More Euro Weakness as Draghi Hails Initial Success of Quantitative Easing

March 11, 2015

The euro fell another 1.1% against the dollar overnight, touching a low of $1.0560 and bringing the cumulative year-to-date depreciation to 12.5%.  It’s become even more apparent that the real intent of quantitative easing is to substantially depreciate the external value of currency.  The Bank of Japan did that in 2013, and now it is the ECB’s turn.  Mario Draghi proclaimed that QE already is working.  Since the QE program was formally announced on January 22, the euro has declined almost 10% against the dollar and around 5% in trade-weighted terms.

European share prices rallied on the euro’s improved competitiveness.  The Paris Cac and German Dax are up 2.0% and 1.9% so far today.  Equities in Italy and Spain have climbed 1.7% and 1.3%, but the Greek market isn’t participating.  Greek stocks fell 1.0%, amid uncertainty about whether EU examiners will be allowed to resume their job of verification that Greek reforms are getting done.  The British Ftse is 0.4% higher.  Japan’s Nikkei closed up 0.3%, but stocks closed down by 0.8% in Hong Kong and Indonesia, 0.6% in Singapore, 0.5% in Australia, 0.4% in New Zealand, and 0.2% in South Korea and India.

West Texas Intermediate oil is unchanged at $48.29 per barrel, and Comex gold has slipped 0.4% further to $1,156.00 per troy ounce.

The 10-year Japanese JGB yield settled back four basis points to 0.42%.  German bunds are unchanged, while the 10-year British gilt yield firmed by 3 bps.

By a narrow 4-3 vote, the Bank of Thailand became the latest emerging market with a reduced central bank interest rate, which was cut to 1.75% from 2.0%.  Analysts had been split between expecting no change and looking for some stimulus.  At the prior meeting of the monetary policy committee in late January, there had been two votes cast in favor of cutting the policy interest rate then.

Japanese domestic corporate goods prices were unchanged in February.  This was the first time such didn’t fall on month since September.  Moreover, the 12-month rate of CGP increase accelerated for the first time since last June, rising to 0.5% from 0.3% in January.  Import prices, however, tumbled for a second straight time by 4.9% on month, posting a 12-month drop of 17.9%.  Import prices had fallen just 0.8% in the previous one-year period to February 2014.

Japanese core private domestic machinery orders fell 1.7% in January, four times faster than forecast, but government and foreign orders recorded on-month surges of 25.8% and 24.2%.  Core private domestic orders were 1.9% higher in January than a year earlier.

Worries that Chinese growth in 2015 may fall beneath the 7% target were reinforced by January-February readings on industrial production, retail sales and fixed asset investment, each of which proved to be weaker than projected.  Output posted a 6.8% on-year rise in the first two months of 2015, down from 12-month increases of 7.9% in December and 9.2% last June.  Retail sales rose 10.7% in January-February, down from 11.9% in December and 12.4% last June.  Investment in the past two months was 13.9% higher than a year earlier, decelerating from on-year growth of 15.7% in December and 17.0% last June.

Australian home loans plummeted 3.5% in January, their largest drop since August 2013.  The Westpac index of Australian consumer confidence retreated 1.2 points to a reading of 99.5 in March but remained above January’s 93.2 score.

German labor cost inflation slowed last quarter to 2.0% from 2.3% in 3Q14.  Calendar 2014 saw labor costs in the largest eurozone economy climb 1.7%, same as in 2013 but down from gains of 3.2% in 2012 and 2.8% in 2011.

After tumbling 55K in 3Q, French nonfarm payroll jobs rebounded by 7.3K last quarter.  The French current account deficit narrowed sharply to just EUR 0.3 billion in January.  Denmark’s current account surplus widened to DKK 7.51 billion in January from DKK 6.74 billion the month before.

Swedish CPI data for February were higher than forecast.  Consumer prices rose 0.7% on month after a 1.1% slump in January, and core inflation accelerated to 0.9% on year from 0.6%.  To counter deflation, Swedish authorities have resorted to negative interest rates.  Sweden’s jobless rate stayed at 4.1% last month.

Consumer prices in Portugal during the year to February fell by 0.2% (0.1% on a harmonized basis).

British industrial production disappointed in January with a 0.1% monthly dip and on-year growth of just 1.3%.  Factory output sank 0.5% on month and posted a 1.9% 12-month advance, down from 2.6% in December.

Cypriot real GDP contracted 0.6% last quarter and by 2.0% between end-2013 and end-2014.

Turkey’s current account deficit narrowed 71% to $2.0 billion in January from December.

Weekly U.S. crude oil inventories will be reported today.

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

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