Thursday Morning Cheat Sheet: 3 Stories Moving Markets
The markets were mixed in Asia overnight. Japan’s Nikkei fell 0.93 percent as investors took profits after the index hit four-year highs yesterday. The value of the yen remained relatively flat at 93.70 to the dollar and 127.38 to the euro as European Central Bank officials meet. The Hang Seng fell 0.34 percent, and the S&P/ASX 200 gained 0.30 percent.
The markets were also mixed in Europe ahead of ECB president Mario Draghi’s news conference, expected to begin at 8:30 a.m. EST. Many investors are particularly keen to see if Draghi will comment on the currency markets. At mid-day, London’s FTSE 100 was off 0.22 percent, Germany’s DAX was up 0.47 percent, and the STOXX 50 was up 0.58 percent.
U.S. futures at 8:35 a.m.: DJIA: +0.05%, S&P 500: +0.03%, NASDAQ: +0.12%.
1) “The euro-zone economy needs a rising euro like it needs a hole in the head,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam, according to Bloomberg. Speculation, and tension alongside it, has been building over the past few months that a global currency war is brewing between the yen, the dollar, and the euro. The euro has rallied recently as big banks pay back bailouts at an accelerated rate, and the currency recently hit a 14-month high after ECB president Mario Draghi highlighted the region’s economic successes.
But as the ECB balance sheet shrinks, the U.S. Federal Reserve and the Bank of Japan expand theirs. If the ECB does nothing, open-ended monetary easing in the U.S., and the specter of a similar program in Japan, could quickly bury the euro zone in economic disadvantages just as the road to recovery begins to take shape. Meeting in Germany today, ECB officials left interest rates unchanged at a record low of 0.75 percent.
2) If Congress is unable to find a patch for the sequester, first-quarter economic growth could be cut from an expected 1.5 percent to 0.8 percent. The projections are fuzzy, but analysts estimate that an average of $6 billion in federal spending cuts every month, which would start taking effect in March, could reduce economic output by 0.7 percent in the first quarter alone.
Left unaddressed, the cuts call attention to the elephant just outside the door — recession — that market participants would like to think isn’t on its way back in. As it stands, current projections are based on the assumption that the sequester will trigger.
3) Mike Carney, who is due to take the top spot at the Bank of England in July, faced a routine inquiry from the Parliament’s Treasury Select Committee on Thursday morning. Carney, who is currently the head of the Bank of Canada, has a reputation as a level-headed and competent banker because of his role in helping Canada weather the financial crisis.
Facing questions about his strategy to revitalize a nearly stagnant U.K. economy, Carney suggested that radical changes were not in the future. Carney doesn’t necessarily see himself as righting a sinking ship, but rather his job will be to fix up an old boat that has taken on some water.