Author Topic: Euro strengtening/weakening  (Read 1128 times)

Offline thaiga

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Euro strengtening/weakening
« on: December 05, 2016, 05:15:12 PM »
Euro sinks on Italy worries as Asia markets fall

The euro hit a 20-month low on Monday and most Asian stocks retreated as a fresh wave of uncertainty hit markets after Italy's prime minister resigned following a heavy referendum defeat.

Analysts warned the single currency could soon hit parity with the dollar because investors are spooked by a long-running banking crisis in Italy and the possibility of elections that could usher in anti-EU parties.

Matteo Renzi stood by his promise to resign after his attempt to change the constitution was overwhelmingly rejected in Sunday's poll, leading to fears about the future of one of the eurozone's biggest economies.

"His defeat in the face of populist moves will spawn concerns over the rest of Europe," said Yunosuke Ikeda, chief currency strategist at Nomura Securities in Tokyo.

Anti-establishment populist movements are gaining ground globally, fanning worries about the world order. Last month Donald Trump won the US election and in June Britain voted to leave the European Union.

Yannick Naud, head of fixed income at Banque Audi (Suisse) SA in Geneva, told Bloomberg News: "There is now a possibility of the euro reaching parity to the dollar. Maybe not right away, but it is a possibility if there is certainty regarding new elections."

The news sent the euro tumbling to $1.0506 at one point, its weakest since March last year, before it edged back up slightly.

The dollar also fell to 112.88 yen from 113.51 yen in New York Friday before recovering. The yen is considered a safe bet in times of turmoil.

The New Zealand dollar was off 0.5 percent against the greenback after the country's Prime Minister John Key made a shock announcement that he was to resign.

- Hong Kong-Shenzhen link -

Commenting on Italy's referendum, Nomura's Ikeda said the result was less of a surprise than the Brexit vote or Trump's election victory.

"As Prime Minister Renzi has now resigned, some investors might think all the bad news is out now."

The result also sent the yield on Italy's 10-year government bonds surging to 2.027 percent from 1.902 percent Friday as traders shift out of the country.

Regional equity investors turned negative after a recent run-up fuelled by Trump's win, which many say could lead to stronger growth in the world's top economy.

Tokyo ended down 0.8 percent, while Shanghai slipped 1.2 percent, Sydney eased 0.8 percent and Seoul was 0.4 percent lower.

"There's a sense of fatigue from investors who have had a busy month after the US election, OPEC meeting and now Italian referendum," said Gary Huxtable, client adviser at Atlantic Pacific Securities, in a note.

"It looks like markets are taking a bit of a breather before the focus shifts to next week’s US Federal Reserve meeting."

Hong Kong was down 0.7 percent in the afternoon. Shenzhen's Composite Index, which tracks stocks on China's second exchange, closed off 0.8 percent as worries over Italy overshadowed the start of an exchange link-up with Hong Kong. Wellington slipped 0.7 percent.

The tie-up, similar to one between Hong Kong and Shanghai two years ago, is being touted as the latest effort by Beijing to prove to global investors that its capital markets are gradually opening.

But analysts sounded a note of caution, pointing to a China slowdown, the weak yuan and expected US rate rises.

Dealers are also watching the US Federal Reserve after data showed another solid rise in US jobs created in November. This will strengthen expectations it will raise interest rates this month and through next year.

Oil prices sagged after last week's surge in response to an agreement between OPEC and Russia to cut output from next month.

- Key figures around 0700 GMT -

Tokyo - Nikkei 225: DOWN 0.8 percent at 18,274.99 (close)

Hong Kong - Hang Seng: DOWN 0.7 percent at 22,407.29

Shenzhen - Composite: DOWN 0.8 percent at 2,068.17 (close)

Shanghai - Composite: DOWN 1.2 percent at 3,204.71 (close)

Euro/dollar: DOWN at $1.0567 from $1.0670 Friday

Dollar/yen: UP at 113.64 yen from 113.51 yen

Pound/dollar: DOWN at $1.2694 from $1.2734

Oil - West Texas Intermediate: DOWN 47 cents at $51.21 per barrel

Oil - Brent North Sea: DOWN 46 cents at $54.00

New York - Dow: DOWN 0.1 percent at 19,170.42 (close)

London - FTSE 100: DOWN 0.3 percent at 6,730.72 (close)

Anyone who goes to a psychiatrist should have his head examined.

Offline thaiga

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Re: Euro strengtening/weakening Euro Big Loser Against the Dollar 2017
« Reply #1 on: December 25, 2016, 11:26:09 PM »
Not good news about the euro, as if we have not been knocked enough already this year, they say, Euro and Yen to Be the Big Losers Against the Dollar in 2017. This is because the Euro and the Yen are particularly vulnerable to devaluation compared to other currencies due to their central bank’s monetary policies

Euro and Yen to Be the Big Losers Against the Dollar in 2017

Both the European Central Bank (ECB) and the Bank of Japan (BOJ) have a policy of printing money to help ease boost growth in their economies, however, this also has the effect of weakening their currencies.

The US Federal Reserve (Fed), on the other hand, has now stopped money printing and has started to raise interest rates instead, which has the effect of strengthening its currency.

Higher interest rates tend to attract more capital from foreign investors because they offer them higher rates of return.

At the moment, the members of the Fed’s monetary policy committee expect that they will have to raise interest rates by 0.25% three times in 2017, however, capital think they will eventually have to increase rates at an even faster pace than they or financial markets currently expect.

full article

Anyone who goes to a psychiatrist should have his head examined.

Offline thaiga

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Eurozone inflation spikes to highest in over 3 years

The deflation bugbear that the European Central Bank has battled for the past couple of years appears to have been seen off, at least for now.

Consumer prices across the 19 countries that use the euro grew in December at their fastest rate since Sept 2013, official figures showed Wednesday.

A surge in oil prices, triggered by the recent decision by crude-producing countries to cut output, contributed most to the near-doubling in the annual inflation rate to 1.1% from the previous month's 0.6%.

Though higher inflation can eat into consumer spending, it can also help push up wages and stimulate economic activity in a region that has largely stagnated.

As such, the figures are likely to provide some relief to policymakers at the European Central Bank who have used a range of stimulus programs to get inflation back toward their target of just below 2%, considered most suitable for a healthy economy.

With the inflation rate still short of that target, the central bank is unlikely to give up on stimulus anytime soon.

Though the ECB can argue that its policies, which have included cutting interest rates and injecting billions into the financial system, have shored up the economy, the main contributor to the December spike in inflation was out of its control: energy prices.

Eurostat, the European Union's statistics agency, said energy costs were up 2.5% in the year to December compared with a 1.1% drop in November. In December, the price of crude oil rose above $50 a barrel -- from below $30 a year earlier -- after the Opec oil cartel and other nations agreed to cut output levels.

When energy costs are excluded, inflation remains muted. The core rate, which strips out the volatile items of alcohol, energy, food and tobacco, rose to only 0.9% from the previous month's 0.8%. That suggests that high unemployment in many parts of the eurozone following the region's debt crisis continue to weigh on wage demands and consumption.

"Despite headline inflation returning to an upward trend we expect that the ECB's preference will be to maintain the policy course ... and 'look through' energy-influenced price developments in coming months," said Cathal Kennedy, European economist at RBC Capital Markets.

In the near-term, higher headline inflation could weigh on economic activity if wages don't keep up, as people's income won't go as far.

However, a steady level of inflation is considered good for an economy as it can drive up wages and promote innovation and investment by firms. It can also reduce debt levels for firms and countries in real terms.

That's certainly a better prospect than prices falling over a sustained period, a phenomenon known as deflation that has haunted Europe in the past few years.

Lower prices may sound good and have in fact been a boon to European consumers recently as they were due to the slide in oil prices -- money saved filling up a car or on home heating could be spent elsewhere.

The problem arises when a fall in prices endures. That can choke the life out of an economy if consumers put off purchases in the hope of future bargains. It can erode profits and make governments' debts appear greater. Deflation has proven difficult to reverse, as evidenced by the case of Japan over the past couple of decades.

Ben May, lead eurozone economist at Oxford Economics, conceded that higher inflation could weigh on eurozone economic activity in coming months, while noting that it may "trigger some positive developments" such as higher wages in economies like Germany where unemployment is low.

"We think that the eurozone economy is now in a strong enough position to weather this shock," he said. "Indeed, the region may now be in a position where a period of moderate inflation is more desirable that a further sustained bout of `noflation'."

A separate survey Wednesday provided evidence that the eurozone economy gained momentum at the end of 2016.

According to research firm IHS Markit, eurozone business activity grew in December at its fastest pace since May 2011. The company's composite purchasing managers' index -- a broad gauge of business activity across the manufacturing and services sectors -- rose to 54.4 points in December from 53.9 the previous month. Anything above 50 indicates growth.

It said December's level points to quarterly economic growth of 0.4% -- better than the eurozone performed for most of 2016 but modest compared with the United States.

IHS Markit's chief economist, Chris Williamson, said it's too early to say whether the improvement represents the "much-needed springboard" because political uncertainty looms. Key events this year include elections in many European countries, including France and Germany, and the start of Britain's discussions to leave the EU.

"The concern is that domestic demand is likely to remain subdued over the course of 2017 as political uncertainty dominates, resulting in another year of disappointing growth across the region as a whole," Williamson said.

Anyone who goes to a psychiatrist should have his head examined.