Upbeat Winter EU Commission Outlook Boosts Euro

February 5, 2015

The euro has risen 0.8% against the dollar, overcoming the hard line taken by the ECB on acceptable Greek collateral for debt funding.

The EU Commission released new GDP forecasts, showing positive projected growth by all member states for the first time since 2007.  Euro area growth this year was bumped higher to 1.3% from 1.1%.  Growth is projected to advance 3.5% in Ireland, 2.5% in Greece, 2.3% in Spain, 1.6% in Portugal, 1.5% in Germany, 1.4% in The Netherlands, 1.1% in Belgium, 1.0% in France and 0.5% in Finland.  The EU Commission anticipates a further acceleration of growth in 2016 to 1.9%.

The dollar against other currencies shows drops overnight of 0.8% versus the Aussie dollar, 0.5% relative to the kiwi and loonie, and 0.4% vis-a-vis the British pound.  The dollar, in contrast, rose 0.2% against the yen and Swiss franc and by 0.1% versus the yuan.

Share prices lost 1.0% in japan and China, 0.7% in Indonesia and 0.5% in South Korea but advanced by 0.6% in Australia, 0.4% in Hong Kong and 0.2% in New Zealand.  Stocks in Europe so far are down by 1.0% in Switzerland, 0.7% in Inaly, 0.6% in Spain, 0.4% in France, 0.3% in Britain and 0.1% in Germany.

Ten-year sovereign debt yields become more polarized within the eurozone, falling 3 basis points in Germany but climbing 17 bps in Greece, 5 bps in Portugal, and 4 bps in Italy and Spain.  British gilts fell 3 bps, the the 10-year Japanese JGB yield is two basis points lower.

West Texas Intermediate oil increased 0.5% to $48.71 per barrel.  Comex gold is 0.3% lower at $1,260.60 per troy ounce.

Three central banks made interest rate announcements.

  • The Bank of England left its key interest rate at 0.5%, its level since March 2009, and maintained GBP 375 billion of purchased assets.  Minutes of this month’s meeting arrive February 18, but even sooner on February 12 is the publication of the central bank’s quarterly Inflation Report.
  • The Czech National Bank kept its interest rate at 0.05% and reconfirmed that intervention will continue to be used if and as needed to enforce a cap of 27 koruna per euro.  Last month, the Swiss National Bank abandoned a similar currency policy.
  • The National Bank of Ukraine jacked up its discount rate by 550 basis points to 19.5% to counter inflation that’s running at 25% and support the hryvnia, whose dive is causing that inflation.

German factory orders increased 4.2% in December, more than reversing a 2.4% drop in November and exceeding analyst forecasts by nearly threefold.  Orders closed the year already 1.9% above their 4Q average level and were 3.4% higher than in December 2013.  Capital goods (+5.7%) paced December’s advance.  Domestic demand went up 3.4%, and foreign orders climbed 4.8% in the final month of the year.

Germany’s construction purchasing managers index, on the other hand, fell a point to a 5-month low of 49.5 in January.

The eurozone retail purchasing managers index declined a point as well to a 4-month low of 46.6 in January despite a 0.6-point rise in the German retail PMI to a 2-month high of 52.3.  The Italian retail PMI of 41.2 was 1.6 points below December’s level and at a 5-month low.  France’s retail PMI slumped 2.5 points to a 4-month low of 44.0.

Britain’s Halifax house price index posted a much better-than-forecast 2.0% rise in January, lifting the on-year increase to 8.5% in November-January from 7.8% in 4Q14.  New car sales in the U.K. showed slower on-year growth of 6.7% in January versus 8.7% in December.

News of a 7-point improvement in Switzerland’s consumer confidence reading last quarter should be taken with a grain of salt because most of the survey was done before the disruptive abandonment of the Swiss National Bank’s cap on Swiss franc strength.

Swedish industrial production in December — up 1.7% on month and down just 1.6% on year — beat expectations.

Australian retail sales edged only 0.2% higher in December following gains of 0.4% in October and 0.1% in November.  Sales climbed 3.3% between December 2013 and December 2014.  New home sales fell 1.9% in the same 12-month span.

Taiwanese inflation posted the largest decline since 2009.  The CPI fell 0.9% in the year to January versus a gain of 0.6% in December.  Wholesale prices plunged 7.5% in the latest statement year.

U.S. and Canadian trade figures are due shortly.  So are weekly U.S. jobless insurance claims, monthly Canadian housing starts and quarterly U.S. productivity and unit labor costs.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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