Share This Story
Forex Blog - European Market Update: Euro-Zone CPI on the Approach of 4.0%
*** ECONOMIC DATA ***
¬∑SZ Apr Adjusted Real Retail Sales Y/Y: -9.4% v 4.1%
¬∑SW May Average House Prices SEK1.773M v 1.787M prior || Prior revised from
1.787M to 1. 809M
¬∑IT Q1 Labor Costs: Q/Q 4.0% v 0.6% prior || Y/Y 5.6% v 2.5% prior || Prior
revised from 2.5% to 2.8%
¬∑EU May CPI: M/M 0.6% v 0. 6%e || Y/Y 3.7% v 3.6%e || Core CPI Y/Y 1.7% v 1.8%e
¬∑*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
¬∑In equity news overnight an analyst at JP Morgan said overnight that the worst
is over for European banks. The analyst speculated that Deutsche Bank may
writedown an extra ‚ā¨3.6B, Credit Suisse may writedown an extra CHF2.1B, Societe
Generale may writedown an extra ‚ā¨1.8B, and Natixis may writedown an extra 1.4B.
Barclays [BARC.UK] responded to press reports overnight noting that issuance of
new equity is under consideration. Instore [INST.UK] announced overnight that
it is in talks with a third party which may or may not lead to an offer for the
company. Alstom [ALO.FR] announced ‚ā¨1.0B in contracts with Essent in the Netherlands. The contracts are for the repowering of
Claus B and the construction of Claus C, resulting in a 1,280 MW GT26-based
combined-cycle power plant. Mexico's Axtel denied having plans to acquired Spain's Banco Popular [POP.SP] overnight,
noting that it is not participating in, nor does it intend to participate in
any transactions involving Banco Popular.
¬∑In energy news overnight the Secretary General of the UN noted that Saudi Arabia will increase oil production by 200K bpd
in July. The UN's Secretary General added that Saudi Arabia raised production in June by 300K bpd.
The Wall Street Journal wrote questioned overnight whether Saudi Arabia can effectively reduce the upward
pressure on oil prices. According to the article, Saudi Arabia does not currently have its usual
leverage over oil markets. Some industry insiders believe that in order to
lower oil prices, Saudi Arabia may seek to raise production and
discount prices. The article adds that some analysts believe that if Saudi Arabia attempts to lower crude oil prices it
could have a fleeting impact on markets and could even lead to higher prices.
Furthermore on the Saudi front, CNBC said in a report citing sources that Saudi Arabia will not be able to meet its pledge to
boost output. The BBC reported overnight that talks are expected to resume
between Shell's [RDSA. UK] tanker drivers and subcontractors
today. The workers started a strike over wages on Friday. In related news the UK government has raised its terrorist
threat warning in the UAE to high from general, noting that a terror attack in
the UAE could occur "any time". The government warns of potential
attacks on expats in the UAE. Statoilhydro [STL.NO] announced a gas find in the
Norwegian Sea estimated at 1B-3B cubic meters.
¬∑In fixed income related news overnight, according to a press report citing a
leaked copy of a Bank of England paper, high oil prices add to perceived
pressures from CPI. The paper said that perceived CPI and CPI expectations have
risen "materially," adding that there is no clear evidence CPI
expectations rose in recent years. The paper added that persistent high CPI
expectations could become a key risk. The Confederation of British Industry (CBI)
lowered its 2009 GDP growth forecast to 1.3% from 1.7% overnight, adding that
they see CPI peaking in at 3.8% in Q3.
¬∑On the speaker front the ECB's Papademos said overnight that EU inflation may
remain above 3% for a protracted period, adding that upside risks to price
stability remain in the medium to long term. The EU's Almunia reiterated
overnight that he sees upside risks to the EU's inflation forecasts. The ECB's
Tumpel- Gugerell said in an interview with Wirtschaftsblatt that inflation at
3.6% is a warning signal. He added that the ECB is in a state of heightened
vigilance, noting that medium-term inflation risks have increased, and adding
that inflation is seen around 3.0% in the short-term. Tumpel- Gugerell added
that the ECB has noted strong volatility in the Euro, adding that they are
currently analyzing the implications for inflation and growth. Belgian Finance
Minister Reynders said overnight that the ECB should pay attention to growth,
adding that the ECB should hold rates at 4% if inflation slows in H2. Reynders
added that Trichet may have been too fast in flagging a rate hike, adding that
he sees slowing inflation in 2H08. The ECB's Gonzalez Paramo said overnight
that the inflation trend is dangerous, adding that inflation expectations must
be anchored. Paramo noted that the ECB has reached a consensus despite
differing economic outlooks. The German DIHK Institute raised its 2008 GDP
growth forecast to 2.3% from 2.0% overnight, and put its 2009 GDP forecast
between 1.0% and 1.5%. DIHK said that the strong Euro is slowing but not
stopping export growth. The DIHK noted that inflation is returning and
acknowledged that there are signs that central banks will raise rates.
Furthermore the DIHK said that a ‚Äúsmall‚ÄĚ interest rate increase would be appropriate
to anchor inflation expectations.
¬∑In currencies the USD was softer in European trading as some doubts emerged
whether the Saudi's can actually deliver the 10M BPD production output that is being
proposed. The is EUR/USD at 1.5430 after opening the week at the 1.5350 area.
Dealers continue to circulate chatter that an option barrier remains well
protected at 1.5250. The USD/JPY continues to hit fresh 3-month highs above the
108.55 level. The JPY is softer as European equity markets maintain a steady
tone in positive territory. The GBP was broadly firmer as positive chatter
circulates in regards to capital raising by UK banks. GBP/USD at 1.9600, up 116 pips
since the Asian open and EUR/GBP cross at 0.7872, lower by 20 pips for the
session. In related news an Ex-Japanese MOF Official Sakakibara (better known
as "Mr. Yen") said overnight that the G8 statement was weaker than
expected, speculating that coordinated USD intervention is not likely.
Sakakibara said that Japanese intervention on EUR/JPY is possible, and
expressed concerns about the Vietnam Dong.
¬∑*** NOTES ***
¬∑There has been a lot of talk, speculation, and criticism about the ECB's
upcoming policy-setting meeting on July 3rd after the ECB's Trichet effectively
signaled a rate hike. There has since been speculation that perhaps the ECB
would opt for a smaller rate hike than usual. Recall comments from the ECB's
Trichet in early June. On June 5th Trichet said that he sees a ‚Äúsmall rate
hike‚ÄĚ similar in size to past rate hikes. Trichet effectively shot down any
speculation about the possibility of a 12. 5bps rate hike at the July
policy-setting meeting. Despite this criticism, speculation, and assessment has
been heard continuously from all levels. Recall the ECB's Noyer using the term
‚Äúsmall rate hike‚ÄĚ on June 11th, just as the German DIHK institute did today.
While the ECB is said to have agreed upon the need for an interest rate hike
despite the members' differing economic views it is interesting to note that
there is an underlying tone of hesitance. The hesitance grows the further that
you move away from the policy-setters, take for example comments from the
Belgian Finance Minister today noting that perhaps Trichet raised the flag on
rates too soon. The point that I'm driving at here is that slowing economic
growth still remains a major concern in the marketplace and one does not have
to dig deep to find it.
¬∑The Irish vote on the Lisbon Treaty did not stir up much of a market reaction
last week, especially when you take the market reaction seen in 2005 when the
French and Dutch voted against it. This seems to imply that markets believe
that the EU will be able to steamroll its way through the situation as Ireland is small, however there are some that do
not think that it will be so easy. While the vote is out of the way and the
story is on the back burner, this could appear again in 2008.
Legal disclaimer and risk disclosure
All information provided by Trade The News (a
product of Trade The News, Inc. "referred to as TTN hereafter") is
for informational purposes only. Information provided is not meant as investment
advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed
reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete
2. Information can be mistakenly re-released or be
delayed, 3. Information may be incorrect, misread,
misinterpreted or misunderstood 4. Human error is a business risk you are
willing to assume 5. Technology can crash or be interrupted without notice 6.
Trading decisions are the responsibility of traders, not those providing
additional information. Trade The News is not liable
(financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities
involves a high degree of risk, and financial losses can and do occur on a
regular basis and are part of the risk of trading and investing.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."