Euro tumbles after dovish comments from ECB's president Draghi: Nov 24, 2014

Market Review - 21/11/2014 20:15GMT 
 
Euro tumbles after dovish comments from ECB's president Draghi

The single currency nose-dived after dovish comments from ECB's president Mario Draghi. Euro fell sharply from an intra-day high at 1.2568 in Asia to as low as 1.2375 in New York on Friday.

ECB's Draghi said 'economic situation in the euro area remains difficult; inflation situation in the euro area has also become increasingly challenging; we have to be very watchful that low inflation does not start percolating through the economy in ways that further worsen the economic situation n inflation outlook; want to focus on risk that a too prolonged period of low inflation becomes embedded in inflation expectations; any de-anchoring of expectations wud cause an effective monetary tightening; we are currently seeing some volatility in inflation expectations; shorter term indicators for inflation expectations have been declining to lvls that I wud deem excessively low; contingent on outcomes on existing measures, we are committed to recalibrate the size, pace n composition of our asset purchases as necessary to deliver our mandate; wud step up the pressure n broaden even more the channels through which we intervene, by altering accordingly the size, pace n composition of our purchases if needed; it is now changes in the size n composition of our balance sheet that determine our monetary policy stance.'

In other news, China's central PBOC cut one-year benchmark deposit rates by 25 basis points to 2.75% and cut benchmark one-year lending rate by 40 basis points to 5.60%, effective Nov 22, in order to lift a cooling economy that is on track for its slackest annual growth in 24 years.

European stock markets rallied after dovish comments from ECB's Draghi together with the surprise interest rate by China's central bank. Britain's FTSE-100, Germany's DAX n France's CAC 40 closed up 1.2%, 2.6% n 2.7% respectively.

The greenback fell against the Japanese yen to a fresh 1-week low at 117.36 in Tokyo morning on Friday and then rebounded to 118.12, however, renewed risk aversion knocked price lower to 117.39 in New York morning before trading sideways.

Japan PM Adviser Hamada said 'Abenomics working well but negative impact fm April sales tax hike stronger than expected; dlr/yen at Y120 positive for overall Japan economy but steps needed to ease impact on consumers; consumer inflation around 1.5% is acceptable under current jobs mkt situation; corporate tax rate should be cut to closer to 20%.'

Japan's PM Abe said "if Japan returns to excessive yen strength, more industrial hollowing out n job losses will occur." Japan's Abe said 'want to support consumer spending from low-income households with regional tax transfers.'

Federal Reserve Governor Daniel Tarullo said at a Senate subcommittee hearing on Wall Street's involvement with physical commodities that "U.S. regulators should review merchant banking guidelines for all activities, not just in commodities."

Fed's Tarullo said 'U.S. central bank expects to issue formal notice of public rulemaking on financial holding companies and physical commodities in first quarter of 2015; Fed is exploring further restrictions or limitations on financial holding companies to engage in commodity-related activities; Fed still considering increased capital or insurance requirements and revenue or asset limits to physical commodity businesses at banks; physical commodities can pose unique risks to safety and soundness of financial holding companies.'

The British pound fell in tandem with euro to 1.5626 in Europe on Friday before rebounding to 1.5693 in New York morning.

U.K. FinMin George Osborne said more concern around about state of global economy than a few months ago and said there has been marked improvement in financial & credit conditions, still more to be done and that there has been marked improvement in financial and credit conditions, still more to be done.

This week will see the release of following economic data:

Swiss non-farm payrolls, German Ifo business climate and U.S. Markit services PMI on Monday;

Japan's BoJ meeting minutes, New Zealand's RBNZ inflation expectation, German GDP, U.S. prelimary GDP, PCE prices and Redbook, Canada's retails and U.S. monthly home price and consumer confidence on Tuesday;

German import prices U.S. GDP and CBI distributive trades, U.S. core PCE, durables, personal income, Chicago PMI, University of Michigan sentiment, new home sales, pending homes sales change and building permits on Wednesday;

New Zealand's trade balance, Australia's HIA new home sales, Swiss GDP, U.K. Nationwide house prices, German unemployment rate, EU business climate, consumer confidence, economic sentiment, Germn Gfk consumer sentiment, HICP and CPI on Thursday;

Japan's unemployment rate, CPI, prelimary industrial output, IP forecast, retails sales, New Zealand's NBNZ business outlook U.S. Gfk consumer confidence, Japan's construction orders, housing starts, Swiss KOF indicator, EU inflation and unemployment rate, Canada's GDP and producer prices on Friday