Economic Activity in the EZ Remains Weak

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For the second time in 15 months, Mario Draghi has shown his willingness to do “whatever it takes” to foster a recovery in the eurozone. Echoing the spirit that led him to unveil his unlimited bond-buying programme last summer, the European Central Bank president has now cut interest rates to 0.25 per cent, a record low. Investors who thought the ECB would need a longer period of reflection before acting were caught on the hop. Stocks jumped and the euro fell to a seven-week low.

But the further monetary loosening is hardly premature. For all the talk of recovery in recent months, economic activity in the eurozone has been weak and unemployment, particularly in crisis-hit countries, stubbornly high. If anything, the ECB should have acted sooner. However, German political opposition to a new monetary stimulus has been formidable. Jens Weidmann, president of the Bundesbank, voted against Thursday’s rate cut.

Mr Draghi was right to face down the Bundesbank on this occasion. A rate cut is consistent with the ECB’s mandate, which states that the central bank should keep inflation at 2 per cent or marginally below. In October prices rose by a mere 0.7 per cent. The eurozone has entered a period of disinflation. This is worrying. Consumers and businesses have fewer reasons to spend their cash today if they know that prices tomorrow will not be much higher. Some inflation is also a relatively costless way of shrinking public debts.

Financial Times

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PMI: China’s Economy is Still Holding Up

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China’s manufacturing activity grew at its fastest pace in 18 months in October, official data on Friday showed, a positive sign from the world’s second biggest economy after a recent run of disappointing numbers.

The official Purchasing Managers’ Index (PMI) rose to 51.4 in October from 51.1 in September and was above analyst expectations for a reading of 51.2. It remained comfortably above the 50-mark that divides expansion from contraction.

HSBC meanwhile said that the final reading of its China October PMI was 50.9, unchanged from a flash estimate released last week. On this measure, the Chinese manufacturing sector grew at its fastest pace in seven months, lifted by new orders.

CNBC

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NZD/USD back up to 0.8260 after Moody’s Credit Comment

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New Zealand’s dollar fell to a four-week low after Moody’s Investors Service said it considered stripping the nation of the top credit rating.

The Australian dollar touched its weakest since Oct. 14 as the extra yield the nation’s bonds offer over U.S. counterparts shrank to the narrowest this month. The Aussie declined this week against most major peers that came after Reserve Bank Governor Glenn Stevens said the currency is likely to be “materially lower” in the future.

“If Moody’s did cut New Zealand’s AAA rating it would be in line with the other two agencies, so you might see a little bit of weakness in the kiwi dollar but it shouldn’t be a huge surprise to the market,” said Emma Lawson, the Sydney-based senior currency strategist at National Australia Bank Ltd.

Bloomberg

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EUR/USD at 1.3770 as U.S. Jobs Data locks in Fed Stimulus Hopes

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The dollar set a fresh two-year low against the euro on Wednesday after disappointing U.S. jobs data cemented expectations that the Federal Reserve will not begin to taper its stimulus until early next year.

The dollar also touched a fresh eight-month trough against a basket of currencies, with the dollar index slipping to 79.141 and nearing this year’s low of 78.918 set in early February.

The greenback came under pressure after data showed U.S. employers added far fewer workers than expected in September, suggesting the economy may have lost some momentum even before a damaging 16-day partial shutdown of the federal government this month.

CNBC

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Many to Miss if U.S. Defaults

Social Security recipients. Doctors who treat Medicare patients. Military pensioners. Companies with federal contracts. Government workers. Bond investors.If Congress fails to raise the debt ceiling in time, anyone owed money by the federal government could eventually be left in the lurch.The reason: Treasury Secretary Jack Lew wouldn’t have enough money to pay all the bills in full and on time.Thursday is the working deadline for when the cash crunch begins, and though negotiators in Congress were making progress, as of late Monday, there was still no deal.CNNBio Google+ Latest Posts Stuart McPhee has more than 16 years’ experience as a private trader and he specializes in technical market analysis of major currency pairs. He is the author of several bestselling trading books, most recently …

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Social Security recipients. Doctors who treat Medicare patients. Military pensioners. Companies with federal contracts. Government workers. Bond investors.

If Congress fails to raise the debt ceiling in time, anyone owed money by the federal government could eventually be left in the lurch.

The reason: Treasury Secretary Jack Lew wouldn’t have enough money to pay all the bills in full and on time.

Thursday is the working deadline for when the cash crunch begins, and though negotiators in Congress were making progress, as of late Monday, there was still no deal.

CNN

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