Italy's Euro Party Not Universal as Ferrari, Campari Rejoice

As some of Italy’s best-known brands from Ferrari to Campari toast the weaker euro, many in the currency region’s third-biggest economy have little to celebrate so far.

The euro’s drop below $ 1.10 is favoring companies focused on markets outside the 19-nation bloc. But with more than 40 percent of the nation’s exports going to other euro countries, the benefit is eluding many in the recession-hit economy.

“The weaker euro doesn’t mean much for us,” said Tiziano Paciti, a partner at marble-work manufacturer Marmi Regina Srl, based near Verona in the north of the country. “Our main clients are in France and Germany, and our suppliers outside the region have always paid in euros and I see no reason why they should change now.”

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With the European Central Bank pumping in stimulus to help the euro area, President Mario Draghi has touted the resulting weaker currency as a boost for the region’s economy. In Italy, the government has cited the currency’s plunge among the top favorable conditions that will help the country emerge from a record-long recession that began more than three years ago.

The euro has plunged about 11 percent against the dollar this year and is the worst performer among a basket of peers measured by Bloomberg Correlation-Weighted Indexes. It was trading at $ 1.08 Wednesday after falling below $ 1.05 last month.

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Jeep Renegade

While Paciti’s remarks reflect the view of thousands of small firms in Italy, the country’s most famous business leaders see things differently. Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne said last month that the cheaper euro will help sales of Jeep Renegade, the first Jeep model exclusively built outside North America.

For Ferrari, controlled by Fiat, the weaker exchange rate also means a profit-margin boost on U.S. sales. Its high-end sports cars are all built at its plant in Maranello near Modena.

“This is a favorable time for Italy,” said Brunello Cucinelli, chief executive officer of his namesake company, known for its linen and silk sweaters. “The weaker euro will support our exports,” he said on March 10, commenting on both the company and the country’s economy.

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Among those celebrating the latest currency-market developments was Milan-based drinks maker Davide Campari-Milano S.p.A. Starting in the fourth quarter of 2014, what it said was a “very unfavorable” currency impact last year was partially unwound, according to its full-year results.

Most of the luxury-goods companies whose exports benefit from the lower euro “manufacture at home, costs are kept low,” Bloomberg Intelligence analyst Deborah Aitken said in a March 24 report. “With strong gross profits, export prices do not have to be raised, making them more competitive.”

No Control

Italian exports to countries outside euro region totaled 238 billion euros in 2014, up 1.5 percent from the previous year.

Data for 2015 have so far been mixed. Sales of goods and services outside the bloc declined 2.4 percent in January from a year earlier, Istat said last month. While comparable data for February won’t be available until April 16, preliminary figures show that exports outside the entire European Union rose an annual 7.1 percent that month. The statistics office will publish February industrial production data on April 13.

“I really don’t understand why the euro exchange rate should be a good news,” Giuseppe Zanotti, founder and owner of shoemaker Giuseppe Zanotti Design, said in a March 17 interview.

“It’s something that we can’t control anyway,” said Zanotti, whose customers include Madonna and Beyonce. “A weaker or stronger euro won’t change the things. A stronger or weaker idea will do that.”

Short Lived

Ultimately, even those benefiting from the weaker euro may find the boon is short-lived, with analysts and economists at Italy’s largest bank forecasting a reversal for the currency.

“The euro may have bottomed out,” Vasileios Gkionakis, UniCredit’s London-based head of global foreign-exchange strategy, said in a note on March 25. UniCredit estimates a long-term euro-dollar fair value at about $ 1.20 and says it’s hard to justify an even short-term fair value below $ 1.15.

For Alberto Bagnai, who teaches economics at Gabriele d’Annunzio University in Pescara, the currency fluctuations don’t change the ease or difficulties related to Italy’s main export destination.

In a study published in August, he estimated the impact of the currency’s depreciation “to be almost zero or negative in the first three to four years.”

“A depreciation of the euro leaves unaffected the price competitiveness of Italian goods in Italy’s largest market, the euro region,” said Bagnai, author of two books advocating the dismantling of the monetary union. “The increase in exports towards U.S., Japan, and the emerging countries will be offset by an increase in imports from the euro zone.”

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Dollar rises after Fed minutes reveal rate debate

NEW YORK: The dollar rose against the euro on Wednesday (Apr 8) after the minutes of the Federal Reserve’s last policy meeting showed a split over the timing of an interest rate increase.

According to the minutes of the Mar 17-18 meeting of the Federal Open Market Committee, “several participants” thought conditions were right for a June hike in the federal funds rate, stuck near zero since late 2008.

Others deemed the economy would not be able to weather a hike until later in the year, while “a couple” said liftoff would remain unlikely until 2016.

“After the FOMC meeting, people were convinced that the June rate hike was off the table, and the bottom line is between now and then,” said David Solin of Foreign Exchange Analytics. But the foreign exchange market “had jumped the gun by thinking that a June hike was off the table,” he said.

The dollar strengthened against the euro, pushing it down to US$ 1.0780 from US$ 1.0811 late Tuesday.

Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, said that the minutes had “a somewhat more hawkish tone than many were expecting, especially given the extent to which the Fed cut its forward guidance on growth and inflation at its March meeting.”

U.S. dollar continues rally against euro, amid possible rate hike delay – — The U.S. dollar rallied by more than 1% against the euro on Tuesday, amid weaker than expected services data in the euro zone and expectations for a delayed interest rate hike by the Federal Reserve.

EUR/USD fell 0.0116 or 1.06% in U.S. afternoon trading to 1.0807, moving steadily lower from a daily-high of 1.0956 in European morning trading. European markets reopened on Tuesday after a four-day weekend for the Easter holiday.

The pair likely gained support at a low of 1.05 from March 11 and resistance at 1.11, the high from Mar. 4. On Monday, EUR/USD moved above 1.10 for the first time since Mar. 25, before falling back to 1.094.

While the Markit Eurozone Services Business Activity Index increased from 53.7 in February to 54.2 in March, expansion in output still fell below previous estimates of a 54.3 reading. Increases in Germany, Italy and Spain accelerated growth while the United Kingdom’s service-sector PMI peaked at 58.9, to reach a multi-month high.

Price discounting throughout the euro zone drove growth on the continent.

“The PMIs are indicating somewhat sluggish GDP growth of 0.3% for the first quarter.,” said Chris Williamson, Chief Economist at Markit. “However, the important message from the survey data is that the pace of expansion looks set to gather pace in coming months.

Meanwhile, in the U.S. Federal Reserve Bank of Minneapolis president Narayana Kocherlakota said at a speech on Tuesday that the Fed may not need to raise its benchmark Federal Funds Rate until the second half of 2016.

“In light of the outlook for unduly low employment and unduly low inflation, the Fed can be both late and slow in reducing the level of monetary accommodation,” Kocherlakota said in a speech to the Chamber of Commerce in Bismarck, N.D.

The comments came in light of a disappointing U.S. jobs report last Friday when the U.S. Bureau of Labor Statistics said in its monthly jobs report that the economy added 126,000 in March, halting a streak of 12 consecutive months of job growth that exceeded 200,000. The modest job increases nationwide marked the weakest period of hiring in 15 months. In terms of average weekly earnings, employees nationwide received the smallest annual gains in wages since last June.

The labor force participation rate, which measures the number of people who are either employed or actively looking for work, also painted a bleak outlook. During the month of March, the rate ticked down to 62.7%, the lowest level in 36 years.

In mid-March, Federal Reserve chair Janet Yellen indicated that the Fed could begin raising interest rates when it was “reasonably confident” that inflation will move toward its target inflation of 2%. Yellen added that the Fed will take a “data-driven” approach to potential liftoff by keeping a close eye on wage and GDP growth before raising rates.

Yields on the U.S. 2-year, meanwhile, have ticked up to 0.520, after reaching a two-month low at 0.47 late last week. At Tuesday’s 3-year note auction of U.S. Treasuries, yields stood at 0.865% with average demand of $ 24 billion. Many analysts believe the lower yields reduce the possibility that the Federal Reserve could increase rates by June.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, edged up on Tuesday by 0.95 points to 98.16 offers an extensive set of professional tools for the financial markets.
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Euro at Risk on Critical Test in ongoing Greek Debt Crisis –

  • Greek debt difficulties threaten to force important Euro volatility
  • Key debt auction on April 8, 2015 a key event on the calendar
  • Failure to roll over existing debt raises the threat of Greek default

We’ve recently written on why Greece remains a major threat to financial market stability and the Euro currency itself. And indeed those tensions may be coming to a head as traders send EUR/USD volatility prices significantly higher ahead of the upcoming Greek debt auction. The central point is clear: if Greece fails to refinance expiring Treasury Bills at an acceptable rate, the risks of a larger Greek government default grows significantly.

Key Dates Continue to Warn of Substantial Volatility

April 8 Greek Government to auction €875 million in 178-Day Treasury Bills

April 9 – Greece is to pay €460m to the IMF under terms of first bailout agreement.

April 14 €1,400m of short-term Greek Treasury Bills mature, forcing Greece to roll over into new debt.

April 15Greek Government to auction yet-undetermined amount in 3-month Treasury Bills

A look at FX volatility prices show that traders predict volatility will be especially high through tomorrow’s close, while 1-week and 2-week volatility prices are significantly above even one-year options.

Euro 1-Day Volatility Prices Are Substantially Above 1-Year Prices – Underline Urgency

View gallery


Euro at Risk on Critical Test in ongoing Greek Debt Crisis

Data source: Bloomberg. Chart source: R, ggvis

As we wrote last week, some of the most sophisticated traders in the world believe that the coming two weeks will bring substantially more uncertainty than the coming year. This is somewhat illogical—there’s far more you can’t know about 365 days in price action than you can expect in 24 hours. Yet it underlines the urgency of upcoming risks.

What’s at Stake?

If the Greek government fails to hold a successful auction for a relatively modest €875 million in 178-Day Treasury Bills it will signal that investors have all but lost confidence in its solvency.

As it stands most of the Greek government’s short-term debt is held by domestic banks. In normal circumstances those same banks might step in and buy more Greek debt. Yet the domestic financial sector is heavily dependent on substantial Emergency Liquidity Assistance (ELA) from the European Central Bank for its own liquidity. European officials have already told Greek banks that they are not to increase their holdings of short-term government debt.

Demand for tomorrow’s auction will have to come from private investors—domestic or abroad—to cover any gaps for the embattled Greek Treasury. The secondary market for the maturing debt shows that private investors are demanding a usurious 35 percent effective annual yield for debt maturing next week. This is a dangerous signal that private demand will not cover the shortfalls of what Greek banks cannot buy themselves.

Yield to Maturity on Greek Treasury Bills due April 14 Surges to Usurious 35 Percent

View gallery


Euro at Risk on Critical Test in ongoing Greek Debt Crisis

Data source: Bloomberg Generic Pricing (BGN). Chart Source: R

The apparent lack of private demand for its Treasury Bills leaves the Greek Government at risk, and ultimately its best hope may rest on purchases from other sovereign governments. And indeed Greek Government officials have made very public overtures to curry favor with Chinese and Russian governments as of late. Whether or not this results in actual bond buying remains to be seen.

Euro Reactions are Far from Predictable

We’re entering a critical stretch for the ongoing Greek sovereign debt crisis, and the next 24 hours may determine near-term direction in the Euro and domestic financial markets.

If the upcoming Greek debt auction fails to elicit sufficient interest, we could see substantial Euro volatility and broader financial market turmoil. Heightened sovereign risks could discourage market makers from making prices in EUR pairs, and in effect this means that the Euro could both rally and fall sharply on any news headlines.

Any surprises could force substantial market moves, and traders should limit trading leverage—particularly in EUR pairs—ahead of the key dates.

— Written by David Rodriguez, Quantitative Strategist for

Contact and follow David via Twitter:

original source

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Bridgewater surges on euro short

Bridgewater typically bets on dozens of markets at once, making its portfolio relatively unconcentrated. Besides the bearish euro bet, winning positions for Pure Alpha funds in January included a long bet on the Japanese yen versus a short bet on the euro. The fund also made money on long stock bets in Europe, according to the person briefed on the performance.

In February, the largest winner was a long bet on Japanese equities, plus gains on U.S. and European stocks (also long). Smaller gains were made by betting long on interest rates in the U.S. and U.K., the person said.

In March, the largest gain came from a short of the British pound versus a long on the U.S. dollar. There were also winning short currency bets on the euro, Brazilian real, Australian dollar and Canadian dollar, according to the individual. Other winners were bullish bets on stocks and interest rates from both the U.S. and Japan.

Those portfolio gains came as Dalio recently expressed concern about making big investment bets ahead of a potential interest rate increase by the Federal Reserve.

“We expect a Fed tightening and are cautious about our exposures,” Dalio and Mark Dinner of Bridgewater wrote in a private note to clients and other followers March 11.

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Bridgewater’s performance far outpaces many other hedge funds.

The average macro fund is up just 3.07 percent net of fees as of April 1, according to a report by Bank of America Merrill Lynch. The average return for all hedge fund strategies was 2 percent over the same period.

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Forex focus: euro has experts sitting on the fence

What are the chances of the euro reaching €1.42 again any time soon? We asked the experts

It was only a few weeks ago that sterling peaked at a seven-year high against the euro at €1.42. Since then the single currency has regained around six cents.

That might not sound much, but if you were planning on spending £100,000 you’d be €6,000 worse off and if you received £1,000 a month you’d have €60 less to spend.

So what are the chances of the euro reaching €1.42 again any time soon? A straw poll among currency specialists showed opinion was divided.

Among those in the positive camp, is Charles Murray of FC Exchange ( ), who said: “In the short-term 1.40-plus is still a strong possibility, as Greece is dangerously close to running out of money 20 April touted as a likely date for this to happen.”

Alistair Cotton from Currencies Direct ( ) also expects the rate “to move back towards 1.40 over the coming months”.

Caxton FX’s ( ) Nicholas Ebisch is even more upbeat: “There is scope for the rate to return to its peak of 1.4250 soon. The predictions for the euro over the next three months are that there will be steady euro weakness.”

Trevor Charsley at AFEX ( ) agreed, saying: “On the premise that we get a similar government to the incumbents we do see GBP/EUR testing 1.4250 after the election. The next target after this is 1.4500.”

Angus Campbell from FxPro ( ) doesn’t believe there is much that can help the euro, saying, “It is hard to see the euro regaining too much of the ground it lost in the first quarter of the year despite its recent best efforts to do so.”

On the other side of the euro fence, among the pessimists is Chris Towner of HiFX ( ). He said: “We would expect the euro to strengthen back again towards €1.30 in the months ahead.”

Josh Ferry Woodard is also in this camp, saying, “As long as Greek officials manage to keep the Hellenic nation inside the eurozone then we could see GBP/EUR weaken towards 1.32-1.34 over the next three months.”

Those sitting on the fence include Chris Saint of Hargreaves Lansdown (LSE: HL.L – news) ( ) is reluctant to commit while the UK fights its closest general election in decades. He said: “Sterling’s 10pc rise since the start of 2015 to highs of €1.4250 looked to be a little too far too fast and I don’t see it reaching these heights again before we know the outcome of the election. However, the euro’s longer-term weakening trend looks to be intact and I suspect sterling could re-test these highs later in the year, particularly if ‘Grexit’ fears linger as UK political risks fade.”

Charles Purdy of Smart Currency Exchange ( ) is also hedging his bets: “The euro is unlikely to show major strengthening in the short term but also unlikely to see further significant weakness, especially as other countries such as the UK and the US will be very reluctant to see their exporters unduly penalised.”

The huge question mark hovering over the direction of the pound is the UK election in May.

David Kerns of moneycorp ( ) said: “The GBP/EUR rate appears to have peaked in the short term at €1.42 as sterling itself has come under selling pressure following some disappointing economic data releases at home.

“As the general election looms ever closer that too can have a detrimental impact on the pound as investors shy away from the UK until the leader of the next parliament is known.”

A hung parliament of some form or another looks likely at the moment and none of the outcomes is completely positive. A slim Tory win, while generally encouraging for the pound, has the drawback that David Cameron’s promised referendum on the EU will depress sterling.

However, the biggest threat to the eurozone is the risk that the Greek debt crisis will mean it exits the currency bloc. As negotiations between the Greek government and its creditors heat up and deadlines get nearer, starting this week, the euro is likely to start wobbling.

“The main danger from a ‘Grexit’ is that it sets precedence for departure from the euro,” said Charsley. “Something that Mario Draghi the ECB governor has said is irreversible. If he is proven to be wrong, this could be the beginning of the end for the euro.”

And that’s not all. The eurozone is still struggling with too many out of work, particularly in the southern states, low or no inflation and quantitative easing, which all combine to keep downward pressure on the currency.

But, from a self-interested point of view, a continuing weak euro is going to be welcomed by businesses and expats getting funds in pounds.

Currencies: Euro trims losses after U.S. job-openings report

NEW YORK (MarketWatch) — The euro trimmed its earlier losses Tuesday after the Department of Labor said U.S. job openings rose to a 14-year high in February.

The euro EURUSD, -0.58%  was at $ 1.0875, compared with $ 1.0937 Monday evening, trimming its earlier losses after the Labor Department showed that job openings rose to 5.13 million in February from 4.97 million in January. The dollar was little-changed against its other rivals after the report.

The euro had moved lower against the dollar early Tuesday as traders in Europe returned to their desks after a four-day weekend that included market holidays on Friday and Monday.

The euro had surged against the dollar Friday after the U.S. Labor Department reported the weakest rate of jobs growth in 15 months, and it continued to trade above $ 1.09 during Monday’s session.

But swings in the euro-dollar exchange rate were likely exaggerated over the last two sessions amid thin trading volume, analysts said. That said, thin volumes don’t always affect currency price moves, according to RBC Capital Markets.

“We’re seeing liquidity return and prices start to normalize,” said John Doyle, director of markets at Tempus Inc.

Currency traders appeared to shrug off data showing the eurozone economy grew at its fastest pace in 11 months in March.

Earlier in the global day, the Reserve Bank of Australia defied the market’s expectations and left its cash target rate, its benchmark interest rate, unchanged, sending the Australian dollar to its highest level against the buck in eight days.

The aussie AUDUSD, +0.74%  hit a session-high of 77.13 cents, before falling to 76.55 cents in recent trade. It traded at 75.99 cents Monday evening.

Financial markets had been pricing in a 75% chance the benchmark interest rate would be trimmed by 0.25 percentage point to a record-low 2.0%.

Read: Australia keeps interest rates steady at 2.25%

In other Asia trade USDJPY, +0.70%  rose to ¥120.17, compared with ¥119.48 late Monday in North America.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, said that rising Treasury yields are attracting foreign flows to the U.S. dollar.

“In North America today the calendar is nearly barren so price action will likely be driven by equity and fixed income markets,” Schlossberg said in a note to clients.

The ICE U.S. Dollar Index DXY, +0.55% a measure of the dollar’s strength against a basket of six rivals, was up 0.7% to 97.4360.

Services sector boasts further growth

Ireland’s services sector expanded during March, as companies operating in the sector continue to benefit from a recovering economy. However, the sharp fall in the value of the euro during the month contributed to a significant rise in input costs.

According to the latest Services Purchasing Managers’ Index from Investec, March saw further growth in new orders, as the headline PMI reading of 60.9 demonstrates “clear and consistent strong growth”, bringing the current sequence of expansion to 32 consecutive months.

Philip O’Sullivan, chief economist, Investec Ireland, said that the latest survey reveals further expansion of activity in March.

“While the rate of growth implied by the headline PMI moderated for a third successive month to 60.9 (from 61.4 in February), it is consistent with a sharp rate of expansion, with the sequence of above-50 readings now extending to 32 successive months,” he said.

Irish services companies benefited from healthy demand from both domestic and overseas customers, according to Investec, with the New Orders index still well above the series average.

Employment across the services sector continues to be broad-based, Mr O’Sullivan said, with data for the four segments of the services industry – TMT, business services, financial services and travel & leisure -reporting simultaneous growth in headcounts for a sixteenth successive month.

However, the survey also revealed that the impact of the European Central Bank’s quantitative easing programme, aimed at stimulating growth in the euro zone, is somewhat of a double-edged sword. The fall in the value of the euro against Ireland’s largest trading partner, the UK, contributed to a sharp rise in input costs in March, but new orders also grew at a substantial pace with new business from abroad, in particular from the UK.

Looking ahead, Mr O’Sullivan noted that, despite recent slippage, the expectations index remains well above the series average, signalling that services firms remain upbeat on their prospects.

“A tangible sign of this is the ongoing rise in payrolls in the sector. Given these factors, we are confident that further encouraging Services PMI readings will be posted in the coming months.”

Meanwhile, euro zone business activity accelerated in March at its fastest pace for nearly a year as customers took advantage of ongoing price discounting to place new orders at a rate not seen since mid-2011, a survey found.

The upbeat survey will provide welcome news for the European Central Bank just weeks after it embarked on a trillion- euro asset-purchase programme to try and spur growth and inflation.

Markit’s final March Composite PMI, seen as a good indicator of growth, stood at 54.0, a touch below the preliminary estimate of 54.1 but well ahead of February’s 53.3. A reading above 50 implies growth.

“The PMIs are indicating somewhat sluggish GDP growth of 0.3 per cent for the first quarter. However, the important message from the survey data is that the pace of expansion looks set to gather pace in coming months,” said Chris Williamson, Markit’s chief economist.

A sub-index measuring new orders leapt to 54.1 from 52.5, its highest since May 2011. That suggests a healthier outlook although the survey also showed companies have now been cutting prices for three years, although not as sharply in March.

Euro zone business growth up as new orders pour in

Euro zone business activity accelerated in March at its fastest pace for nearly a year as customers took advantage of ongoing price discounting to place new orders at a rate not seen since mid-2011.

The upbeat survey will provide welcome news for the European Central Bank just weeks after it embarked on a trillion-euro asset-purchase programme to try and spur growth and inflation.

Markit’s final March Composite Purchasing Managers’ Index, seen as a good indicator of growth, stood at 54.0, a touch below the preliminary estimate of 54.1 but well ahead of February’s 53.3.

A reading above 50 implies growth.

“The PMIs are indicating somewhat sluggish GDP growth of 0.3% for the first quarter.

However, the important message from the survey data is that the pace of expansion looks set to gather pace in coming months,” said Chris Williamson, Markit’s chief economist.

Markit’s growth projection is slightly less than the 0.4% predicted in a Reuters poll taken last month.

A sub-index measuring new orders leapt to 54.1 from 52.5, its highest since May 2011.

That suggests a healthier outlook although the survey also showed companies have now been cutting prices for three years, although not as sharply in March.

Euro zone consumer prices fell again in March, as expected, but the decline was the smallest this year.

That price-cutting helped drive service industry activity up at its fastest pace in eight months. The March service sector PMI rose to 54.2 from 53.7, just below the flash 54.3 estimate.

With the recovery gathering steam and confidence growing because of the ECB’s QE programme, service companies were at their most optimistic since May 2011.

The business expectations sub-index came in at 64.8 compared with February’s 64.1.

“With the ECB’s policy of quantitative easing also set to provide a boost to the nascent recovery in coming months, the economic outlook is therefore brightening as we expect to see more upward revisions to growth forecasts for the year,” Williamson said.