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Weekly Commentary
09 January 2015
Data section contents (changes on the week)
Spot and forward rates Equity indices World forex rates Bond yields Money market rates Commodities Interest rate swap rates
Highlights for the week ahead
Prev Fcst Cons
Tues UK CPI 1.0% 1.7% 1.7%
Wed US Retail Sales 0.7% 0.1% 0.1% Fed Beige Book
Thurs US Producer Prices -0.2% -0.4% -0.4%
US Jobless Claims 294k 298k 298k
US Philly Fed Index 24.3 20.0 20.0
IRL CPI 0.1%
Fri US Industrial Output 1.3.% 0.0% 0.0% US Consumer Confidence 93.6 94.1 94.1
US CPI 1,.3% 0.7% 0.7%
Spot rates More details indata section
EUR/GBP 0.7798 EUR/CHF 1.2009 EUR/USD 1.1788 EUR/JPY 140.81 GBP/USD 1.5115 EUR/CAD 1.3983 EUR/SEK 9.4874 EUR/PLN 4.2615 EUR/NOK 9.0550 EUR/ZAR 13.5994 EUR/HUF 316.31 EUR/CZK 28.056
Interest rate swap rates More details indata section
2 year 3 year 5 year 7 year 10 year 15 year 20 year EUR 0.23 0.27 0.41 0.59 0.85 1.14 1.30 GBP 0.95 1.11 1.39 1.58 1.77 1.99 2.09 USD 0.87 1.23 1.66 1.94 2.18 2.41 2.52
Official rates More details indata section
Current Q1’15 Q2’15 Q3’15
Fcst Cons Fcst Cons Fcst Cons EUR 0.05 0.05 0.05 0.05 0.05 0.05 0.05 GBP 0.50 0.50 0.50 0.50 0.50 0.75 0.75 USD 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0.50 0.50
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All rates quoted are indicative market rates
Themes from the week
−
Euro weakens after soft inflation data; oil prices fall further
Headlines for the week ahead
−
CPI data in UK and US
The euro weakened after softer than expected Euro area inflation
data…
falling to around $1.18 against the dollar from over $1.20 at the
end of last week
The annual headline inflation rate fell to -0.2% last month from
0.3% in November
…though the core rate (which excludes energy andfood prices) nudged up to 0.8% (from 0.7%).
The ECB has been warning for some time about the risk of
inflation remaining ‘too low for too long’…
so the latest reading
increases the pressure on it to take further policy action. It was
reported on the newswires on Friday that a €500bn government bond
buying programme might be in the offing.
Oil prices fall further…
with both Brent and WTI down around 10% on
the week. The continuing slide in prices will put further downward
pressure on inflation in the near-term
The minutes of the Fed’s December meeting noted that inflation in
the US is expected to rise gradually over time towards the target
of 2%
...as the labour market improves further, suggesting the Fed stillremains on track to raise interest rates later this year. US bond yields
fell on the week however - by around 10bps in the case of 10-year
yields
Employment in the US rose by 252k in December
…according toFriday’s ‘payrolls’ report, and the unemployment rate fell further to
5.6%, though the annual growth in hourly earnings fell to 1.7%.
The Bank of England kept interest rates unchanged on Thursday
…and the market does not expect a first hike until late in the first
quarter of 2016. Sterling was a touch firmer on the week against the
euro at 78p, but fell to $1.51 against the dollar.
In Ireland, the unemployment rate fell to 10.6% in
December…
yielding an average for 2014 as a whole of 11.3%, down
from 13.1% in 2013. The volume of retail sales rose by 0.2% in
November and by 4.7% on an annual basis, while sales ex cars rose
by 3.6% year-on-year. The NTMA raised €4bn euro through the sale of
a 7-year bond at an interest rate of just under 0.87%, the first
instalment of the €12-15bn it plans to raise in the markets this year.
Data section contents
Data section showing % changes on the week Spot and forward rates Long term fixed rates World forex rates Money market rates Equity indices Commodity prices Bond yields
Europe
Euro falls after soft inflation data
The euro fell against the dollar – trading down to around $1.1750at one stage – following weaker than expected inflation data. The annual headline inflation rate in the zone fell to -0.2% in December from 0.3% in November, due largely to declining energy costs, though the core rate nudged up to 0.8% (from 0.7%). Headline inflation is likely to fall further over the next few months given the continuing slide in oil prices, so the pressure on the ECB to take further policy action has increased. Mario Draghi did say following December’s meeting that the Governing Council would reassess the outlook for inflation ‘early in 2015’, and that the preparation of further measures, to be implemented if necessary, was been stepped up. Newswire reports on Friday said a €500bn government bond buying programme could be in the offing, quoting unnamed ECB sources.
Ireland
New car sales up sharply in 2014
There was a modest monthly gain of 0.2% in retail sales in November, leaving the annual increase at 4.7%. New cars sales rose sharply last year – the Society of the Irish Motor Industry estimates over 95k sales in 2014 (up 30% on 2013) – though the pickup in retail sales broadened out over the course of the year to leave the annual rate of increase excluding cars at 3.6% in November. The impact of falling oil prices is also feeding through with the value of fuel sales down 3.1% in the month and 4.7% in the year to November. In other data, industrial production rose 4.6% in November to leave the annual increase at 36%. Both traditional and modern sector production increased significantly in the year to November.
The year-end Exchequer returns show the 2014 deficit was €8.2bn, some €3.3bn lower than in 2013. Tax revenues totaled over €41bn, up 9.2% year-over- year, and more than €1bn ahead of its original target. Income, VAT, excise and corporation taxes all performed strongly reflecting the improvement in the domestic economy. Spending control remained tight, with total net voted expenditure down 2% year-over- year, but still 2% (€841m) over target primarily due to a near €650m overspend in health. The 2014 exchequer deficit is about €250m greater than envisaged in October’s Budget 2015, but the 3.7% General Government Deficit forecast is likely to be broadly met. Debt servicing costs last year were €8.2bn meaning the primary budget (i.e. excluding interest costs) was more or less in balance for the first time since 2007.
United Kingdom
PMI data suggest growth easing a little
Sterling had a mixed week, rising a little against the euro (to around 78p) but falling against the dollar (to $1.51). The latest PMI data for December’s were weaker than expected with the manufacturing index falling to 52.5 from 53.3 in November and the services index declining to 55.8 - the lowest reading since May 2013 - from 58.6. While the readings disappointed market forecasts, they still indicate that both sectors are expanding albeit at a more moderate pace than recently. In this regard, the National Institute for economic research estimate that GDP growth eased to 0.6% in Q4 from 0.7% in Q3. Meanwhile, the Bank of England kept interest rates on hold (at 0.5%) at its first policy meeting of 2015. This was no surprise as the market is not pricing in a first hike until late in the first quarter of 2016.
United States
Fed on track to raise interest rates this year
The minutes of the Fed’s December meeting noted that inflation in is expected to rise gradually towards the target of 2% as the labour market improves further, suggesting the central bank is on track to raise interest rates later this year. Friday’s ‘payrolls’ report showed employment rose by 252k in December and the unemployment rate fell
Data section contents
Data section showing % changes on the week Spot and forward rates Long term fixed rates World forex rates Money market rates Equity indices Commodity prices Bond yields
to 5.6%, though (surprisingly) the annual growth in hourly earnings declined to 1.7%. Bond yields fell on the week - by more than 10bps to under 2% in the case of 10-year yields, while the dollar gained broadly, increasing by more than 1% on a trade-weighted basis. Stocks were largely unchanged, having been down more than 3% at one stage.
Japan
Falling oil prices to boost the economy
Japan’s economy minister, Akira Amari, said that falling oil prices would provide a stimulus to the economy. He said the decline in prices ‘puts a brake’ on financial outflows and the Cabinet office estimates that this will boost the economy by up to Y7bn this year. On the negative side, he did note that falling prices would make it harder to boost inflation. Japan’s imported energy-dependency has increased since the Fukushima disaster saw domestic nuclear capacity reduced.
Data section – changes on the week
Spot and forward rates Change on the week
EUR/GBP Change Spot 0.7798 -0.35% 1M 4 3M 12 6M 25 12M 56 EUR/USD Change Spot 1.1788 -1.77% 1M 3 3M 9 6M 22 12M 65 GBP/USD Change Spot 1.5115 -1.37% 1M -4 3M -11 6M -21 12M -30
World forex rates Change on the week
EUR currency pairs
Change EUR/CAD 1.3983 -0.94% EUR/AUD 1.4425 -2.67% EUR/NZD 1.5082 -3.25% EUR/CHF 1.2009 -0.06% EUR/JPY 140.81 -2.63% EUR/SEK 9.4874 -0.23% EUR/NOK 9.0550 -0.54% EUR/HUF 316.31 -0.54% EUR/PLN 4.2615 -0.96% EUR/ZAR 13.5994 -3.17% EUR/CZK 28.056 1.35%
USD currency pairs
Change USD/CAD 1.1862 0.67% USD/AUD 1.2243 -33.95% USD/NZD 1.2806 -1.37% USD/CHF 1.0186 1.75% USD/JPY 119.47 -0.85% USD/CNY 6.2085 0.06% USD/MXN 14.5858 -1.65% USD/SGD 1.3372 0.48% USD/BRL 2.6525 -1.51% USD/THB 32.85 -0.33% USD/ZAR 11.5373 -1.38% GBP currency pairs Change GBP/CAD 1.7929 -0.60% GBP/AUD 1.8501 -2.32% GBP/NZD 1.9348 -2.84% GBP/CHF 1.5397 0.31% GBP/JPY 180.57 -2.24% GBP/SGD 2.0212 -0.90% GBP/MYR 5.3825 -0.08% GBP/NOK 11.6036 -0.15% GBP/HKD 11.7191 -1.41% GBP/SEK 12.1605 0.11% GBP/DKK 9.5381 0.30% GBP/ZAR 17.4490 -2.68%
Money market rates Change on the Week
Base O'night 1 week 2 week 1 M 2 M 3 M 6 M 9 M 12 M
EUR 0.05 -0.16 -0.08 0.00 0.00 0.03 0.05 0.13 0.00 0.28
GBP 0.50 0.47 0.48 0.00 0.50 0.53 0.56 0.68 0.00 0.96
USD 0-0.25 0.12 0.13 0.00 0.17 0.21 0.25 0.36 0.00 0.63
Interest rate swap rates Change on the Week
2 year Chng 5 year Chng 7 year Chng 10 year Chng
EUR 0.23 0.01 0.41 0.01 0.59 0.02 0.85 0.02
GBP 0.95 -0.04 1.39 -0.09 1.58 -0.11 1.77 -0.10
USD 0.87 -0.08 1.66 -0.12 1.94 -0.11 2.18 -0.09
Government bond yields (YTM) Change on the Week
2 year Chng 5 year Chng 10 year Chng 30 year Chng
Ireland 0.02 0.04 0.49 0.09 1.21 0.07
Germany -0.12 -0.01 — 0.00 0.01 0.51 0.01 — 1.28 -0.04
US 0.58 -0.09 1.47 -0.15 2.01 -0.11 2.62 -0.08
UK 0.41 -0.01 1.13 -0.07 1.63 -0.10 2.36 -0.11
Equity indices Change on the Week Change ISEQ 5167 -1.18% DOW Jones 17908 0.42% S&P 500 2062 0.19% SMI 9140 1.74% Nasdaq 4721 -0.09% FTSE 100 6546 -0.02% Eurostoxx 50 3100 -1.26% Nikkei 17198 0.18% Prime Rate
Bank of Ireland prime rate 0.59
Commodities Change on the Week Change Brent 50.41 -10.65% WTI Cushing 48.46 -8.03% Gold 1212.78 2.03% Wheat 567.00 -2.45% Emissions Allowance 6.71 -4.28%
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