Italian trade balance collapses as deflation becomes a real and present danger to the EU

Mar 18 • Mind The Gap • 2499 Views • 1 Comment on Italian trade balance collapses as deflation becomes a real and present danger to the EU

shutterstock_159340478Overnight the RBA published its recent policy meeting minutes in which it committed to more of the same whilst noting the slight weakness reappearing in the USA economy. However, analysts  and investors failed to take anything contained in the report as an open door for rate rises or asset purchase schemes, therefore the Aussie has remained in a tight range in the overnight and morning session ‘hugging’ the daily pivot line.

This morning Germany’s stats agency published the data on wholesale prices which are now down 1.8% versus February 2013. The index has fallen by 0.1% month on month. This adds to the evidence yesterday that deflation could be stalking the Eurozone and most significantly the EU’s largest economy.

From Italy this morning the latest data print concerning the trade balance wasn’t good. The reading came in at €0.40 billion with expectations that the print would come in at €2.47 billion. In short the business landscape has deteriorated somewhat since the previous month’s reading of €3.61 billion and the reasons are imports falling dramatically with exports only rising by a fraction at 0.1%, suggesting that the business in the pipeline for Italian companies is very poor based on historical readings.

Asia Pacific equities followed Wall Street’s lead by putting geopolitical concerns regarding Crimea behind and staging a form of relief rally in the overnight/early morning trading session. The renminbi exchange rate fell another 0.2 per cent to 6.1877 per US dollar, an 11-month low. The Chinese currency dropped 0.5 per cent, one of its biggest daily declines since China reformed its currency regime in 2005, after the People’s Bank of China doubled the currency’s trading band to 2 per cent over the weekend.

Russia has recognised Crimea as an independent state in defiance of sanctions on senior Russian officials by the US and EU. The Russian move threatened to escalate the crisis in Ukraine after Sunday’s overwhelming vote by Crimeans in a referendum to secede from Ukraine and join Russia.

RBA Monetary Policy Meeting Minutes

Growth of Australia’s trading partners in late 2013 was close to its average pace of the past decade. Inflation in the major economies remained low. The Board noted that recent data suggested that the US economy may have slowed a little from the strong growth recorded late last year, although at least some of this reflected the effects of particularly adverse winter weather across much of the country. Payrolls data suggested slower growth in employment over the previous two months, although the household survey showed much stronger growth and a further decline in the unemployment rate in January.

German Wholesale prices in February 2014: 1.8% on February 2013

As reported by the Federal Statistical Office (Destatis), the selling prices in wholesale trade decreased by 1.8% in February 2014 from the corresponding month of the preceding year. In January 2014 and in December 2013 the annual rates of change were –1.7% and –1.3%, respectively. From January 2014 to February 2014 the index fell by 0.1%.

Italy’s trade balance falls

In January 2014 seasonally-adjusted data, compared to December 2013, decreased by 1.5% for outgoing flows and 1.6% for incoming flows. Exports decreased for both areas: -1.7% for EU countries and -1.2% for non EU countries. The decrease of imports is the synthesis of an increase for EU countries (+1.4%) and a drop for non EU countries (-5.3%). Over the last three months, seasonally-adjusted data, in comparison with the previous three months, showed a growth of 1.1% for exports and a fall of 2.1% for imports.

In January 2014, compared with the same month of the previous year, trade increased by 0.2% for exports (+2.6% for EU area and -2.7% for non EU countries) and fell by 6.6% for imports (-1.6% for EU and -11.9% for non EU countries). The trade balance in January amounted to +0.4 billion Euro (+1.3 billion Euro for EU area and -0.9 billion Euro for non EU countries) (Table 1).

Market snapshot at 10:00 am UK time

The ASX 200 closed up 0.49%, the CSI 300 down 0.29%, the Hang Seng up 0.51%, with the Nikkei closing up 0.94%. The main European bourses have opened in the red; euro STOXX down 0.45% at 3.036, CAC down 0.15%, DAX down 0.56%, UK FTSE down 0.25% at 6542. Looking towards the New York open the DJIA equity index future is down 0.16% at 16140, SPX future down 0.19% NASDAQ future down 0.25%.

NYMEX WTI oil is down 0.71% at $98.19 per barrel with NYMEX nat gas down 0.44% at $4.52 per therm. COMEX gold is down 0.93% at $1360.20 per ounce with silver down 1.81% at $21.02 per ounce.

Forex focus

The yen gained 0.2 percent to 101.64 per dollar early London time after weakening 0.4 percent yesterday. Japan’s currency appreciated 0.2 percent to 141.46 per euro. The euro was little changed at $1.3918. The krona declined 0.3 percent to 6.3731 per dollar. The yen rose as President Vladimir Putin said he supported a request from Ukraine’s breakaway region of Crimea to join Russia even as U.S. and European Union imposed sanctions, boosting demand for safer investments.

Australia’s dollar traded at 90.75 U.S. cents afternoon time in Sydney from 90.87 yesterday, when it rose 0.7 percent. It earlier touched 91.10, the strongest since reaching 91.33 on March 7th, a level unseen since Dec. 11th. New Zealand’s dollar was at 85.59 U.S. cents from 85.65. Australia’s dollar maintained an advance against its major peers after Reserve Bank policy makers reiterated a period of steady borrowing costs was likely.

The yen has risen 1.1 percent in the past week, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro was little changed, while the dollar declined 0.4 percent.

Bonds briefing

Benchmark 10-year treasury yields fell one basis point, or 0.01 percentage point, to 2.69 percent early London time, after rising five basis points in the previous two days, Bloomberg Bond Trader data showed. The 2.75 percent note due in February 2024 gained 3/32, or 94 cents per $1,000 face amount, to 100 19/32. Treasuries snapped a two-day decline as President Vladimir Putin said he supported a request from Ukraine’s breakaway region of Crimea to join Russia, threatening to intensify a diplomatic standoff with the West. Yields on the notes dropped to 2.61 percent on March 14th, the lowest since March 4th.
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