Euro Marches On In Face Of Data
Jeremy Cook | Apr 11, 2014 06:27AM ET
The week is drawing to a close with focus very much away from currency markets. Equities in Asia have slumped overnight following large falls on the Nasdaq in recent sessions. There is little to pin this to, apart from investors likely coming concerned about over-valuation of technology focused companies. The uncertainty around the timeline of tightening of monetary policy in the United States will have also given investors cause for thought as to committing additional capital to these markets. Yesterday’s economic data had little impact on things.
Yesterday’s Bank of England meeting saw rates remain at 0.5% and asset purchases at £375bn this month. This was not a surprise at all, and although we think dissent about keeping rates this low will eventually come through, we do not expect it to happen until end of Q3. Sterling was relatively quiet yesterday as a result and will likely be the same today before inflation numbers this Tuesday and jobs numbers on Wednesday.
Further deflationary and disinflationary news from the Eurozone this week has been unable to take the euro much lower. France, the Netherlands, and Greece all reported consumer price growth below expectations with Greece slipping further into deflationary territory. Portugal’s price numbers saw a similar fate Industrial production in France and Italy, the continent’s second and third largest economies respectively, both disappointed with French production down 0.8% on the year with Italy’s 0.5% lower than a month ago. France’s Q1 GDP numbers could be a proper horror show when published at the end of the month.
The threat of action to prevent further deflationary pressures has done little to weaken the euro past the initial slip following Draghi’s press conference. The lack of stellar data from the US, decent and a far more dovish Federal Reserve set of minutes EUR/USD finds itself back towards the 1.40 level. The desire for a lower euro is obviously there; the Belgian Finance Minister this week became the latest politician to warn of the strong euro’s effect on creating further deflation. Symbolic, verbal intervention is not working yet.
An effort of symbolism to which the outcome is not yet clear is the news that Greece has made a return to the bond markets. This marks a remarkable turnaround. The Greeks successfully sold EUR 3bn of 5 year notes at a yield of 4.75%. At the peak of the market troubles in 2012, Greek yields were 37%. Such was the demand for the issue that the offer was oversubscribed by 600%. The economic fundamentals remain poor in the country, however, with widespread joblessness and still in its fifth year of recession. The symbolism is encouraging, however.
Before this week closes out, we have a small amount of data from the United States. Producer prices are normally the first place that we would see building pressures on the inflationary basket as manufacturers react to increased prices within the supply chain. The market is looking for a rise of 0.1 per cent from February to March, with prices up 1.1 per cent from March 2013. Core prices, excluding energy and food, are expected to rise 0.2 per cent.
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We also expect US consumer confidence to rise this month following a resumption of normal weather patterns and rising equity markets promoting a positive wealth effect. PPI is due at 13.30 BST with consumer confidence at 14.55 BST.
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