Daily Market from James Piserno, analyst brokerage Saxo Bank
∙ U.S. budget deficit should be reduced due to the reduction of costs and increase tax revenues
∙ euro / dollar remains in limbo, while the ECB rejects transparency
∙ dollar against the yen may fall to 85 amid rising Japanese currency
on Monday is not rich economic events. In the U.S., the main news will be a monthly statistical report on the balance of the budget of the federal government. In addition, we recommend to follow the dynamics of the euro / dollar after last week the European Central Bank decided not to respond to the increased risk of disinflation / deflation and wait at least another month. Slight strengthening of the yen has affected investment in Japan, so next week the pair dollar / yen deserves attention.
On Capitol Hill good times: costs are reduced and tax revenues grow. Photo: FrozenShutter / iStock
Balance the federal budget in the U.S. (18:00 GMT) : Perhaps because of the politicized debate in Washington is not so obvious, but in fiscal has been a favorable trend. Just look at a summary of the most recent monthly report on the budget prepared by the Congressional Budget Office: "In the first seven months of the fiscal 2014 budget deficit of the federal government amounted to 301 billion dollars, which is $ 187 billion less than what was recorded in the same period last year. Revenue rose by about 8%, while expenses decreased by 3%. " Evidence of a slight reduction in the deficit also reflected in the monthly reports of the Ministry of Finance. Despite the fact that in a short time interval, the data is very volatile, linear trend over the past two years to flourish, albeit with a slight slope. As shown by the most recent report, in March had the lowest budget deficit in 14 years. One of the reasons was the increase in tax revenues due to the strengthening of the stock market and accelerate economic growth. Meanwhile, in some sectors of the economy, it was noted cost reduction, particularly in the military industry in connection with the cessation of operations in Afghanistan. According to the Congressional Budget Office forecasts, the situation will continue to improve in the fiscal 2014 budget deficit will decline to 2.8% of GDP, ie will be one-third less than in the previous financial year. If the forecast comes true, then the ratio of deficit to total output of goods and services in the economy reduced the fifth consecutive year. However long this trend will not last. Since 2015, the budget deficit will grow again, as evidenced by the Congressional Budget Office estimates. The reasons are the same: an aging population and, as a consequence, greater use of health services, which are subsidized by the government.
EUR / USD: In recent years, the main pillars in the central bank were transparency and clarity. However, at a press conference that took place last week on Thursday, Mario Draghi decided to change the status quo. ECB President was eloquent, but did not say anything that might clarify expectations about monetary policy. Although Draghi has not changed interest rates and offered no new policy, he acknowledged that the appreciation of the euro in the period of low inflation and low growth is a "serious cause for concern." In addition, he said that when the need arises, the bank will take steps to destroy the threat of deflation in the bud. But not now. "The Governing Council prefers not to hurry with the measures - he told reporters. - Council members unanimously agree that should not be too long to tolerate low inflation. " In addition to uncertainties in the matter of why the ECB prefers to sit on the fence, there remains uncertainty about how the Central Bank can stimulate monetary policy when Yet he began to act "next time." There is reason to think that the government will resort to lower interest rates, and the rate on bank deposits at the ECB will plummet below zero. But, as usual, Draghi did not go into details. Perhaps more troubling question is what to do with the growing rate of the euro. Although Mr. Draghi acknowledged that currency appreciation is a problem for the eurozone, he said almost nothing about the fact that the ECB is going to do to solve it. However, he hastened to note that in its growth euro has not yet reached the point where it would take an immediate intervention by the authorities. "We just see how it contributes to a further reduction of the inflation rate," - he said, adding that since mid-2012 exchange rate appreciated by about ten percent. In order to avoid ambiguity, he explained that "it causes a reduction in exchange rate of inflation." But even vague statements can cause fluctuations in the market. After the speech, Draghi, on Friday, the euro fell against the dollar, although the previous day with the maximum value set in November 2011. Interesting to see how market participants will appreciate the euro this week. Will I Draghi impact statements? Perhaps, but in the absence of concrete action words soon lose their power. Last week, chief economist at UniCredit Bank in the Eurozone said: "The full quantitative easing - the only instrument of monetary policy, which could have a lasting impact on the euro, but soon it will not be used."
USD / JPY: After the sharp fall in 2013 to date, the yen strengthened against the dollar. At the end of last year, the dollar was worth around 105 yen, today the dollar / yen is below 102. Although the course has changed slightly, it indicates a change of trend from the previous plummeting currency against the dollar. Sharp depreciation of the yen in 2013 gave impetus to the powerful upsurge in the stock market in Japan, which resulted in the Nikkei 225 stock index gained more than 50%. Since the beginning of this year, however, the index has dropped by 13%. Given the fact that for the next wave of purchases in the stock market requires additional devaluation of the yen in the near future, market participants can expect disappointment. "Against the background of appreciation of the yen and the decline in the Japanese stock market, many investors suffered losses this year - said in a research note Roubini Economics, published last week. - Now they are looking for catalysts that would help expand this trend. Judging by our conversations with the monetary authorities, if the situation with internal growth or inflation does not deteriorate, then expect that this will serve as a catalyst for the monetary policy of the Bank of Japan, it is not necessary. " To date, the probability of expansion of quantitative easing in the short term it low. Meanwhile, market participants are trying to understand and analyze the fact that the Bank of Japan was not able to bring inflation down to two percent (based on the underlying index inflation consumer price inflation is now 1.3%). Some analysts predict that the yen will continue to grow, as the chief strategist for the bond market of Tokai Tokyo believes that the dollar against the yen this year will fall to the level of 85. He said in an interview with Bloomberg last week that today the yen approached the fair cost estimates based on purchasing power parity from the OECD. "PPP index shows that the yen has fallen too far and now will be strengthened," - he said.
Material provided by the Trading Floor