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

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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