EURAccording to the ECB governing council member Luc Coene, the central bank will not act soon, as policymakers are waiting for more information on the inflation outlook before making any assessments of the 18-nation economy. Simultaneously, executive board member Benoit Coeure pointed out there is a possibility the ECB will introduce negative deposit rates. Chances the benchmark interest rate will be adjusted once again are low, taking into account the key rate is already close to zero; however, the possibility deposit rates will be revised sound more realistic. The deposit facility interest rate was lowered to zero in July 2012.
This week’s inflation report adds more pressure on the ECB, as Destatis confirmed German inflation eased in January, moving further away from the official target of 2%. Last month, the CPI advanced 1.3% year-on-year, while on a monthly basis prices fell 0.6%. The so-called harmonized CPI showed inflation accelerating 1.2% from a year ago and falling 0.7% month-on-month. All figures came in line with analysts’ forecasts. The moderate inflationary pressure in the first month of 2014 was mainly due to the downward price trend for mineral oil products that posted a 5.2% decline in January. The final CPI readings usually have a modest impact on markets, as two versions have already been released 15 days apart. Nevertheless, they diminish any chances the data could surprise markets to the upside.
USD
The U.S. Dollar was traded lower on Thursday following disappointing fundamental data from the world’s largest economy, with both retail sales and unemployment claims surprising markets to the downside. The buck lost 0.70% to 1.3688 against the Euro as data came public. It is interesting that Dukascopy sentiment index indicates that traders are getting more bullish on the U.S. Dollar, as they are selling EUR/USD now more often than five days ago. Moreover, the Dollar is bought in almost 66% of the time.
However, these figures contrast with the data from Labor Department and Census Bureau. The first office reported the number of initial jobless claims rose 339,000 last week from 331,000 a week earlier, and falling short of analysts’ expectations of the same reading.
What is more important is the fact retail sales declined 0.4% in January, following a revised 0.1% fall a month earlier. That was the worst performance since June 2012 and the main reason behind it was bad weather conditions and uneven progress in the labour market, raising concerns the economy is off to a slow start this year as consumer spending accounts the majority of overall economic activity.
GBP
While the Pound soared most in three months amid speculations the Bank of England will fail to keep interest rates low and will start raising borrowing costs sooner-than-expected, the housing market performed the similar rally. A more than a four-year low in housing for sale boosted Britain’s home prices in January, the Royal Institution of Chartered Surveyors monthly housing market survey showed on Thursday.
The house-price balance for January eased to +53% from +56% a month earlier, while analysts expected a +57% reading. This figure represents the percentage of respondents reporting a price hike in their designated area during the corresponding period. Any figure above 0.0% indicates more price increases were registered rather than drops in values. The combination of increased mortgage availability as well as a sharp decline in the supply of housing for sale meant that domestic demand for property remained strong in the first month of this year. At the same time, the number of homes available for sale fell to 59% over the period– the lowest level since mid-2009 and lower from December’s reading of 60.4%.
While prices are still below the pre-recession peak, they are rapidly moving towards this level and constantly declining supply can lead to another housing bubble that can derail economic growth.
JPY
While Janet Yellen refrained from making any bold statements during her first speech as the Chairman of the Federal Reserve, she backed the unprecedented stimulus programme from the Bank of Japan, saying it is “natural and logical” to make efforts to end 20 years of deflation and weak growth. She also claimed that stronger Japan’s economy will be beneficial for its neighbouring countries and the global economy. These comments, however, were expected by markets and Japanese policymakers, who are even sure that weak Yen will not be a topic for discussion during the G-20 meeting in Sydney later this month.
It is not a question that Shinzo Abe’s policies are working and having positive effect on the world’s third largest economy, however, the only question now is whether there will be more easing from the BoJ ahead of the April’s tax hike? Some suggest that the announcement of the tapering from the Fed will be enough to push the Yen lower, however, others believe that additional stimulus will be required. A sharp 18% drop of the Yen is a worrisome sign for the BoJ, as companies are paying more bills overseas rather than they can earn abroad. And the largest trade deficit even under the current statistical format dating back to 1979 is definitely an alarming sign for the BoJ.
AUD
The Australian Dollar plummeted against its U.S. counterpart on Thursday, pushed lower by disappointing figures from the Oz labour market, spurring investors to pare bets on the upcoming interest rate hike from the RBA. The Aussie posted its biggest drop in almost three weeks, with the AUD/USD pair falling 0.98% to 0.8937 shortly after the data became public.
The Australian Bureau of Statistics said the nation’s labour market deteriorated further last month, as job opportunities were scarcer, while more people became unemployed, underscoring how fragile the economy is. The overall unemployment rate jumped to 6.0% in January, from 5.8% a month earlier, surprising markets to the downside, as analysts predicted a 5.9% figure. Moreover, the number of full-time jobs fell by 7,100 over the period, while part-time employment was not able to offset this decline even despite a 3,400 pickup. It is also important to mention that participation rate remained unchanged at 64.5%, suggesting some indicators are still resilient. The main reason for such a weak performance is the fact the mining sector switched from investment phase to a production period.
While the latest data is putting more pressure on the RBA, they are also posing a challenge for Tony Abbott, who pledged to restore confidence in the economy.
