Shared Currency Gains Ground

EU’s common currency rose earlier than the meet of finance ministers in the euro region regarding the bailout program for Greece.

The euro earned one third percent versus the largely weak US currency trading at $1.1421. It remained flat against the Japanese yen but was 0.2 percent higher compared to the pound sterling.

Analysts of Barclays Bank believe the euro will be more unstable and the exodus of Greece will turn out negative for the Union. They claim that a Greek concord without enough restriction or liability can possibly raise the currency in the short-term.

The US currency scaled down less than 0.1 percent from 118.70 to 118.65 yen before the week ended. The ECB as well as central banks of Australia, Canada and Sweden embarked on stimulus measures during the past weeks.

Speculators have scaled back wagers against the Japanese yen on prospects of trouble-free policy position by the BOJ.

Meanwhile, the UJ sterling climbed to $1.5437 from about $1.5407 and touched a peak that was last recorded on January 2 at $1.5433. The kiwi reached close to ½ percentage point (0.7493) due to potent domestic retail sales statistics after hitting a three-week peak of $0.7502.

China Shifts to US Currency Assets

Beijing anticipates its cross-border investments and trade money to remain unstable in 2015 after capital outflows hastened during the last quarter of last year.

This was revealed by the FOREX regulator of China yesterday.

China’s State Administration of Foreign Exchange or SAFE declared the nation’s capital and financial accounts revealed a shortfall of $91.2 billion from October until December of 2014.

This was up from $9 billion during the previous quarter.

Many Chinese residents and companies have switched to US dollar assets which stimulated the outflows.

Likewise, there are complicated and varied aspects that generate instability in overseas capital flows even as this nation continues to incur huge trade excess while the Yuan’s interest rate is higher than other currencies.

According to SAFE, the local currency’s exchange rate can stay inflexible in the interim as an emergency precaution to handle both internal and external issues.

However, the rate must change eventually to avert any disparity and distortion alterations in the economic system.

The agency said it monitors closely capital flows that cross national borders.

A number of economic analysts fear that escalating capital outflows squeezed liquidity conditions and threaten to slow down further the country’s economy. This can compel the People’s Bank of China to loosen fiscal policy more.

Euro Region Economy Strengthens Modestly

The outlook is economic growth in the euro area should get moving faster in 2016.

A professional audit company based in the UK foresees that the EU will realize a GDP growth of 1.2 percent for this year which will increase to a yearly 1.6 percent from 2016 until 2018.

This positive development is attributed to low crude prices, confidence in the banking industry, weak single currency, and alleviating monetary austerity.

The euro zone is also expected to perceive export growth of 3.7 percent this year and a little higher at four percent during the next three years.

However, eight EU nations have public debt at more than 90 percent of GDP. At the same time, six of these nations have little space for economic stimulus. If inflation does not accelerate faster in the next few years, it remains uncertain if the massive sovereign bond acquisition program will have substantial impact.

A number of governments in the zone have already started to reduce austerity programs which should spur the growth of domestic demand.

The drawback is slower growth in China and other Asia-Pacific countries, which are primary destinations for EU exports and investments and exports, will make the region more at risk. This can be aggravated by immensely feeble growth in France as well as retrenchment in Italy.

The rapidity of euro area economic progress from 2016 to 2018 will be over ½ percentage point slower compared to 10 years ago when it reached 2.3 percent annually.

Germany is ahead of France while Italy is sluggish. Other countries such as Spain, Portugal and the Netherlands were stable. The EU as one overcame expectations. 

Greek Official to Meet with International Creditors

Greek Prime Minister Alexis Tsipras

Greek Prime Minister Alexis Tsipras told Jeroen Dijsselbloem, chairperson of the euro region finance ministers that Greek officials will meet with representatives of the International Monetary Fund, European Commission and European Central Bank tomorrow.

Dijsselbloem divulged that he will request these institutions to discuss with Greek leaders technical evaluation of mutual agreement between the existing program and Greek proposal. This can facilitate important talks between the finance ministers on Monday.

The turnaround of Tsipras can be the first step toward resolving the Greek controversy that can produce more financial unrest.

Officials in Athens see this as a positive development leading to a new pact with the nation’s creditors.

The step forward took place after the governing council of the ECB prolonged cash support to Greek commercial banks for one more and granted additional 5 billion euro in terms of emergency lending assistance by the central bank. The council also opted to examine the program on February 18.

The ECB consented to provisional funding appropriate for banks when it ceased to accept government bonds from Greece in exchange for liquidity.

Meanwhile, German Chancellor Angela Merkel said she was ready for a concession with finance ministers having some more time to mull over proposals from Greece prior to their meeting on Monday.

Tsipras has reportedly not agreed to meet with the three agencies but with a group labeled as the Euro Working Group.

EU leaders believe Greece must show consideration for budget discipline and commitments to economic restructuring if it expects continuous aid.

ECB policy makers opined official loans are covered by extended maturities, reduced interest rates and interest repayment cessation. Hence, rescheduling is not going to help Greek funds in the interim.

UK Pound Sterling Increases

The UK pound sterling gained versus the US dollar following the Bank of England’s statement that inflation will possibly drop to zero within the first six months of 2015. It also said there is no risk of deflation in the United Kingdom.

BOE Governor Mark Carney cited decreasing oil prices will turn out positive for the country’s economy with wages expected to increase at the fastest pace in more than 10 years. 

The central bank anticipates inflation to climb above the two percent target in two years and go up above that goal after three years in case interest rates mount as expected by markets.

The pair of GBP and USD moved up 0.65 percent from 1.5226 to 1.5334 sooner than the inflation data.

The BOE is mulling over reducing interest rates below 0.5 percent if inflation ventures deeper into negative territory.

It also raised the growth projections for 2015 from 2.6 percent to 2.9 percent and looks forward to a growth of 2.9 percent by 2016.

The pound was near seven-year highs versus the shared currency with EUR and GBP down 0.61 percent from 0.7447 to 0.7392.

Stock Index Futures in US Trim Gains

US capital stocks scaled down gains after the regression of larger than forecasted retail sales which made up for optimism over the Ukraine break in fighting.

S&P 500 contracts that will terminate next month put in 0.4 percent to 2,073.40 at the New York Stock Exchange. It cut down a previous gain of 0.6 percent.

Standards & Poor is one percent away from the record reached last December while NASDAQ Composite Index was roughly five points from close to a 15-year peak.

US retail sales also dropped more than the projections made last month.

The 0.8 percent slump came after the 0.9 percent descent decrease in December.

Separate figures disclosed applications for jobless benefits climbing to a point consistent with labor market progress.

Equities reached record levels for the first time this year which was augmented by the most significant three-month increase in hiring within 17 years. S&P 500 recovered 3.7 percent this month after plunging 3.1 percent last January.

US stocks traded in very tight ranges since 2007 which was distinguished by an exceptional high of 2,090.57 and low of 1,972.74.

Investor outlook was influenced by factors such as possible stagnation in the euro region and possibility of deflation.

With S&P trading at 17.4 more than the expected revenues, investors are evaluating revenue reports together with economic statistics to assess stock valuation. The fall in crude prices encouraged analysts to reduce profit estimates for energy firms while total projections for the first quarter scaled down in six years.

Venezuela Bonds Plunge

US dollar-denominated bonds in Venezuela took a dive after the Venezuelan government declared a new FOREX platform which seemed inadequate to put an end to current economic issues.

The Organization of Petroleum Exporting Countries has opted for the SIMADI. It is a free-floating foreign exchange tool with tri-layer exchange regulatory system designed to augment state funds.

Venezuela is confronted with likely funding gaps this year and indebted to foreign investors holding US dollar accountabilities.

An emerging market debt analyst sees the urgent need for this Latin American nation to plug a $14 billion cavity in its financial books to settle obligations. There is even the probability that it go up to more or less $26 billion next year.

According to government critics, modifications in government’s currency control program of more than a decade failed to take away two immensely over-valued currency exchange rates. This restricts the government's capability to set aside hard currency in the midst of the decline of crude oil earnings.

Government debt plummeted since the new program failed to impress markets. The Global 2027 Venezuelan bond decreased 3.49 points to bid at 40.005 and pushed yields to 25.12 percent.

Bonds of the state-owned oil firm also fell and benchmark 2024 bond diminished 1.36 points in to bid at 32.64 with an almost 25 percent profit.

The crash of oil prices left the country's state-led model built by the late President Hugo Chavez coping with recession.

Venezuela's bonds are now trading at distraught levels with yields paying 27 percentage points more than US Treasury bills because of fears of potential default.

Nonetheless, the government maintains it can settle all international debt commitments without reducing social expenditure plans or abandoning its FOREX control platform.