Euro may extend weakness

25 Jan 2015 | Author: | No comments yet »

All eyes on Fed, Greece soon after ECB fires bazooka.

Dubai: Weakness in the euro may continue this week from its lowest level in more than a decade even as traders eye the outcome of the Greece vote on Monday. – The U.S. dollar ended the week at six year highs against the Canadian dollar on Friday after Canada’s central bank cut borrowing costs for the first time since 2009 in an unexpected move on Wednesday.PARIS: Immediately after the surprises from central banks which rocked markets at the start off of the year, the US Federal Reserve will be watched as closely as ever this week to see that it doesn’t stray from its own policy path.After a series of major announcements by central banks across the globe, a central question for investors has emerged: Do monetary policymakers have less ability to pull out easing as the instrument of last resort? The Aussie was weighed after data on Friday showed that the preliminary reading of China’s HSBC manufacturing index inched up to 49.8 in January from 49.6 in December.

The central bank said the recent rout in oil, which has halved in the past six months, would be negative for growth and underlying inflation in Canada. Clearly in the U.S., the Federal Reserve’s actions have helped to bolster activity, that while still insufficient to drive wage inflation, leaves the nation’s economy in the global driver’s seat. Despite the modest improvement, the figure held below the 50.0-level, which indicates contraction, for the second straight month, underlining concerns over a cooling economy. In Japan, however, the experiment remains unproven despite green shoots, and a round of bond buying by the European Central Bank will provide a fresh litmus test on an even grander scale.

The disappointing factory data came after data released earlier in the week showed that China’s economy grew 7.4% in 2014 from a year earlier, below the government’s official target of 7.5% and the slowest pace since 1990. While investors muse over the limitations of monetary policy, national elections in Greece are expected to result in a government bent on renegotiating terms with the European Union. Draghi said last week that beginning in March, the ECB will buy 60 billion euros of debt, including government bonds, in an effort to stimulate economic growth in the Eurozone. The dollar remained broadly stronger, boosted by the diverging monetary policy stance between the Federal Reserve and central banks in Europe and Japan.

Monday, January 26: December trade data for Japan will be announced, with consensus forecasts among economists predicting a rebound in both imports and exports. But questions have been raised due to weak wage growth and five-year low oil prices that have dragged U.S. consumer prices down to their biggest drop in six years in December and heightened deflation fears in Europe. “What we will focus on in January’s statement, which could challenge our view about a June lift-off, are any hints of increased concern that very low headline inflation is putting downward pressure on inflation expectations,” analysts at BNP Paribas wrote in a note. “Any mention of foreign developments would also be dovish.” In any case, San Francisco Federal Reserve Bank President John Williams said a day after the Swiss central bank stunned markets, and even some policymakers, by lifting the cap on its currency against the euro that the Fed’s goal was “to not surprise or disrupt markets.” Central bank policy meetings in countries including Russia, South Africa, Israel, Sweden and Turkey will also try to tackle tumbling oil prices and the aftermath of the ECB’s quantitative easing plan, which sent the euro to an eleven-year low. In Europe, German IFO sentiment data, collected from business leaders, will be released with expectations for sentiment to improve in anticipation of ECB easing.

Despite the fact that about 90 per cent of Greek debt is now held by official creditors, largely limiting the achievable contagion from any fresh instability there, the country whose debt crisis after threatened the euro’s survival nonetheless carries dangers. “We believe in the efficacy of QE,” JP Morgan analyst David Mackie mentioned. “But, for now, we are not lifting our (euro location) GDP forecast in the face of prospective new headwinds from political uncertainty in Greece and the considerably deeper recession in Russia.” Just after borrowing prices for Eurozone nations fell to record lows on Friday, information throughout the week will give extra news on the sluggish well being of the currency location and the challenge facing the ECB’s QE strategy. November Case-Shiller data for major markets and monthly new home sales estimates from the Census Bureau will help bring real estate prices into focus. Canada is to publish its monthly report on gross domestic product, the broadest indicator of economic activity and the leading measure of the economy’s health.

The U.S. is to round up the week with preliminary data on fourth quarter growth as well as reports on business activity in the Chicago region and revised data on consumer sentiment. Apple’s fourth-quarter earnings announcement stands to be a primary narrative for equity markets, with expectations riding high on the back of sales for the iPhone 6. They have far more than halved since June but the Brent closed up on Friday at $48.79 a barrel, with the death of Saudi Arabia’s King Abdullah adding to uncertainty over the plans of the world’s most significant crude exporter.

On a day full of earnings releases, the Wynn Resorts announcement stands out, as a crackdown on high rollers in Macau leaves gaming investors worried about the sector’s fastest-growth market. Thursday, January 29: December retail sales for Japan and external trade prices for Australia will be the primary economic releases in the Asia-Pacific region.

Private-sector lending data for December as estimated by the ECB stands to provide insight into how much of the liquidity provided to markets by the euro zone’s central bank is actually passing into the hands of commercial borrowers. Among the many earnings releases on Thursday the NASDAQ OMX Group announcement will be of note as a bellwether of increased volatility and volume during the final quarter of 2014. In Europe, aggregate euro zone consumer price and employment data will dominate headlines, while December consumer credit data in the U.K. provides insight into the impact on households of the Bank of England’s sustained low rate policy.

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