Euro drops as ECB hints at possible negative rates or QE, then rises as Janet Yellen testifies

Nov 14 • Morning Roll Call • 1789 Views • Comments Off on Euro drops as ECB hints at possible negative rates or QE, then rises as Janet Yellen testifies

euro-fallingThe ECB cut interest rates to 0.25% last week and kept the deposit rate at zero. The euro came under pressure on Wednesday after an ECB board member, Peter Praet, hinted the central bank could authorise negative interest rates, or buying assets from banks in the form of quantitative easing, in order to hit its inflation target. Peter Praet told the Wall Street Journal:

If our mandate is at risk we are going to take all the measures that we think we should take to fulfil that mandate. That’s a very clear signal. The balance sheet capacity of the central bank can also be used. This includes outright purchases that any central bank can do. On standard measures, interest rates, we still have room and that would also include the deposit facility.”

 

Spain’s rubbish piles up in Madrid

It’s fascinating to witness some of the news events that the mainstream media appear to miss; rubbish has been strewn on the pavements of Madrid on the ninth day of what’s been termed “an indefinite strike” by street cleaners in Madrid. Spain’s labour unions called for an indefinite strike in the street cleaning and park maintenance sectors in protest against announced layoffs that could affect over a thousand municipal workers. This in a country with record levels of unemployment, particularly youth unemployment.

 

Bank of England Inflation Report

After the unemployment numbers were released on Wednesday, following the recent inflation data, Mark Carney (the BoE governor) presented the central bank’s latest quarterly inflation report to the awaiting assembled gathering of invited press contacts;

In the United Kingdom, recovery has finally taken hold. The economy is growing robustly as lifting uncertainty and thawing credit conditions start to unlock pent-up demand. But significant headwinds, both at home and abroad, remain, and there is a long way to go before the aftermath of the financial crisis has cleared and economic conditions normalise. That underpins the MPCs intention to maintain the exceptionally stimulative stance of monetary policy until there has been a substantial reduction in the degree of economic slack.”

 

US Monthly Treasury Statement, USA racks up $92 billion deficit in October 2013

It’s been tricky to get a handle on the USA deficit given the variance from one month to the next, the latest print came in slightly below expectations of -$103 billion, with no ‘blame’ being attached to the temporary government shutdown. At -$92 billion it’s still evident, that in terms of deficit reduction, the USA govt. is still working in an economy that has far from recovered. And it should be noted that any recovery in the deficit must be measured versus the national debt that has risen by circa $6 trillion since 2008.

“The Monthly Treasury Statement of Receipts and Outlays of the United States Government (MTS) is prepared by the Financial Management Service, Department of the Treasury, and after approval by the Fiscal Assistant Secretary of the Treasury; is normally released on the 8th workday of the month following the reporting month. The publication is based on data provided by Federal entities, disbursing officers, and Federal Reserve banks. The monthly deficit for October was recorded at -$92 billion.”

 

EC begins review of German trade surplus

Over in Brussels, the European Commission has (as we anticipated earlier in the week) launched an inquiry into the German trade surplus. The bottom line is that apparently Germany’s economy is too successful and they should, in the eyes of the EC, lower their levels of success in order that other countries in the EU prosper. It’s difficult to put into words now ridiculous the EC’s notion is…

In a new report, the EC said it would launch an “in-depth review” of both Germany and Luxembourg. It plans to: better scrutinise their external position and analyse internal developments, and assess whether any of these countries is experiencing imbalances. It explained that the German trade surplus has exceeded the EC’s ‘threshold’ (6% of national GDP) each year since 2007, so it clearly isn’t a short-term problem. This means Germany becomes one of 16 Member States who are being probed for imbalances (many others face questions over current account deficits, losses of competitiveness and debt and deficit levels).

 

Sir Hector Sants, the former head of the UK’s Financial Services Authority, has stepped down from his role as head of compliance at Barclays.

It’s tough and rough at the top and Hector Sants, who oversaw much of the beneficial changes at the UK’s former FSA, has left Barclays due to stress;

Hector Sants has been on sick leave since the beginning of October, suffering from stress and exhaustion. He has concluded that he will not be able to return to work in the near term. Consequently he has decided to resign from Barclays and not return from sick leave. Shaygan Kheradpir, Chief Operations and Technology Officer, is also leaving Barclays to take on a role as CEO for a company based in the United States.”

 

Market overview

The DJIA closed up 0.45%, the SPX up 0.81% and the NASDAQ up 1.16%. European markets were mainly in the red; STOXX down 0.45%, CAC down 0.56%, DAX down 0.24% and UK FTSE down a substantial 1.44% after a negative reaction to the UK’s BoE inflation report.

Looking towards the market opening on Thursday November 14th the DJIA future is up 0.44%, SPX up 0.82% and the NASDAQ up 1.1%. The STOXX index is down 0.53%, DAX doe 0.36% and CAC down 0.55%.

 

Commodities

NYMEX WTI oil is up 0.60% at $93.60 per barrel, NYMEX nat gas is down 1.58% $3.56 per therm, COMEX gold is up 0.87% at $1282 per ounce, COMEX silver down 0.78% at $20.62 per ounce.

 

Forex focus

The euro rose 0.4 percent to $1.3487 after falling as much as 0.3 percent. The yen gained 0.4 percent to 99.25 per dollar after sliding to 99.80 on Tuesday, the weakest level since Sept. 13th. Japan’s currency traded at 133.85 per euro. The U.S. Dollar Index, which monitors the greenback versus its 10 major counterparts, fell 0.4 percent to 1,018.48 late in New York, the biggest drop since Oct. 22nd. The gauge reached 1,025.01 yesterday, the highest since Sept. 13th. The dollar fell the most in three weeks as Federal Reserve chairman nominee Janet Yellen said the economy must improve before monetary stimulus can be trimmed.

Sterling strengthened by 0.6 percent to 83.99 pence per euro after weakening 0.8 percent on Tuesday. The pound rose 1 percent to $1.6057 after falling to $1.5855 Tuesday, the lowest since Sept. 13th. The pound climbed versus all but one of its 16 major peers after the office for National Statistics said the jobless rate as measured by International Labour Organisation standards fell to 7.6 percent in the three months through September.

The loonie, as the Canadian currency is nicknamed appreciated 0.4 percent to C$1.0457 per U.S. dollar late in Toronto. It touched C$1.0509 yesterday, the weakest level since Sept. 5th. One Canadian dollar purchases 95.63 U.S. cents. Canada’s dollar rebounded from almost the weakest level in two months on speculation the Canadian economic recovery is gathering steam and Federal Reserve policy makers will prolong its bond purchases.

 

Bonds

The 10-year yield dropped five basis points, or 0.05 percentage point, to 2.72 percent late in New York time. The 2.5 percent note due in August 2023 rose 14/32, or $4.38 per $1,000 face amount, to 98 3/32. The yield climbed to 2.79 percent yesterday, the highest level since Sept. 18th. Treasuries rose as 10-year note yields at almost the highest levels in eight weeks attracted buyers as Janet Yellen said the U.S. economy must improve before the Federal Reserve can begin slowing bond purchases.

 

Fundamental policy decisions and high impact news events that may affect market sentiment on November 14th

French and German preliminary GDP figures are published on Thursday, Germany’s is expected in at 0.3% with France’s at 0.1%. Italy’s is expected in at -0.3%. Europe’s flash GDP number is expected in at 0.2%.

The ECB will publish its monthly bulletin whilst the UK’s retail sales are expected to be flat, but could register a fall if consumers keep their hands in their pockets with Xmas being so close.

Canada’s trade balance is expected in at $1.2 bn for the month, whilst the USA trade balance for the month is expected in at -$34 billion, a near mirror opposite of Germany’s positive €34 billion figure. Unemployment claims in the USA for the week are perched in at 331K. The weekly oil and gas storage inventory data is published with oil expected in at a low print of 0.7.

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