Market Afternoon Recap Key Notes
- German Ifo business climate 104.7 vs. 103
- Ifo current assessment 110 vs. 108
- Ifo expectations 99.7 vs. 98.5
- ECB’s Coeure speech
- ECB’s covered bond purchases to be announced
Markets kicked off the last week of November on a quiet note with lack of fundamentals and Japan closed on account of a bank holiday. The Japanese Yen continued to be under pressure, with even the weaker Euro staging a rally against the Yen after its declines on Friday.
The PBOC’s surprise rate cut last week is being seen by the markets as China’s entry into easing its monetary policy. Falling commodity prices, rising government debt and weak GDP growth are just one of the reasons that the PBOC could engage in further rate cuts, with the expectations for the next rate cut as early as January 2015. The Australian and Kiwi dollar which managed to ride on the news however gave up their gains in today’s Asian trading session.
The German Ifo business survey was therefore the sole market event during the European trading session. The business climate bounced back after declining to yearly lows to 103.2 last month to be up at 104.7. The Ifo current assessment and expectations all came out better than expected but the Euro’s reaction was mostly muted against the Greenback but continued to post gains since the start of the day.
The European trading session was also marked by speeches from ECB officials but none that provided much of a support to the Euro which declined be over 1% on Friday on account of Draghi’s speech. ECB’s Nowotny however said that that first quarter of 2015 would be too early for the ECB to embark on its QE purchases (read as sovereign bonds). He instead stressed that the ECB should closely monitor the measures it has undertaken to see the effects while also briefly noting that exchange rate was not the ECB’s policy. In stark contrast to Draghi’s speech last week which stressed that the ECB would stand by to tackle inflation, Bundesbank Chief, Jens Weidmann today noted that lose monetary policy wasn’t enough to revive the Eurozone’s economy and called for structural reforms. The comments from Weidmann, considered a hawk and a strong opponent to the ECB’s QE continues to paint an uncertain picture on the ECB’s QE decision.
Rumors of SNB’s intervention to support the 1.2 EURCHF peg has been on the table for quite some time. Latest data suggests that the average of sight deposits for domestic banks at the SNB increased to 320bn CHF for the week ending November 21st, up from 315.7bn CHF last week, suggesting that the Swiss National bank did intervene to defend the currency peg to the Euro. Bloomberg suggests that based on the 3-month Swiss Franc Libor chart, markets are starting to price in a negative interest rate very aggressively. However the key risks come from the Swiss Gold referendum due over the weekend, which brings in an element of uncertainty despite opinion polls showing waning support for the referendum.