The EUR rose nearly 1.5% percent against the U.S. dollar today following the release of minutes from the last meeting of the ECB. Many analysts interpreted that the ECB could look to change its guidance to the markets. Some investors are now making calls that the euro zone's central bank could end its massive bond-buying program by the end of next year, with a potential rate increase in the fourth quarter.
Jens Weidmann, the ECB Governing Council member and Bundesbank Chairman, said that the full normalization of the monetary policy would be a long path.
German Social Democratic leaders appealed to party members on Friday to swallow their doubts and endorse an overnight deal to renew a “grand coalition” with Chancellor Angela Merkel’s conservatives for another four years.
The U.S. dollar fell today 0.6 percent against a basket of currencies for its biggest one-day drop in a month, after officials reviewing China's foreign-exchange holdings recommended slowing or halting purchases of U.S. Treasuries. The sources said the market for U.S. government bonds is becoming less attractive relative to other assets. The trade tensions with the United States is another reason to slow Treasury purchases, Bloomberg News reported today, citing people familiar with the matter.
Any reduction in Chinese purchases would come just as the U.S. prepares to boost its supply of debt. The Treasury Department said in its most recent quarterly refunding announcement in November that borrowing needs will increase as the Federal Reserve reduces its balance sheet and as fiscal deficits look set to widen.
The New Zealand government on Monday named pension fund chief Adrian Orr as the nation’s new central bank governor, sharply lifting the local dollar. The new chief will take up the role at the Reserve Bank of New Zealand (RBNZ) on March 27 and will play a crucial role in a key period of the central bank’s history, as the new Labour-led government plans to add maximizing employment to the bank’s objectives alongside its inflation target.
According to Dominick Stephens, chief economist at Westpac, markets welcomed Orr’s appointment, adding that he was unlikely to veer away dramatically from the inflation target.
Reserve Bank Chairman Professor Neil Quigley said that the Board is pleased to be able to recommend a candidate of Mr Orr's experience.
"He'll be able to tell a good story about how the Reserve Bank fits into what the government's trying to achieve, in that sense it's probably a political win for the government".
Finance Minister Grant Robertson said in the statement that the laws to change the bank’s mandate would likely not be in force by March, but the policy target agreement between him and Orr would be “developed in a manner consistent with the direction of reform.”
U.S. stocks traded higher today as investor sentiment was boosted the Senate narrowly passing a major tax bill over the weekend. The Dow Jones industrial average rose 250 points, with JPMorgan Chase and Walt Disney leading advancers on the 30-stock index.
The S&P 500 gained 0.8 percent and reached an all-time high, with financials and telecommunications as the best-performing sectors.
The Wall Street Journal said that a deal by Disney to buy some of 21st Century Fox's assets is "gaining momentum". Disney shares rose 2.7 percent, and Fox shares gained 2.1 percent.
CVS Health also said it will buy Aetna, a U.S. health insurer, for $69 billion. The agreement is one of 2017's biggest deals so far in the merger and acquisition (M&A) space. CVS shares slipped 3.4 percent, while Aetna rose 1.7 percent.
In commodities, oil cartel OPEC and non-OPEC producing nation Russia agreed to limit their production output through to the end of next year. Oil prices are trading in the red Monday, following news that U.S. shale drillers had added more rigs in the previous week.
Canadian economic growth slowed to 1.7 percent in the third quarter, but an acceleration in hiring and wage growth last month was seen giving the central bank reason to raise interest rates again before long.
The lowest unemployment rate since 2008
The economy added 79,500 jobs in November, Statistics Canada said on Friday, blowing past expectations for a gain of 10,000 and sending the unemployment rate to 5.9 percent, its lowest since February 2008.
The 1.7 percent was slightly higher than the 1.6 percent forecast by economists. The second quarter rate was downwardly revised to 4.3 percent from the previously reported 4.5 percent.
Exports, the main drag on the economy
The economy grew 0.2 percent in September, topping expectations and suggesting modest momentum heading into the fourth quarter. The housing sector also weighed on growth, with investment in residential structures down 1.4 percent as ownership transfer costs fell, reflecting slower resale activity. However, exports were the main drag on the economy in the third quarter, falling by 10.2 percent on an annualized basis as shipments of vehicles and parts fell amid work stoppages and changes to certain models sent to the U.S. market. Business investment in non-residential structures, machinery and equipment grew by 3.7 percent, slowing substantially from the second quarter.
European stocks edged higher today, as investors focused on earnings reports. The German DAX was rallying 1.7 percent, France's CAC 40 index was rising half a percent and the U.K.'s FTSE 100 was rising 0.2 percent.
German automakers were up around 2 percent
German automakers as BMW, Daimler and Volkswagen were up around 2 percent each before publishing their U.S. car sales figures for October.
Bayer advanced 1.3 percent amid reports that the German pharmaceutical firm and Novartis are threatening legal action against twelve clinical commissioning groups in the north of England for plans to offer patients a cheap eye drug. Novartis shares also rose over 1 percent.
Finnish tyre maker Nokian Tyres rallied 3 percent after its quarterly profit topped forecasts.
Technology stocks also jumped
The pan-European Stoxx 600 was 0.6 percent higher with almost all sectors trading in positive territory.
Basic resources stocks were the top performing sector, up by 2.2 percent, following positive manufacturing data released in China.
Autos rose above 1.5 percent, driven by earnings. Nokian posted sales and operating profit above expectations for its third quarter, which sent the tyre maker up by 4 percent.
Technology stocks also jumped boosted by earnings. Shares of Sony reached a nine-year high Wednesday during Asian trade after beating earnings forecasts.
Standard Chartered more than doubled its net profits in the third quarter of the year. However, shares dropped 5 percent, as investors raised concerns over its recovery plan.
The pharmaceutical firm Indivior rose to the top of the European benchmark, up by more than 10 percent, after receiving approval for a new drug for opioid addiction treatment.
European stocks rallies and the euro come under pressure after the European Central Bank (ECB) extends the bond-buying scheme but at a reduced volume.
ECB extends the length of time that its stimulus program runs.
Its purchases will fall to 30 billion euros ($35 billion) from 60 billion euros, starting in January. The central bank said it will extend its monetary stimulus program until at least September of next year.
The central bank has remained ultra-accommodative in the years since the global financial crash and the euro zone sovereign debt crises.
As well as record low interest rates it also introduced U.S.-style quantitative easing (QE) - buying assets to stimulate lending - which is used to boost the economy.
The monetary policy will adapt to the new environment
The central bank noted that if financial conditions or the economic outlook change, its monetary policy will adapt to the new environment. ECB President Mario Draghi said the bank would continue to reinvest the proceeds it gets from buying debt in a "massive" way.
ECB President explained that this recalibration of asset purchases reflected growing confidence in reaching the bank's inflation target.
Australian consumer prices were surprisingly tame last quarter while core inflation stayed below target for almost a second full year. Investors pare back the already slim chance of a rate hike for next months.
Underlying inflation averaged around 1.85 percent, actually a touch slower than in the second quarter. Core inflation has now undershot the Reserve Bank of Australia’s (RBA) long-term target band of 2 percent to 3 percent for seven straight quarters.
“RBA is on hold also all of 2018”
“Consumer prices are amazingly benign across the economy,” according to Matt Sherwood, Sydney-based head of investment strategy for fund manager Perpetual Investments.
The reason is that “wages growth is at an all-time low, and households are saving more to pay down their debt”. “It tells me that the RBA is on hold not only in 2017 but also all of 2018”, added Matt Sherwood.
An unexpected decline in retail sales and scant evidence of inflation pressure will give the Bank of Canada little reason to press ahead with a third-straight rate increase next week.
Statistics Canada reported Friday retail sales declined 0.3 percent in August, versus a median forecast of a 0.5 percent gain.
The two indicators are the last of any significance before the Bank of Canada’s Oct. 25 rate decision, and suggest no urgency for Governor Stephen Poloz to increase borrowing costs again after two hikes since July. The Canadian dollar fell 0.6 percent to C$1.2558 after the report. Odds of a rate increase next week fell to about 19 percent, from 21 percent yesterday, swaps trading suggests.
The retail sales number was the big disappointment, and reinforces expectations the nation’s economy is heading for a slowdown after strong growth earlier this year. Monthly retail sales are little changed since touching a 2017 high in May. In volume terms, sales fell 0.7 percent in August, the biggest decline since March 2016.
Motor vehicle sales were one sector of strength, and the total number also got a boost from higher gasoline prices. But excluding those two sectors, sales were down 1.3 percent.
The Bank of Canada’s next interest-rate decision is Oct. 25, during which the Monetary Policy Report containing economic projections is also expected to be released, and Mr. Poloz will follow with a news conference. Most of the economists surveyed by Bloomberg expect the bank to keep the overnight lending rate unchanged at 1 per cent.
New Zealand has its youngest prime minister in more than 150 years, after the nationalist New Zealand First Party agreed to form a new government with Labour Party leader Jacinda Ardern (37 years), ending the National Party’s decade in power. The announcement of the new government drove the New Zealand dollar down around 1.7 percent to its lowest levels in four and half months, as markets worried about more protectionist policies.
“Economic growth could be a little bit weaker”
Labour had an even chance as National to form a government after inconclusive elections on Sept. 23 gave neither party enough seats to form a majority in parliament.“Their tighter immigration proposals and more restrictive housing policy all suggest economic growth could be a little bit weaker than the Nationals’ policy,” Paul Dales, chief Australia and New Zealand economist at Capital Economics. “The chances of a sharper slowdown are higher under Labour.”
Markets are concerned about uncertainty
Record net migration of more than 70,000 annually has fuelled demand for housing in New Zealand, far outstripping supply and pushing house prices prohibitively higher, pricing ordinary New Zealanders out of the housing market.
More restrictive trade and foreign ownership could also hurt New Zealand’s reputation as an open economy and antagonize the likes of China, a key trading partner.
Trade between the two countries has grown to more than NZ$20 billion ($14.4 billion) a year and Chinese President Xi Jinping called the relationship “unprecedented” in its depth.