The euro remained solid in yesterday’s trade as market participants further forgot the issues surrounding deflation in that part of the world. Concern around falling prices has itself fallen following a week of inflation numbers that, while poor and below target, were closer to target than they were 0%. Yesterday’s German CPI number helped confirm this and euro longs will want a similar reaction from a Mario Draghi speech later on today.
Following his speech in Rome on Tuesday in which he spoke of the need for fiscal policy to complement monetary policy, Draghi will speak in front of the European Parliament, and we would expect a similar line to come from the ECB Chair. He may also touch on comments made by the Banque de France Chair Benoit Coeure who spoke of more lending to banks when they are in a position to lend to households and companies.
Participants of our monthly webinars will know of our fears around the ongoing credit crunch in the Eurozone and the lingering balance-sheet recession that is taking place. As it stands, a recovery is far from imminent.
Once again the Asian markets have been quiet apart from the NZD. Last night’s RBNZ meeting showed a central bank that will stick to its inflation mandate despite fears over the value of the NZD. “The bank will increase the official cash rate as needed in order to keep future average inflation near the 2 percent target midpoint,” Governor Graeme Wheeler said in the accompanying statement.
The decision to leave rates at 2.5% was widely expected but the rhetoric around rate rises was not. In October, Wheeler stated that rate increases “will likely be required” in 2014 but there has been chatter of late of intervention to limit the rise of the NZD. The market is now looking for a rate rise by the RBNZ in March 2014.
There was no such luck for AUD as a strong jobs report failed to help the currency. 21,000 jobs were added in November – over double the estimates of 10k – but the unemployment rate ticked higher to 5.8% from 5.7%. Most new jobs that have been added in Australia of late have been part-time and in sectors with little job security like retail. AUD/USD remains close to the 0.90 mark this morning.
We finally get some data to chew on today following a couple of sessions of interminable boredom. Industrial production data from the Eurozone is expected to rebound from a 0.5% fall in October despite a poor number from France earlier in the week, while US retail sales will hope to show a solid rise despite reports of weak trading through the important “Black Friday” weekend. The figures are out at 10am and 1.30pm.