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ECB PUTS THE BRAKES ON STIMULUS: EURO UP

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ECB PUTS THE BRAKES ON STIMULUS: EURO UP

Nov 25 2014, 8.15am GMTam GMT

STOCK.com

The euro went up against the dollar from 1.23718 to 1.24420 in one day on the news that the ECB will not hasten stimulus programmes.

After the excitement last week of Mario Draghi, President of the European Central Bank, stating that he is committed to fighting deflation and suggesting that the much-rumoured sovereign bond buying programme could start soon, the news yesterday that Europe’s fiscal programmes would not be rushed gave the euro the stimulus it needed to rise against the dollar.

Reports came from ECB Executive Board member Benoit Coeure saying that decisions will ultimately hinge on economic data, and his statement on Bloomberg Television yesterday with Coeure saying, “We’re not going to rush to a new decision without knowing. We have to look at the data around us, and we have to discuss thoroughly all possible options in particular when it comes to buying new assets. There’s unanimous agreement in the Governing Council that there might be situations where we’d have to do more.”

In terms of the economic data, German iFO figures yesterday were unexpectedly positive, seeing the level of business sentiment rise from 103.2 points last month to 104.7 points reported for October’s figures. This allowed the Germany30 [DAX] to continue on its upward trend since mid-November. Inflation data from Europe is also due on Friday, 28 Nov, with mixed expectations. On a positive note, German Retail Sales m/m are forecast to rise from -3.2% to 1.7%, French Consumer Spending m/m is forecast to rise from -0.8% to 0.2%, and Italian Quarterly Unemployment Rate is forecast to come down from 12.5% to 12.4%, However, negative predictions come from European CPI Flash Estimate y/y forecast to decline from 0.4% to 0.3%. Core CPI Flash Estimate y/y is predicted to stay at 0.7%, and Europe’s Unemployment Rate to continue at 11.5%.

Benoit Coeure added that decisions may not be made till December or even later, saying, “We’ll look at the numbers, we’ll look at how the economy is doing, and what we’ve been able to achieve on the ABS market, which has just started a couple of days ago, and on the covered bond markets.”

Fiscal stimulus for Europe so far has included the ECB purchasing covered bonds of 12.7 billion euros, and the start of the asset-backed securities purchase programme. Speculation last week on Marios Draghi’s statement to accelerate the purchase of sovereign bonds sent the euro down; Coeure’s statement of hesitation has seen a respite for the single currency against the greenback. Today’s US data may also help the euro if predictions on a decline in Prelim GDP q/q are realized, taking the figure down from 3.5% to 3.3%.          

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