Euro rebounds after a jump in German ZEW economic sentiment: Nov 19, 2014

Market Review - 18/11/2014 22:52GMT 
 
Euro rebounds after a jump in German ZEW economic sentiment

Despite euro's initial brief drop to 1.2444 (1 tick below Mon's low) on Tuesday, the single currency ratcheted higher and then jumped to 1.2540 after the release of better-than-expected Germany's ZEW economic sentiment. The pair later climbed to a marginal high at 1.2545 in New York.

ZEW's Fuest said 'economic environment remains fragile due to ongoing geopolitical tensions; there seems to be some stabilization in Germany economy, very hard to predict growth in coming months; stabilization mostly driven by GDP numbers for Q3; economy is cooling down, but there is not a major downturn.'

Germany ZEW economic sentiment n current conditions came in better-than-expected at 11.5 n 3.3 vs forecasts of 0.5 n 1.8 respectively.

ECB Executive Board member Peter Praet said 'there are no taboos for European Central Bank experts who are studying possible next policy steps in case the ECB's current measures are not sufficient to revive the euro zone economy.'

The greenback swung wildly on Tuesday. Despite initial rise to 117.05, U.S. dollar tumbled to 116.39 in Europe and then 116.35 in NY on renewed risk aversion after Japan's PM Abe announced to dissolve parliament, however, buying emerged n lifted price to 117.00 near New York close.

Japan PM Abe said 'Q3 GDP showed Japan did not return to recovery track; will delay sales tax rise planned for Oct 2015; sales tax rise to be delayed until Apr 2017; 3 arrows of Abenomics are achieving results; positive economic cycle starting to emerge; raising sales tax again may threaten exit fm deflation; won't drop efforts to achieve fiscal consolidation; will not delay sales tax hike again; to dissolve parliament on Nov 21; to stick to primary budget balance goal; won't drop efforts to achieve fiscal consolidation; raising sales tax again may threaten exit fm deflation; will resign as PM if LDP and coalition partner Komeito lose majority in election.' Japan's Abe added that 'in raising sales tax will consider making exemptions for daily necessities.' Japan PM Abe told party leadership meeting that he will delay tax hike, call snap election.'

Japan PM Shinzo Abe said 'will swiftly prepare measures to support economy, including small firms n regional econs; private consumption is stalling despite positive moves emerging in economy;

On the data front, U.S. PPI mm and yy came in better-than-expected at 0.2% and 1.5% versus forecasts of -0.1% and 1.3% respectively.

The British pound traded inside a tight range of 1.5629-1.5679 on Tuesday. Despite cable's brief rebound from Mon's low of 1.5620 to 1.5679 in part due to the rally in euro, the pair later ratcheted lower to 1.5629 near New York close on renewed cross selling in sterling.

Bank of England's Mccafferty said 'there are some warning signs about global economy, BoE's central view is that world continues to grow albeit a bit more sluggishly; signs around the euro zone in particular have given pause for thought, we worry about the euro zone; does not see signs euro zone heading for sharp recession; no reason why couldn't re-employ QE were economy to require it, but it's an outside scenario now; can't comment on how voted for rates at most recent MPC meeting;
reading on UK economy is reasonably positive; less worried than we were earlier in the year about housing market; our best expectation is that we will continue to see modest house price increases; appears financial markets do not have EU exit by UK at top of mind; clear that some international businesses are considering UK's EU membership as part of long-term intentions; quite likely that uncertainty will build among businesses as may general election approaches, with implications for EU referendum.

Wednesday will see the release of BoJ interest rate decision, EU current account, BoE MPC Vote outcome, Swiss ZEW investor sentiment, U.S. building permits, housing starts and FOMC minutes.