By Neal Armstrong and Joseph CiolliMar 6, 2014 8:35 AM PT
The euro rallied to a two-month high against the dollar after European Central Bank President Mario Draghi said inflation is expected to rise gradually, damping bets policy makers will introduce further monetary stimulus.
The 18-nation currency advanced versus all except one of its 16 major counterparts as the central bank predicted economic growth will accelerate. The yen dropped to a five-week low versus the greenback after an advisory panel said Japan’s Government Pension Investment Fund no longer needs to focus on domestic bonds. Australia’s dollar strengthened for a fourth day after retail sales climbed and the trade surplus expanded.
“The euro is rising on Draghi’s general upbeat view,” said Gavin Friend, a foreign-exchange strategist at National Australia Bank Ltd. in London. “The notion the recovery proceeds, albeit at a slow pace and remains fragile, but is going to plan. The ECB is emboldened by last week’s turn” in inflation and bank-lending data, he said.
The euro gained 0.8 percent to $1.3847 at 11:29 p.m. in New York after rising to $1.3857, the highest level since Dec. 27. The shared currency jumped 1.6 percent to 142.71 yen, the biggest advance since Sept. 19. The yen slid 0.7 percent to 103.05 per dollar after tumbling to 103.17, the weakest since Jan. 29.
A custom Bloomberg index of the 20 most-traded emerging-market currencies rose 0.6 percent, its biggest gain in more than a month, to its highest level since Jan. 14.
The Indian rupee gained versus the majority of its 24 most-traded emerging-market peers after a report showed the nation’s current-account deficit shrank to the smallest in four years. The currency appreciated 1 percent to 61.115 per dollar after rising 1.1 percent to 61.105, the strongest since Dec. 10.
Hungary’s forint and Poland’s zloty were also among the biggest emerging-market currency gainers, climbing 1.1 percent and 1 percent.
The Russian ruble retreated as speculation political tension in Ukraine may deepen curbed appetite for the nations’ assets. Crimea’s parliament voted to become a part of Russia and the region will hold a referendum March 16 on whether to remain part of Ukraine, according to a statement on its website. The currency fell 0.1 percent to 36.1270 per dollar after earlier slipping 0.6 percent.
“The weak ruble is probably the best thing that could happen for the Russian economy,” David Woo, the New York-based head of global rates and currencies at Bank of America Corp., said in an interview on Bloomberg Television’s “Surveillance” with Tom Keene and Adam Johnson. “That’s probably the hidden treasure from this crisis.”
Australia’s dollar extended its daily winning streak to the longest since December after the Bureau of Statistics said exports exceeded imports by A$1.43 billion ($1.3 billion) in January, the most since August 2011. Retail sales increased 1.2 percent.
“The improving global economy is, of course, always supportive of the Australian dollar so you can include that in the basket of reasons for why the Aussie has got some tactical upside momentum,” said Richard Grace, chief currency and rates strategist at Commonwealth Bank of Australia in Sydney.
The Aussie jumped 1.1 percent to 90.86 U.S. cents.
The ECB left its benchmark interest rate at 0.25 percent at its monthly meeting in Frankfurt as forecast by 40 out of 54 economists surveyed by Bloomberg News. The other 14 were predicting a rate cut.
Euro-area inflation, which was at 0.8 percent in February, will accelerate to 1.7 percent in the fourth quarter of 2016, Draghi said at a press conference in Frankfurt after the decision. Consumer prices will rise 1 percent this year, he said. ECB officials see inflation at 1.3 percent in 2015 and an average rate of 1.5 percent in 2016, he said.
Draghi also said he saw no need to halt the absorption of liquidity created by bond purchases under the ECB’s now defunct Securities Markets Program. He also said the exchange rate was not a policy target. Additional stimulus measures tend to weaken a currency.
The euro strengthened 7 percent during the past 12 months, the third best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 0.5 percent and the yen slumped 10.1 percent.
The yen fell against all of its 16 major peers as a draft report from the committee formed to help the health ministry decide on investment targets for the 128.6 trillion-yen government investment fund said it should seek yearly returns of 1.7 percent plus the rate of pay increases for workers.
The yen also weakened amid speculation tensions surrounding Ukraine will ease, reducing demand for haven assets.
“The advisory panel has been arguing for some time that the government needs to push the GPIF away from JGB investments,” said Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, referring to Japanese government bonds. “The general tone of the markets is one of favoring risk appetite and that’s helping to weaken the yen.”
Canada’s currency strengthened beyond C$1.10 per U.S. dollar for the first time in more than two weeks as building permits climbed more than forecast, adding to signs the global economy is picking up.
The currency rose for a second day after the Bank of Canada kept its key interest rate unchanged yesterday and reiterated its next move depends on the progress of the economy. Global stocks gained as the European Central Bank raised growth forecasts. U.S. jobless-benefit claims fell to the lowest since November even as a harsh winter has weighed on other reports.
“Every piece of data we’re getting is confirming weather has impacted growth but it hasn’t derailed growth, and globally central banks aren’t really moving away from their stance, and the Bank of Canada holds a very neutral tone, not a dovish tone,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said by phone from Toronto. “All of that is very good for a pro-cyclical currency like the Canadian dollar.”
The loonie, as Canada’s currency is known for the image of the aquatic bird on the C$1 coin, gained 0.6 percent to C$1.0968 per U.S. dollar at 11:20 a.m. in Toronto and touched C$1.0956, the strongest since Feb. 19. It advanced beyond its 50-day moving average for the first time since October, a technical signal it may gain more. One loonie buys 91.17 U.S. cents.
The Canadian dollar dropped to C$1.1224 in January, the weakest since 2009, as investors bet on lower interest rates after the central bank said inflation would stay at almost the bottom of its 1 percent-to-3 percent target band this year and flagged the currency’s strength as a headwind to exports.
Yesterday’s policy statement made no mention of the currency and said the latest data on economic growth and inflation were stronger than expected.
The value of residential building permits granted last month jumped 26.3 percent to C$4.60 billion ($4.18 billion), Statistics Canada said. Non-residential permits fell 14.6 percent to C$2.39 billion, reducing the gain in total permits to C$6.99 billion, an 8.5 percent rise. Economists surveyed by Bloomberg forecast a 1.7 percent increase.
U.S. jobless claims declined by 26,000 to 323,000 last week, the Labor Department reported.
The pound weakened the most in more than a month against the euro as European Central Bank President Mario Draghi raised forecasts for euro-area growth this year, boosting the relative allure of the shared currency.
U.K. 10-year bonds fell with German bunds. The pound depreciated against most of its 16 major peers, declining most against the Australian dollar, as the Bank of England kept interest rates at a record low. Policy makers held their bond-purchase stimulus target at 375 billion pounds ($628 billion) and said they would reinvest 8.1 billion pounds of funds related to the plan starting March 10.
“This is a pure euro story,” said Lee McDarby, executive director of U.K. corporate foreign-exchange sales at Nomura International Plc in London. “It certainly seems that sterling is an innocent bystander in this afternoon’s market volatility.”
The pound slid 0.7 percent to 82.73 pence per euro at 4:32 p.m. London time, the biggest decline since Feb. 3. The currency was little changed at $1.6738 after climbing to $1.6823 on Feb. 17, the strongest since November 2009.
The pound declined to the weakest since Feb. 12 versus the euro after the ECB raised its growth forecast for gross domestic product in the currency bloc to 1.2 percent from 1.1 percent predicted in December. ECB policy makers kept the key interest rate at a record low 0.25 percent today, disappointing 14 out of 54 analysts surveyed by Bloomberg News who predicted a cut.
The Bank of England’s decision to maintain the official bank rate at 0.5 percent was expected by all 52 economists in a separate Bloomberg survey. Analysts also forecast no change in the bank’s asset purchase plan.
The central bank said in a statement today it plans to reinvest 8.1 billion pounds “evenly across the three gilt-maturity sectors,” of three-to-seven years, seven-to-15 years and more-than-15 years in operations starting next week. The BOE said in its quarterly Inflation Report last month it intends to maintain the stock of purchased assets at least until the first increase in its benchmark rate.
The U.K. government has more than 35 billion pounds of 2.25 percent bonds maturing tomorrow, data compiled by Bloomberg show. The Bank of England’s holdings of the securities, purchased as part of the Monetary Policy Committee’s asset-purchase plan, have a face value of 8.2 billion pounds.
The 10-year gilt yield climbed five basis points, or 0.05 percentage point, to 2.77 percent. The 2.25 percent bond due in September 2023 fell 0.385, or 3.85 pounds per 1,000-pound face amount, to 95.71.
Germany’s 10-year yield climbed four basis points to 1.65 percent, leaving the extra yield investors demand to hold the U.K. securities over bunds little changed at 112 basis points today. The spread reached 113 basis points in January, the widest since October 2005, based on closing-market data.
Sterling has appreciated 13 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid bets the central bank is moving toward raising interest rates. The euro advanced 7 percent, while the dollar slipped 0.5 percent.
“The pound may drift a little higher, but I wouldn’t want to be buying it,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “People are looking through the decision today and are considering the outlook for future policy.”
Gilts handed investors a loss of 1 percent in the 12 months through yesterday, according to Bloomberg World Bond Indexes. U.S Treasuries dropped 1.3 percent, while German securities returned 0.8 percent.
The ruble’s 10 percent slide this year has been triggered in part by the upheaval in... Read More
Goldman Sachs Group Inc. predicts Russia will contain losses in the ruble as policy makers pledge to curb volatility after ratcheting up interest rates and selling billions of dollars in the currency market yesterday.
Bank Rossii, which ING Groep NV estimates sold as much as $12 billion yesterday, said it will start setting ruble intervention parameters daily, a move that will give the central bank more room to ease swings. Goldman Sachs analysts anticipated a change in tack, writing in a note to clients before the move that Bank Rossii may favor a policy that allows for “discretionary interventions” while predicting the ruble has limited “downside” after sinking to a record low.
Central bankers are stepping up efforts to shore up the ruble as investor demand for Russian assets plummets after President Vladimir Putin’s military forces took over parts of neighboring Ukraine. The ruble weakened 2 percent to 36.5809 per dollar, the biggest decline in 29 months and the worst slump in the world yesterday. Bond yields soared after Bank Rossii raised its key rate 1.50 percentage points.
“We may see the ruble even lower, but at close to 38-39 per dollar, Bank Rossii may stop shifting the corridor and announce” a floor for the ruble, Oleg Kouzmin, an economist at Renaissance Capital Holdings Ltd in Moscow, said by phone yesterday. There has already been a “very significant devaluation” and “they have lots of reserves” to defend the ruble, he said.
Bank Rossii sold between $10.5 billion and $12 billion to support the ruble yesterday, Dmitry Polevoy, chief economist at ING in Moscow, wrote in an e-mailed note. The central bank is scheduled to release data on the size of the sales tomorrow, in accordance with its policy to post figures with a two-day lag.
Russia’s foreign reserves have fallen $40 billion since May to $493 billion, according to data through Feb. 21. ING said the country’s “net” war chest, excluding its sovereign wealth fund, gold and International Monetary Fund reserves, is about $270 billion.
The central bank allows the ruble to float within a corridor against its target dollar-euro basket. Bank Rossii said it will set the amount of market interventions it takes to shift the trading band on a daily basis, giving officials more flexibility in determining how many dollars it sells at a given price level before weakening the ruble’s trading band.
Yesterday, policy makers set the threshold at $1.5 billion, up from $350 million previously, according to the statement on Bank Rossii’s website.
“This measure was adopted to prevent risks to financial stability by limiting ruble exchange-rate fluctuations,” the central bank said late yesterday.
The ruble’s 10 percent slide this year has been triggered in part by the upheaval in Ukraine that led to last month’s ouster of President Viktor Yanukovych, a Putin ally, and Russia’s incursion into the Crimea peninsula over the weekend.
U.S. Secretary of State John Kerry arrives in Kiev today, as Ukraine accuses Russia of threatening to seize its war ships in Crimea. Russia denied a report that it had given the ships, located near the Black Sea port of Sevastopol, an ultimatum to give up weapons. The U.S. is preparing sanctions in response to the military offensive, Jen Psaki, a State Department spokeswoman, said yesterday.
Crimea, where Russian speakers comprise the majority, has become the focal point of the Ukraine crisis after protests erupted in November when Yanukovych spurned a trade pact with the European Union in favor of closer ties with Russia. An interim cabinet in Kiev is seeking aid from the IMF and a return to negotiations with the EU.
The central bank, led by Chair Elvira Nabiullina, surprised investors yesterday by raising Russia’s key rate to 7 percent from 5.5 percent as part of its efforts to halt the ruble’s decline. The yield on benchmark bonds due 2027 jumped 52 basis points, or 0.52 percentage point, to 8.88 percent, the highest level since June 2012. The Micex (INDEXCF) stock index slid 11 percent to 1,288.81, the biggest drop in five years.
The extra yield investors demand to hold Russia’s dollar-denominated bonds over U.S. Treasuries increased 24 basis points to 268 basis points yesterday, according to indexes compiled by JPMorgan Chase & Co.
The cost to protect against a Russian default for five years has jumped 66 basis points since Jan. 22 -- when unrest in Ukraine spread from the capital -- to 232 basis points. The move has pushed the cost of Russian swaps above those for Romania, Brazil and Indonesia. The gap in prices between Brazilian and Russian credit default swaps is the widest since July 2012.
Pressure on the ruble may be predominantly coming from retail clients, who are less sensitive to changes in interest rates, rather than institutional investors, according to Goldman Sachs’ research note, which was published before the central bank announced its policy change. The analysts weren’t available for further comment when contacted by Bloomberg News.
The ruble’s decline yesterday, as measured against Bank Rossii’s target basket of dollars and euros, was 1.4 percent, leaving it at a record-low 42.6334 by 6 p.m. in Moscow, when the central bank stops its market operations.
Russia’s currency policy shift aims to “tame risks” to overall financial stability from heightened ruble volatility, including concern that households and companies may switch deposits into foreign currency, ING’s Polevoy said.
“The measures could indeed help to somewhat stabilize the sentiment toward the ruble,” Polevoy wrote in the note. “With the built-up flexibility for setting parameters on a daily basis, the central bank clearly aims at not wasting reserves if the selling pressure sustains for a longer period.”
By Nick Gentle and Emma O’BrienMar 3, 2014 10:49 PM PT
The yen slid against major peers while oil, wheat and gold fell and U.S. and U.K. equity futures rallied after a report that Russian President Vladimir Putin had ordered troops back to bases after military exercises concluded amid tensions in Ukraine’s Crimea region.
The yen weakened 0.3 percent to 101.76 to the dollar by 3:45 p.m. in Tokyo after its highest close since Feb. 5. Standard & Poor’s 500 Index (SPA) futures jumped 0.6 percent while contracts on the FTSE 100 Index surged 0.7 percent. A measure of stocks in emerging markets erased declines as Russia’s Micex Index (INDEXCF) climbed 2.5 percent after $55 billion was wiped from the country’s equities yesterday. The ruble strengthened 0.4 percent from a record low versus the greenback and Poland’s zloty surged. Gold fell as much as 1 percent from a four-month high.
Putin’s order came after the exercises near Leningrad finished as scheduled and as U.S. Secretary of State John Kerry heads to Kievafter Russia told the United Nations that its intervention in Ukraine’s Crimea region is legal. The crisis sent global stocks down the most in a month and haven assets soaring yesterday. Chinese lawmakers meet on economic policy starting tomorrow. Federal Reserve vice-chairman nominee Stanley Fischer appears before the Senate.
“This crisis is going to be resolved probably without a shot, with the end result being that Crimea will end up as part of Russia, and without a war,” Andreas Utermann, who helps oversee $442 billion as chief investment officer for Allianz Global Investors, said on Bloomberg TV in Hong Kong. “It’s a short term pain. These are definite buying opportunities. It’s going to stabilize.”
The MSCI Emerging Markets Index was little changed after it plunged the most since Jan. 27 yesterday as Russia’s benchmark gauge plummeted 11 percent.
Kerry’s trip to Kiev, scene of the bloody uprising that precipitated the current crisis, comes after the leaders of the Group of Seven nations condemned Russia’s actions as a clear violation of Ukraine’s territorial integrity. Russia denied a report yesterday that it had given Ukrainian navy ships a deadline to capitulate.
Russia’s ruble climbed 0.3 percent to 50.0130 versus the euro and to 36.3565 against the dollar after the currency closed at a record low yesterday. The Micex is heading for its first gain in six days and its biggest jump since September.
Bank Rossii, which yesterday boosted its key one-week auction rate by 150 basis points to 7 percent as stocks and the ruble tumbled, has about $150 billion for foreign currency interventions, ING Groep NV analyst Dmitry Polevoy wrote in a note to clients late yesterday.
About the same number of stocks rose as fell on the MSCI Asia Pacific Index, which is down 3.1 percent this year, as the number of share transactions in Hong Kong and Japan trailed the 30-day average by at least 23 percent.
Japan’s Topix index capped toward its first increase in five days, buoyed by electrical-appliance makers and real-estate companies. Hong Kong’s Hang Seng Index (HSI) climbed 0.8 percent, extending gains after the report on Russia’s troops.
Gold retreated to $1,340.70 after surging 1.8 percent in the spot market yesterday to the highest close since Oct. 28. Platinum fell to $1,450 an ounce and silver dropped 0.8 percent to $21.266.
The S&P GSCI Spot Index of raw materials shed 0.5 percent after it jumped 1.6 percent in New York yesterday, the most since August, amid concern energy and agricultural supplies will be disrupted.
Wheat, which soared the most since June 2012 yesterday, fell 1.4 percent while corn gave up 0.7 percent after jumping yesterday. Ukraine was set to become the third-biggest corn shipper this year, and ranks sixth for global wheat exports.
Events in the Black Sea area raise questions about medium-term supply capacity for agricultural crops, said Ken Ash, director of trade and agriculture at Organization for economic Cooperation and Development, in an interview in Canberra, Australia.
European stocks declined, after the Stoxx Europe 600 Index rose for a fourth week, amid increasing geopolitical tension over Ukraine, and as a measure of Chinese manufacturing slipped. U.S. futures and Asian shares also fell.
Roche Holding AG lost 2.1 percent after it was advised to end a trial of a lung cancer drug. Bouygues SA slid 2.1 percent after a report that the construction and telecommunications company is planning a bid for Vivendi SA’s phone carrier SFR. Kuehne & Nagel (KNIN) International AG retreated 3.3 percent after reporting financial results.
The Stoxx 600 dropped 1.6 percent to 332.58 at 8:07 a.m. in London. The benchmark index for European stocks last week rose 0.6 percent, completing its longest stretch of weekly gains since November as Federal Reserve Chair Janet Yellen pledged to follow her predecessor Ben S. Bernanke’s policy on economic stimulus. Standard & Poor’s 500 Index futures fell 0.9 percent. The MSCI Asia Pacific Index decreased 0.7 percent.
The standoff over Ukraine intensified over the weekend as the former Soviet state put its forces on combat readiness after Russian President Vladimir Putin got parliamentary approval to send troops into its southern neighbor.
U.S. President Barack Obama warned Russia not to intervene. Secretary of State John Kerry travels to Ukraine today to offer support as Russian troops occupy the Black Sea region of Crimea.
China’s Purchasing Managers’ Index (CPMINDX) for February was 50.2, according to official data released on March 1. That compares with January’s level of 50.5. A number above 50 indicates expansion. A private PMI by HSBC Holdings Plc. and Markit Economics signaled contraction, slipping to 48.5 from 49.5.
An index of euro-area manufacturing output based on a survey of purchasing managers will stay at 53 in February, according to the median estimate of 37 economists surveyed by Bloomberg.
A report at 10 a.m. in Washington will show the Institute for Supply Management’s index of U.S. manufacturing rose to 52 in February from 51.3 in January, according to the median forecast of economists surveyed by Bloomberg.
Roche lost 2.1 percent to 265.80 Swiss francs. Genentech, a unit of the world’s largest maker of cancer drugs, said an independent data monitoring committee recommended that the Phase III METLung study of the lung cancer treatment be halted as it didn’t show any clinical benefits.
Bouygues declined 2.1 percent to 28.60 euros. Chief Executive Officer Martin Bouygues met with French President Francois Hollande on Feb. 27 to seek government support for a purchase of SFR, Le Journal du Dimanche reported, citing people close to the CEO.
Kuehne & Nagel slipped 3.3 percent to 121.40 francs. The world’s biggest sea-freight forwarder reported 2013 earnings before interest and taxes rose 20 percent last year to 761 million francs ($865 million). The average analyst estimate collected by Bloomberg was for 763.8 million francs.