Browsing all articles tagged with European Central Bank
Jun
1

Record Unemployment Low Inflation Highlight Europe’s Pain

Unemployment has reached a new high in the euro zone and inflation remains well beneath the European Central Bank’s target, pacing pressure on EU leaders and the ECB for action to stimulate the bloc’s sickly economy.

Joblessness in the 17 nation currency area climbed to 12.2 percent in April, EU statistics office Eurostat stated on Friday spoting a new record since the data series began in 1995.

With the euro zone in its greatest recession since its creation in 1999, consumer price inflation was far lower the ECB’s target of just below 2 percent, coming in at 1.4 percent in May slightly higher then April’s 1.2 percent rate.

That augment may quieten concerns regarding deflation, however the deepening unemployment crisis is a threat to the social fabric of the euro zone. Almost two-thirds of young Greeks are not capable to find work exemplifying southern Europe’s lost generation.

Policymakers and economists including Germany’s finance minister Wolfgang Schaeuble have stated the greatest menace to the unity of the euro zone is now social collapse from the crisis, rather than market-driven factors.

In France, Europe’s second biggest economy, the number of jobless rose to a record in April while in Italy the unemployment rate hit its highest level in at least 36 years, with 40 percent of young people out of work.

Thousands of demonstrators from the anti-capitalist Blockupy movement cut off access to the ECB in Frankfurt on Friday to protest against policymakers handling of Europe’s debt crisis.

Some economists suppose the ECB, which meets on June 6 will have to go beyond an additional interest rate cut and consider a US style money printing program to breathe life into the economy.

Nick Matthews, a senior economist at Nomura International in London said we do not expect a strong recovery in the euro zone. It puts pressure on the ECB to deliver even more conventional and non conventional measures.

May
11

ECB Says Has Tools Left to Act if Required

ECB policymakers said that European Central Bank still has room to plan should the euro zone economy persistent to worsen following it cut interest rates to a new record low previous week. The ECB cut its main rate to 0.5 percent previous Thursday.

Yves Mersch, a member of the ECB’s six-man Executive Board stated the bank still had tools at its disposal, however added that it could only spur lending to small euro zone companies in combination with other European institutions.

Joerg Asmussen stated the ECB had an open mind about what it could do to renew lending to small and medium-sized enterprises known as SMEs a growing concern for the central bank, principally in the crisis-stricken periphery countries.

Mersch said in a panel discussion in the northern German city of Aachen that we still have tools in our toolbox we are not a toothless tiger.

The ECB stated previous week it had set up a task force with the European Investment Bank known as EIB to assess ways to unblock lending to SMEs, for example by supporting a market for asset-backed securities known as ABS based on SME loans. ABS would permit banks to pass some credit risk on to other investors, enabling them up to lend more.

The move to promote ABS is controversial mainly in Germany, because during the financial crisis such securities became toxic due to the default of housing loans that underpinned them.

We have an open mind to seem at all things that we can do within our mandate and this relates to how can the market for asset backed securities, particularly backed by SME loans, be revitalized in Europe.

Asmussen was responding to a question regarding a Wednesday article in German newspaper Die Welt, which cited a central bank source as saying a majority of ECB Governing Council members seemed to be in support of the central bank buying ABSs itself.

May
4

ECB Cuts Interest Rates, Open to Further Action

The European Central Bank cut interest rates for the first time in 10 months on Thursday and held out the likelihood of further policy action to hold up the recession hit euro zone economy.

Responding to a fall in euro zone inflation well below its target level and growing unemployment, the ECB lowered its main rate by a quarter percentage point to a record low 0.50 percent.

Mario Draghi, ECB President promising to provide as much liquidity as euro zone banks require well into coming year and to help smaller companies get access to credit, also indicated that some policymakers had pushed for a bigger cut.

He told a news conference after the ECB’s Governing Council met in Bratislava, there was a very, very strong existing consensus towards an interest rate cut. Within that, there was a prevailing consensus for a cut of only 25 basis points.

The ECB was also technically prepared to cut its deposit rate from the current zero percent into negative territory, meaning it would begin charging banks for holding their money overnight.

Such a move could encourage the banks to lend out money rather than hold it at the ECB, although it would also almost certainly have a big impact on banks own operations and major implications for funding and bond markets.

Draghi said the ECB could cope with these, a departure from his prior statements.

There are several unintentional consequences that may stem from this measure, we will address and cope with these consequences if we make a decision to act. And we will again look at this with an open mind and we placed ready to act if needed.

Acknowledging that, the ECB stated it would prime banks with as much liquidity as they need until at least July 2014 and look at ways to enhance lending to smaller companies, which are the lifeblood of Europe’s economies however have been starved of credit in many countries.

May
4

Precious Metal Ends Lower, Copper jumps 7% on US Jobs Data

Yellow metal futures finished with a modest loss on Friday as greater than expected US employment numbers dulled the gold’s safe-haven appeal.

For the week, bullion found support from the European Central Bank’s decision to cut interest rates and from strength in physical demand to end the week 0.7% advanced.

Precious metal for June delivery chop down $3.40 or 0.2%, to settle at $1,464.20 per ounce on the Comex division of the New York Mercantile Exchange.

Labor Department said on Friday that the US economy created a net 165,000 jobs in April. The figure surpassed the 135,000 prediction of economists. The rushing in hiring nudged the unemployment rate down to 7.5%, the lowest level since December 2008.

Right before the data’s release yellow metal prices were trading about $13 per ounce higher than Thursday’s close, then following the figures they fell to trade around $10 lower.

Copper futures rallied almost 7% for their biggest one day percent advance in over two and a half years, as the jobs statistics brightened demand prospects for the industrial metal.

The July silver contract added 18 cents, or 0.8%, to end at $24.01 per ounce, climbed 1% from a week ago.

Chintan Karnani, an independent bullion analyst based in New Delhi said that if hiring continues to increase at the current pace for the coming two to three months that would be bearish for safe havens like silver and gold.

He further said only the interest rate cut by the European Central Bank and firm physical gold demand in Asia are supporting gold prices.

Gold dealers reported impressive jumps in April precious metal sales.

Will Rhind, managing director of ETF Securities, a provider of physically backed gold ETFs including the ETFS Gold Trust stated request is mainly being seen by coin/bar merchants and gold dealers (bullion banks) that act on behalf of central banks and other great institutional physical players.

Copper for delivery in July jumped 21 cents or 6.8% to a three-week high of $3.315 a pound. It rose approximately 4% for the week.

 

May
2

Precious Metal Holds Near 1 week Low, ETFs Outflows Persist

Precious metal held near its weakest level in practically a week on Thursday, following declines in holdings of exchange traded funds, equities and other commodities overshadowed the US Federal Reserve’s decision to uphold its loose monetary policy.

Prices fall $225 per ounce between April 12 and 16 on fears of a withdrawal of the Fed’s monetary stimulus and after the International Monetary Fund and the European Central Bank asked Cyprus to sell reserves as part of a bailout deal.

While the Fed’s money-printing to buy assets could stoke inflation, yellow metal has been overwhelmed by fears of sales by central banks and a fall in global bullion ETF holdings to their lowest since September 2009.

However this is unlikely to be sold on the open market. I consider another central bank will be buying it. China’s physical demand is still strong. This morning they are perhaps keeping a lookout to see where the market is going before purchasing.

Precious metal fell $3.05 per ounce to $1,453.69, having shed more than 1 percent in the previous session its largest daily drop since gold’s historic decline in mid-April. It smash a low of $1,439.74 on Wednesday, the weakest since April 25.

Brian Lan, managing director of GoldSilver Central Pte Ltd in Singapore said that people are more wary as yellow metal has been trading within the same trading band. Moreover, Europe has agreed on a loan deal for Cyprus, and one of the terms state that assets in bullion might be sold.

US gold for June delivery stood at $1,453.70 per ounce, climbed up $7.50.

In its statement subsequent a two-day meeting, the Fed reiterated it would carry on to buy $85 billion worth of bonds each month to support a moderately expanding economy that still has too high an unemployment rate.

Investors are now waiting for US non-farm payrolls report for April scheduled for release on Friday, which will signal the longer term predictions for the Fed’s monetary stimulus.

However instead of rallying on the news, yellow metal tracked other markets lower on renewed doubts over the Chinese and US economies following the latest economic data from both countries elevated doubts about the strength of the global economy.

The US economy is likely to have added 145,000 jobs.

March’s number chop down far short of expectations at 88,000, triggering a sell-off in riskier assets. Precious metal for June delivery added $9.70, or 0.7%, to $1,456 per ounce.

China’s factory sector growth eased in April as new export orders chop down for the first time this year, a private survey showed on Thursday, suggesting the euro zone slump and sluggish US demand may be risks to China’s economic recovery.

May
1

Yellow Metal Edges Down, Investors Cautious Ahead of Fed

Yellow metal ticked lower on Wednesday on a shortage of physical buying and as investors waited to see if the US Federal Reserve sticks to its stimulus programme to spur the economy, which may lift the metal’s appeal as a hedge against inflation.

Doubts that central banks money printing to buy assets will stoke inflation have been a key driver in boosting precious metal, which rallied to an 11-month high previous October following the Fed announced its third round of aggressive economic stimulus.

The Fed’s policy making committee ends its conference later in the day with a statement that could reflect recent weak economic statistics. Investors also await Friday’s non-farm payrolls data which will signal the longer term predictions for the Fed’s monetary stimulus.

Edward Meir, a metals analyst at futures brokerage INTL FCStone said that accommodative policies are generally seen as supportive for bullion, however as the events of the last few weeks have demonstrated, gold does not always move in lockstep with simple expansion in money supply.

In its place, it seems to pick up steam either as a result of disorder in the financial markets or on the back of higher inflation readings, neither of which seem to be dominant at this particular time.

Gold dropped $1.89 per ounce to $1,474.71 by 0602 GMT, with the market torn between expectations that the Fed will keep its current policy and daily outflows from exchange traded funds, as investors cut their exposure.

US gold futures for June delivery stood at $1,474.20 per ounce added $2.10.

SPDR Gold Trust, the world’s biggest gold backed exchange traded fund, said its holdings dropped 0.19 percent to 1078.54 tonnes on Tuesday, their lowest since September 2009.

However gold has recovered more than half of its $225 loss incurred among April 12 and 16, boosted by strong physical demand, especially in top gold consumers China and India.

The longer term trend has been broken to the downside. This fact is important as in a downtrend the default move of a price is lower in the absence of convincing fundamentals. With fundamentals only neutral, we think certain risk still persists.

Credit Suisse in a report said that with investment flows negative however monetary policy supportive, we consider a neutral fundamental rating is the most appropriate one. In contrast to neutral fundamentals, technical indicators are clearly negative.

Singapore and Hong Kong were closed for a holiday. A rush in buying of gold bars following the recent plunge in prices has led to tight physical supply in Asia.

In other markets, the US dollar eased on Wednesday as investors warily awaited the result of the US Federal Reserve’s policy meeting, although expectations the European Central Bank will cut interest rates on Thursday capped the euro.

Apr
25

IMF, ECB Square off in Europe Severity Debate

An intense debate about Europe’s austerity drive flared back into life on Thursday with leading IMF and European Central Bank officials harshly at odds and Angela Merkel declaring that Germany required superior interest rates.

With the threat of the currency bloc’s break-up retreating; some euro zone officials are saying currently is the time to throttle back on debt cutting drives as calmer financial markets will not react badly.

The International Monetary Fund is also pushing that prescription for both the Britain and euro zone however Germany and the ECB are opposed.

IMF First Deputy Managing Director David Lipton told a conference in London that there is a risk that Europe could drop into stagnation, which would have very serious implications for households, banks, companies and other bedrock institutions.

He further said that to decisively avoid that dangerous downside, policymakers must act now to strengthen the prospects for growth.

However at the same conference, the Economist’s Bellwether Europe Summit, ECB Executive Board associate Joerg Asmussen urged governments to push on with budget consolidation and reforms.

Asmussen said delaying fiscal consolidation is not a simple way out. If it were, we would have taken it; holdup fiscal consolidation is no free lunch. It means superior debt levels and this has real costs in the euro area where public debts are already very high.

The ECB is expected to cut interest rates coming week, even though a quarter-point reduction is unlikely to lift the euro zone economy out of recession.

Lipton said it will perhaps require additional unconventional measures from the ECB, as Asmussen said monetary policy was not an all purpose weapon.

The ECB is in a difficult position, for Germany it would really have to lift rates slightly at the moment, however for other countries it would have to do even more for more liquidity to be made available, she said at a banking conference, in a strangely outspoken comment on central bank policy.

Apr
24

ECB poised to cut rates to help recession-hit euro zone

The European Central Bank is closer to inferior interest rates than at any time since it previous cut them in July 2012 and is likely to shave a quarter point off at its policy meeting coming week.

Senior sources involved in the negotiations say momentum is building for action to assist a euro zone economy which has fall back into recession, a move that some policymakers wanted to take earlier this year.

Inflation descending well below target gives the bank scope to act and a senior ECB official stated even Bundesbank chief Jens Weidmann, the most hawkish member of the 23 man Governing Council had an open mind.

Following the bank’s previous monetary policy meeting on April 4, ECB President Mario Draghi signaled that a cut could come soon when he stated that the bank stood ready to act to enhance the recession hit euro zone economy.

The ECB’s Governing Council meets in Bratislava coming Thursday one of two annual policy conferences outside Frankfurt. The 23 man body infrequently moves rates when it meets off base; however the bleak economic picture strengthens the case for action.

Any decision on whether to act in May will depend on the economic statistics. Benoit Coeure, a dovish member of the ECB’s core group of policymakers said on Monday the bank had not seen statistics pick up since its last rate decision.

The ECB expects a steady recovery in the euro zone in the second half of this year, subject to downside risks. Facts indicating the economy’s performance will be weaker than that scenario would strengthen the case for a rate cut.

Policymakers think a rate cut would have limited impact on the economy however would at slightest show they are supporting it. A decision to cut could well not be generally supported.

That marked the fourth time the German Composite PMI has dropped below 50, into contractionary territory since September 2008. On the preceding three occasions, an ECB rate cut has followed immediately following publication of the final data or the month after.

Apr
23

Euro zone Slump Moderates However German Uncertainties Appear

A sharp fall in German business activity overshadowed an easing slump in France in April, surveys showed on Tuesday, and lifting concerns over a further economic contraction in the euro zone.

Markit’s flash euro zone services PMI, an early gauge of business activity each month climbed to 46.6 in April from 46.4 in March, below the 50 line that divides growth from contraction however matching the predicted of economists.

Survey compiler Markit cautioned against taking the increased as a clear sign the region’s recession has bottomed out, pointing to a surprise turn down in German companies that form the backbone of the euro zone economy.

Chris Williamson, chief economist at Markit said that formerly we’ve seen Germany expand while other countries have contracted – notably Spain, France and Italy.

Currently it seems those contractions are being accompanied by a recession in the largest economy, Germany, and that will no uncertainty act as a drag on growth.

Williamson stated officials at the European Central Bank, which meets coming week to decide monetary policy, may be relieved to see the euro zone PMIs at least did not signal a promote deterioration this month.

The forward looking indicators suggest there are risks to the weakness for the contraction to gather pace. The euro zone economy contracted 0.6 percent quarter on quarter in the previous three months of 2012.

Comments by European Central Bank policymakers on Monday stressing declining inflation and poor growth prospects in the euro zone suggest the ECB may be leaning towards an additional cut in its main interest rate.

Confidence in services companies concerning the coming year slipped to the lowest level this year, with the business expectations index fall to 55.7 from 56.2 in March.

Consumer morale in the euro zone improved in April, the European Commission stated on Monday, however remained well below the currency area’s long-term average.

Apr
19

German Court to Hear Case Against ESM, ECB bond-buying in June

Germany’s Constitutional Court said on Friday that it would hold a public hearing on complaints against the euro zone’s bailout fund the European Stability Mechanism, and the European Central Bank’s bond buying program on June 11 and 12.

The seven complaints in total, reflect German unease regarding the mounting costs of dealing with the three year debt crisis and fears that the ECB bond buying program may violate the taboo against direct central bank financing of state budgets.

The court based in Karlsruhe southwestern Germany, ruled in a preliminary verdict previous September that the ESM did not violate German law and could go further on, while it insisted on veto rights for the German parliament.

The ECB has not yet trigger the program as struggling euro zone states, previously implementing tough austerity measures, are reluctant to recognize the onerous conditions of the program, however the pledge alone has been enough to bring down their borrowing costs over recent months.

Gunnar Beck, constitutional law expert said he did not expect Karlsruhe to support the complaints, given its precedent record on not blocking moves towards European integration, despite the legal worries over the bond buying program.

There is no doubt that the EU contract, rule out bond purchases whenever they might facilitate state financing through the printing press and permit indebted states to obtain enhanced rates than they would otherwise.

There is no significant precedent where the German constitutional court has directly challenged the German government over an issue of European policy.

He added, I have no doubt the court will present to the government’s wishes in one form or another when it comes to the ECB bond purchases.

Political analysts say a decision is unlikely earlier than Germany’s September election when Chancellor Angela Merkel, her popularity enhanced by what voters see as her competent handling of the euro zone crisis is expected to win a third four year term.