9 February, 2016
FX News Today
German exports drop 1.6% m/m in December. With imports also correcting 1.6% m/m at the end of 2015, the seasonally adjusted trade surplus was left at EUR 19.4 bln, little changed from the November reading of EUR 19.7 bln. December numbers meant the total sa trade surplus amounted to EUR 59.4 bln in Q4 last year, down from EUR 61.7 in Q3 and that despite lower oil prices. The data highlights again that the German recovery for once is not export driven, but driven by consumption and domestic demand. However, how long this will be sustainable against global headwinds remains to be seen, especially as falling production will also leave its mark on the labour market.
German industrial production dropped 1.2% m/m in December. The November number was revised slightly higher to -0.1% m/m, but this doesn’t gloss over the fact that the drop at the end of last year was much more pronounced than expected. The mild weather is partly to blame, as it added to the 3.0% m/m drop in energy production, but capital goods and consumer goods production also dropped markedly. Together with the weakness in confidence indicators the numbers will add to concerns about the health of the German and Eurozone economies, especially as trade data showed falling exports.
Equity markets are weak. The German DAX closed with a 3.3% loss and below the 9000 mark yesterday, losses in Spain and Italy were even more pronounced, with banks in particular under pressure, also in Germany. The rout continued in Asia, where the Nikkei closed with a 5.4% loss amid a stronger Yen and as oil prices fell below the USD 30 mark. The ASX fared better, but was also down 2.88%. The trust in the power of central banks to keep markets going is evaporating and financial companies in particular are under pressure as the focus turns to credit risks and profitability. Eurozone spreads widened sharply yesterday and Bund futures are likely to continue to underperform as concerns about the health of the currency union grows, and the fact that at the same time, EURUSD is now above the 1.12 mark is adding to Draghi’s problems. This risk aversion has driven money into JPY which is at the time of writing up by 2.6% against GBP and 2.3% against AUD. For more details and updated values see here.
BoC’s Lane: monetary policy can’t take the primary responsibility for maintaining financial stability. “Other, prudential, tools are required to build a resilient financial system…,” he continued. Fiscal policy may be called upon to provide stimulus when monetary policy could lead to financial vulnerabilities that macro prudential policy is unable to offset. This scenario is possible in a “situation of sustained weak aggregate demand,” he said. His speech, titled “Monetary Policy and Financial Stability – Looking for the Right Tools” broke no new ground in terms of the policy outlook, although his speech does give the Federal Government further cover for fast-tracked fiscal stimulus.
Main Macro Events Today
UK Trade Balance numbers for December are expected to come in at -10.4B compared to -10.6B in November. Shrinking deficit should translate into buying interest in Sterling.
US December JOLTS: The so-called Yellen’s favourite indicator for Job Openings and Labour Turnover Surveys is expected to drop slightly from 5.43M to 5.41M.
US Wholesale Trade: Wholesale sales are expected to fall 0.5% in December, while inventories Grow 0.1%. Data in-line with our forecast would leave the I/S ratio steady from 1.32 in November. Forecast risk: downward, given the still negative data from December durables.
U.S. trade tariffs tightened market conditions. Coeure said that “while the effects of any tariffs on output and inflation may take time to materialise, falls...
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