The euro has weakened against the dollar today, slipping 0.36% to $1.3708 by late morning in New York, after falling to a five-week low of $1.3698 earlier in the session. The shared currency’s decline came after the publication of a widely-followed measure of German business confidence showed a fifth successive monthly fall in sentiment.
By Peter Martin
Tuesday, May 13, 2014
The Manheim-based ZEW reported that its May survey of German investor and analyst expectations showed a big decline, with the business expectations measure falling to 33.1 from the 43.2 seen in April. Though the current conditions part of the survey shows improvement, the slump in the forward-looking part of the survey will support speculation that the European Central Bank (ECB) could act at its next policy meeting to try and reverse persistently low inflation. A report in the Wall Street Journal cites an unnamed source who is familiar with the matter as claiming the German Bundesbank would be willing to back the (ECB) in introducing stimulus measures next month if necessary to combat low inflation. ECB President Mario Draghi said last week that the ECB’s governing council ‘is comfortable with acting next time, but before we want to see the staff projections that will come out in early June.’
Low inflation will also be a concern for policy makers at the Fed, after import and export data released today showed prices easing last month. Export prices fell 1.0% in April after a 1.0% rise in March, while import prices declined 0.4% compared to a 0.4% increase in the prior month. Year-on-year this means import prices are in deflationary territory, down 0.3% from a year ago. While the Fed is unlikely to deviate from its path of measured reductions in stimulus, these indications that inflation is failing to move toward target could expand expectations for how long the Fed will maintain its low interest-rate policy.
The US stock market finished on Monday with stock index benchmarks at record highs and the upward momentum has persisted into Tuesday, pushing the S&P 500 index above 1900 for the first time, despite the release of disappointing retail sales data. Retail sales increased just 0.1% in April, failing to meet expectations which had pointed to a 0.4% rise, after an upwardly revised 1.5% gain in March (originally reported as 1.1%). The picture looks even worse at the core level (excluding the irregular components of autos and gas), where sales declined 0.1% and this will raise concerns about whether growth is flattening out after a short spring bounce-back. The size of the positive amendment to March’s data largely offset the softness in April, though, allowing the major US stock indices to made modest gains. By late morning in New York, the Dow Jones Industrial Average had risen 0.10% or 16 points to 16,711 and the S&P 500 gained 0.07% to 1897.8. Both benchmarks hit record intraday highs in the morning, the DJIA touching 16,732.97 and the S&P 500 hitting 1901.08.
In the commodity markets, US crude oil futures gained 0.6% on Tuesday morning, rising to $101.25 a barrel, a day ahead of the release of the Energy Department’s weekly petroleum status report. Last week’s report revealed that crude oil inventories shrank by 1.78 million barrels in the week ended May 2 and a Bloomberg survey of analysts gives a median forecast of a 0.5 million-barrel decline for tomorrow’s report.
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