent year to date, slightly underperforming global stocks which have risen 4.1 percent, according to the MSCI Emerging Markets and MSCI World indices. India and Southeast Asian markets have been the biggest beneficiaries. Markets that were battered into 2013 are seeing a revival because of good policy from the central banks and economic momentum is not as poor as initially thought. Strategists at Coutts Investment Office, agree that emerging markets are the place to be.

That sums up today’s highlights! Remember you can keep in touch with us throughout the day via Facebook, Twitter, Google+ and LinkedIn for all the latest trading news. We hope you have a profitable day on the markets.

DIY Eurozone Bailouts?

According to a new report by Germany’s Bundesbank, Eurozone countries on the verge of a default should draw on the private wealth of their citizens instead of asking others for help. The central bank has detailed a future template for bailouts which attempts to avoid the previous model used for Greece, Portugal and Ireland and has suggested that a one-off capital levy, in other words, a tax on people’s private wealth should be imposed in the first instance, if a country runs into problems.

The bank stressed that a country should exhaust its own possibilities to regain the trust in the sustainability of its public finances and that rescue programs financed by other member states’ taxpayers should only exceptionally be put into action as a last resort such as when the financial stability of the Eurozone is in real danger.

Complaints from northern European members about having to bail out their southern neighbours are commonplace and billions of euros have been used to prop up struggling countries. Greece, for example, has secured two international bailouts since mid-2010, totaling around $330 billion. The German government has always insisted on harsh austerity measures as a way for stricken countries to get their economies back on track and signaled their unwillingness to let the European Central Bank engage in quantitative easing which would potentially fuel inflation in its own nation.

The Bundesbank report looks to renew a debate as to whether German taxpayers should be on the line with future Eurozone bailouts, illustrating the fact that there is no support in the Eurozone for any large scale mutualisation of debts. This means that future loans could be more of a bail-in than a bailout-in, as seen in Cyprus. Hence, the message for countries wanting Eurozone bailouts in the future is, do it yourself!

What’s Next For The Euro?

What’s next for the Euro? This is the big question as the currency rose to a five-year high against the Yen last Friday. But is this a positive indication towards the recovery of the Eurozone? The Eurozone may have technically emerged from the recession but it is still combating a protracted economic decline. Whereas the overall signs look promising, there may still be a few ups and downs in store. Will 2014 be a make-it or break it year? Read more…

Will Slump in Euro Zone Economy Prove Draghi’s Rate Cut Right?

Investors turn to their attention to the euro zone this week, as they await the release of growth data to gauge the strength of European economy as the initial signs of recovery appear to have slowed down, supporting Mario Draghi’s case to cut interest rates in an attempt to boost the economy.

The third quarter is expected to have recorded a mere 0.1 percent rise in gross domestic product in analyst’s projections. In the hours leading to the release of the report on 14th November, economists predict that data from Germany, France and Italy will already begin to indicate the growth halt.

Negative data would confirm that recovery is diminishing after a second-quarter jump of 0.3 percent that signalled the end of the region’s longest recession. The data are released one week after the European Central Bank president mentioned that the risk of “prolonged” period of low inflation as he announced the surprised rate cut to 0.25 percent.

The GDP data for the 17-nation euro area will be released by the European Union’s statistic office in Luxembourg at 11 a.m. on 14th November in a long series of European data publications. The day opens with France’s report at 7:30 a.m. in Paris, where economists expect economy to have staled.

Just last week, on 8th November, France was downgraded to AA by Startd and Poor’s, which cited that the current policies of President Francois Hollande’s government are “unlikely to substantially raise France’s medium-term growth prospects.”

Italian data, released in Rome at 10 a.m. on the same day, are expected to show a ninth straight quarter of losses. Antonio Golini, acting chairman of Istat, the Italian national statistics office, told lawmakers on 29th October that the economy shrank in the three months through September, predicting a 1.8 percent drop in GDP for the year.

More optimistic outlooks anticipate that enough momentum elsewhere in the currency bloc to accelerate growth toward the end of the year despite the recession in the region’s second- and third-biggest economies.

Euro Down the Drain

The euro fell to the lowest lever in a fortnight against the dollar and the yen as signs of economic weakness in the euro region incited speculation the European Central Bank will cut interest rates.

As data forecast to show that manufacturing decreased in France, one of the eurozone’s largest economies, the euro extended its biggest drop in more that a year against the USD as data showed yesterday that manufacturing expanded in the U.S. Reports yesterday indicated a slowing inflation in the euro region as unemployment reached record-high levels.

The euro dropped 0.3 percent to $1.3548 this morning after reaching $1.3540, its weakest point since 17th October. Yesterday the currency sank 1.11 percent, the most since June 2012. The 17-country currency slipped 0.7 percent to 132.73 yen after touching 132.61, the lowest since 11th October.

The European Union’s statistics office reported yesterday that the euro area’s annual consumer-price declined to 0.7 percent last month, the least since November 2009, from 1.1 percent in September.
Other data showed yesterday that unemployment in the eurozone reached a record 12.2 percent in September.

The European Central Bank said there’s a “subdued outlook” for price growth in the region, and October marks the ninth consecutive month the rate has remained below the 2 percent ceiling. The next meeting of European policy makers will take place on 7th November.

Forecasts published yesterday anticipate the ECB will cut its refinancing rate to 0.25 percent in December from the currennt 0.5 percent. The below-than-forecast CPI numbers have raised concerned over the outlook for inflation in the region and the ECV’s response.

ArcelorMittal to Rise with Recovering Eurozone

The sares of ArcelorMittal (MT), the world’s biggest steelmaker, are set to rebound as European manufacturing exits an almost two-year downtrend.

A recovery in the Eurozone Manufacturing PMI Markit Survey Ticker pushed the gap between the index and ArcelorMitta’s hare price to the most since Laksmi Mittal eclipsed Arcelor SA in 2006. With the ending of a recession in September car sales rallied the most in more than two years.

ArcelorMittal decreased its 2013 earnings forecast last August due to lower-than-expected demand in the U.S. and Europe. In 2013, the shares of the European steel industry have declined 4.3 percent.

The European PMU survey, however, surpassed the level of 50 in July for the first time in two years, signifying an increase in manufacturing in comparison with the previous moth.

Dutch Economy Growing Weaker

With signs that the Dutch economy is growing weaker, faith in the government is sinking to an all-time low and the Netherlands is still struggling post-recession as other Eurozone countries are finally starting to enjoy positive economic signals. Here is an analytical view of the Dutch economy and the measures that must be taken to stimulate the economy. Read more…

Is The End Of The Recession In Sight As Spain’s Pain Turns To Gain?

Spain’s central bank reported on Wednesday that a two-year recession in the euro zone’s fourth-largest economy ended in the third quarter when Spain posted 0.1% growth from the previous quarter, in line with government projections. A return to growth for the currency area’s fourth-largest member is likely to feed hopes that the euro zone’s economy is finally emerging from a three-year crisis that was triggered by doubts about the soundness of its bank, and rising levels of government debt. The turnaround in Spain will add to expectations that the euro zone’s economy grew again in the three months to September, having expanded in the second quarter following 18 months of contraction. A survey of consumers in the currency area released Wednesday pointed to a continued pickup in confidence, which should support spending by households in coming months. The rise in Spanish gross domestic product after more than two years of contraction marks a turning point in the euro-zone crisis and is another sign that the Euro zone is doing the right things to come out of recession. It is however, a long, hard road and that all-familiar saying springs to mind…there’s no gain without pain!

Will Greece Fail to Meet Its Next Bailout Target?

The IMF’s latest Fiscal Monitor Review published on Wednesday predicts that Greece may miss its next bailout target, since the country’s budget surplus has only risen to 1.1% of gross domestic product, failing so far to hit the target of 1.5% of GDP set by the IMF and the Eurozone in the bailout terms. Although Greece was predicted to be on track to meeting its targets in the IMF’s last report in April, problems with tax collection, slow growth, and delays in selling off state assets put Greece’s progress in the bailout programme in jeopardy. Should the country fail to meet its main objective, its emergency creditors (the IMF, the European Commission, and the European Central Bank) won’t proceed to issuing the next round of bailout financing, a factor likely to add pressure to the already tense negotiations over the upcoming tranche to help the troubled economy.
Source: Wall Street Journal

No End in Sight for Eurozone Recession

The ailing Eurozone is now officially in its longest ever recession, once again prompting speculations about the single currency’s future. Signs of crisis are clearly visible as nine out of 17 eurozone nations are in recession with Francois Hollande’s France joining the list of economic underachievers.

The GDP of 17 eurozone countries shrank by 0.2 per cent in the beginning of 2013. The European powerhouse Germany only grew by 0.1 per cent in the first quarter while France’s economy shrank by 0.2 per cent for the second quarter in a row. The country’s unemployment rate is expected to rise from the current 10.6 per cent. President Hollande is now the most unpopular president in French history, even surpassing his predecessor Nicolas Sarkozy who was widely disliked.

The shoddy data was followed by Pew Research Centre’s report according to which public support for the European Union fell from 60 per cent to 45 per cent. Pew’s research confirmed the perilous situation of the European project which is already being buried in many European countries. For instance, Spain’s dire situation is likely to continue and even worsen while the austerity policies enacted by many nations do not seem to work or stimulate growth.

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