Daily Market Report - 15/01/2015

EUR
Yesterday the World Bank slashed its forecast for eurozone growth in 2015 to just 1.1%, and called for a new money-printing program to stimulate the economy. They state that weak consumption, low investment and low inflation could drag the eurozone into a deflationary spiral.

The big news yesterday was the European Court of Justice (ECJ) have stated that the European Central Bank’s Outright Monetary Transactions (OMT) programme appear to be legal, as long as certain conditions are met. Those conditions identified by the court’s advocate general include The ECB avoiding any direct involvement in the financial assistance programme that applies to any particular country. 

The OMT programme is meant to help a struggling Euro zone member state, by reducing a countries borrowing costs by buying a governments bonds if a members borrowing costs rise sharply. 

The euro fell to a new nine-year low, below the level it launched at in 1999. Traders are concluding that the ECJ’s interim ruling clears the way for a quantitative easing programme to be launched soon, perhaps as soon as next Thursday.

Political instability continues to plague the Eurozone. In Italy, president Napolitano has resigned, setting up a tricky challenge for prime minister Matteo Renzi. The resignation was expected and speculation over his successor has been swirling for months. Napolitano helped hold Italy together during the 2011 debt crisis, and stayed on after his term expired in 2013 when a general election resulted in deadlock.

GBP
The pound climbed for a sixth day against the euro and touched its strongest level in six years after Bank of England Governor Mark Carney highlighted the diverging monetary policies endorsed in the U.K. and euro area.

While the European Central Bank looks set to extend asset purchases, even into quantitative easing by buying the region’s sovereign bonds. Carney says we are in an environment where you can expect that interest rates will increase, likely at a gradual and limited pace, so we are in a different spot to the Eurozone. 

He also said that he expects the European Central Bank will likely take measures to meet its inflation target of close to 2 percent, stating that it is in our interest that the Eurozone has stable and predictable inflation consistent with the ECB’s mandate.

USD
US retail sales fell unexpectedly in December, retail sales fell 0.9% last month, and November’s figure was revised down to a gain of just 0.4%, from 0.7%. This shows that US consumer spending over Christmas was weaker than expected. The dollar weakened off after this news yesterday.

Key Announcements:
13:30 USD – US Producer Price index (YoY) Dec expected to fall from 1.4% to 1%
13:30 USD – Continuing Jobless claims 

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