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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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.

Euro zone business growth accelerates as new orders pour in

By Jonathan Cable

LONDON, (Reuters) – 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 Purchasing Managers’ Index (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 percent 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 percent 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.

Euro-Area Price Drop Slows as Draghi Implements QE Plan

(Bloomberg) — A slump in euro-area consumer prices eased in March, offering respite to the European Central Bank after it ramped up stimulus to fend off a deflation threat.

The annual rate of inflation in the 19-nation bloc climbed to minus 0.1 percent from minus 0.3 percent in February, the European Union’s statistics office in Luxembourg said on Tuesday. That’s the fourth consecutive reading below zero and in line with the median estimate in a Bloomberg survey. Unemployment fell to 11.3 percent in February from a revised 11.4 percent the previous month.

The Frankfurt-based ECB pledged to buy 1.1 trillion euros ($ 1.2 trillion) of assets including government bonds through September 2016 to fend off deflation. ECB President Mario Draghi, who pushed the program through against resistance from Germany, has already signaled that he expects victory and presented forecasts showing inflation back in line with the bank’s mandate of just below 2 percent in 2017.

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“The inflation rate is set to rise again over the course of the year, mainly because oil prices will start increasing at some point as well,” said Marco Wagner, an economist at Commerzbank AG in Frankfurt. “The latest ECB measures might of course have an effect as well, but it’s probably minor.”

Bundesbank President Jens Weidmann, who opposed the program, has argued that consumer prices would pick up anyway as the drop in energy costs adds to previous ECB action in stimulating the economy.

Core Inflation

Core inflation in the euro area slowed to 0.6 percent in March from 0.7 percent, according to today’s report. Energy prices fell 5.8 percent after a 7.9 percent decline in February.

Economists surveyed by Bloomberg forecast euro-area consumer prices will remain unchanged this year before rising 1.2 percent in 2016. The ECB also projects stagnating prices for 2015 and sees inflation at 1.5 percent in 2016 and 1.8 percent in 2017.

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In Spain, where the inflation rate has been below zero for nine months, the slump in consumers prices moderated in March after hitting a record low of minus 1.5 percent in January. In Germany, the rate turned positive for the first time in three months as a recovery in the region’s largest economy gathers momentum.

To contact the reporter on this story: Stefan Riecher in Frankfurt at [email protected]

To contact the editors responsible for this story: Fergal O’Brien at [email protected] Jana Randow, Paul Gordon

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Euro/Dollar Parity: What's Next?

View photo

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Recently there has been a lot of speculation about whether or not the dollar and euro will trade equally in the coming months.

The divergence in policy between the U.S. Federal Reserve and the European Central Bank has contributed to the euro’s sharp decline and the dollar’s rally, but disappointing economic figures out of the U.S. caused many traders to step back and reevaluate whether or not parity is on the horizon.

Dollar Rally Nearing Its End?

In March, the Fed indicated that it was in no hurry to raise rates, causing many to revise their estimates for when the bank would increase its ultra low borrowing rate.

Additionally, the dollar has lost some of its momentum over the past week after economic data suggested that the US recovery may not be as rock-solid as initially believed.

A durable goods report showed that new orders fizzled in February, causing investors to further question whether or not the Fed would consider a rate hike any time soon.

Dollar Reserves Telling

With the euro trading at $ 1.0849 on Monday morning, all eyes are on the International Monetary Fund as it prepares to release its COFER for Currency Composition of Official Foreign Exchange Reserves on Tuesday.

The report will detail foreign exchange holdings for central banks around the world in the last quarter of 2014.

An increase in dollar reserves, which is what most expect to see, would likely drive the dollar higher and push the exchange rate closer to one to one ratio.

Related Link: Not All European Firms Are Profiting From A Weaker Euro

Predictions Divided

Analysts are divided as to whether or not the dollar will reach parity with the euro. HSBC predicted that the dollar rally was nearly over saying that the greenback has become severely overvalued.

Former IMF and Fed economist Stephen Jen is forecasting the opposite, saying that the two could reach parity by May or June.

Barclays is also betting on a one to one ratio this year, with their analysts expecting to see the euro dip below parity with the dollar in the third quarter of this year.

See more from Benzinga

Euro hurt by Greek uncertainty, dollar helped by rate outlook

The euro fell on Monday, hurt by uncertainty over whether Greece and its international creditors will be able to strike a deal that will help Athens secure funding before it runs out of money by April 20.

Talks continued through the weekend on reforms to unlock loans and Athens sounded an upbeat tone, but the lenders said it could take several more days before a proper list of measures was ready.

The dollar rose broadly, helped by comments from Federal Reserve chair Janet Yellen, who underscored the view that the Fed is likely to start raising interest rates gradually later this year.

The dollar edged up 0.3 percent to 119.50 yen, while the euro fell 0.6 percent to $ 1.0830, having in the last two weeks pulled away from a 12-year trough of $ 1.0457.

“Even though euro short positions are at record highs, given the Greek uncertainty and the bias for more monetary injection by the European Central Bank, the path for least resistance is a lower euro/dollar,” said Jeremy Stretch, head of currency strategy at CIBC World Markets.

“Unless the euro drops below $ 1.0770 we could see ranged trading, but with the Fed still looking to raise rates, we could see conditions later this week that are more helpful for overall dollar strength.”

U.S. jobs data on Friday will be a key event for the dollar this week and a robust report could see investors position for tighter monetary policy sooner rather than later.

FX options indicate big euro/dollar swings may pause

imageLONDON: Recent sharp swings in the euro/dollar exchange rate have not been matched by moves in the currency options market, as a cautious outlook from the U.S. Federal Reserve pushes back expectations of when rates will rise.

The euro, which hit a 12-year low of $ 1.04570 the day before the Fed meeting began, jumped to a high of $ 1.10625 in the hours after Fed Chair Janet Yellen hinted on March 18 that interest rates would not be raised in a hurry.

It was the biggest one-day percentage jump in euro/dollar in six years and was followed a day later by its second-biggest fall since November 2011.

But in the options market, one-month euro/dollar implied volatility, a gauge of how sharp swings will be in the pair and used by investors to hedge exposure, has fallen towards levels last seen before the Federal Reserve’s March 17-18 meeting.

It was at around 11.4 percent on Wednesday, down from 13 percent on Monday and 12.7 on March 16.

“The more accommodative Fed policy stance means more liquidity and that should see the short end of the implied volatility curve head lower,” said Adam Myers, European head of FX strategy at Credit Agricole.

“At the same time, chances that the Fed could start tightening in September will keep a bid at the longer end.”

This suggests euro/dollar may enter a period of range-bound trading before resuming its trek lower.

Fed policymakers lowered their median estimate for the federal funds rate — the so-called “dot plot” — and sent a more dovish message than many were expecting. Investors pushed back expectations for a rate hike to September from June.

Yellen also flagged some discomfiture about the dollar’s strength and its impact on U.S. inflation.

That triggered a sell-off in the dollar, which has lost 3.5 percent since hitting a 12-year high of 100.39 against a basket of currencies on March 13.

The euro, which many still expect to drop towards parity with the dollar in coming months as the European Central Bank unleashes its asset-buying programme, has stabilised just below $ 1.10 as investors trim bets against it.

Traders said that unless the euro drops below $ 1.08 or sustains gains above $ 1.10, demand for short-dated options to hedge against sharp moves will be low.

“After such a huge risk event like the Fed, it is but natural for short dated implied vols to come off,” said a chief options trader at a European bank. “It could go down a bit more before stabilising.”

Analysts said the uncertainty about the Fed rate outlook would support implied longer-dated volatilities, especially those maturing in September and later.

“The stage is set for a noisy run-in to mid-year lift-off amid poor and possibly deteriorating liquidity,” JPMorgan’s Arindam Sandilya wrote in a note.

Copyright Reuters, 2015

U.S. stocks sag as euro equities, dollar gain

By Michael Connor

NEW YORK (Reuters) – Wall Street drifted down while European shares neared record highs in choppy global equities trading on Tuesday as the dollar rebounded and oil prices fell.

The dollar’s gains knocked the euro back below $ 1.10, even as yields on U.S. Treasuries eased on betting in credit markets that low inflation will persist and delay interest rate hikes by the Federal Reserve.

Data from home sales to inflation and manufacturing published on Tuesday indicated the U.S. economy remains strong but did little to shift Wall Street expectations about the timing of the first Fed rate increases since 2006.

The Dow Jones industrial average (.DJI) closed down 104.96 points, or 0.58 percent, at 18,011.08, the S&P 500 (.SPX) lost 12.92 points, or 0.61 percent, to 2,091.50 and the Nasdaq Composite (.IXIC) dropped 16.25 points, or 0.32 percent, to 4,994.73.

Declines on the Nasdaq were held in check by a boost from Google (GOOGL.O), up 2 percent to $ 570.19. Morgan Stanley’s (MS.N) chief financial officer is leaving the bank to join Google.

Europe’s FTSEurofirst 300 (.FTEU3) index of top shares closed up 0.26 percent at 1,604.36, near a recent 7-1/2-year high, after a stronger-than-expected survey showed euro zone manufacturing at a four-year high.

The MSCI world equity index , which tracks shares in 45 nations, was off 0.21 percent at 432.00 after rising to almost 434.5, according to Thomson Reuters data.

The euro (EUR=) topped $ 1.10 early in the global session but was last down 0.30 percent at $ 1.092. The dollar has been on a roll for 12 months, rising more than 20 percent against a basket of major currencies on expectation of higher U.S. rates.

“Any positive surprises from the euro area are further adding to this euro/dollar rally; however we think this is temporary,” said Nikolaos Sgouropoulos, foreign exchange strategist at Barclays in London. “We still believe in the dollar strength trend going into the second half of the year.”

The greenback’s gains have been tempered somewhat since the Fed last week cut its forecasts for U.S. inflation and growth, forcing investors to reconsider when the Fed might start raising rates.

The dollar index (.DXY) was last up 0.1 percent at 97.156, below its 12-year peak of 100.390 struck on March 13.

San Francisco Fed President John Williams said on Tuesday the strong dollar would drag on growth this year, though the U.S. economy was strong enough to handle it.

Bond yields fell with inflation remaining low. Core U.S. consumer inflation is running at a 1.7 percent year-over-year rate and U.K. inflation was unchanged on an annual basis.

Benchmark 10-year U.S. Treasury notes were last up 10/32 in price, the yield falling to 1.88 percent.

Brent crude fell under $ 55 a barrel (LCOc1) and was last off 1.61 percent at $ 55.02, as Saudi Arabia said its production was close to an all-time high. [O/R]

(Additional reporting by Jemima Kelly, Ahmed Aboulenein, Patrick Graham and John Geddie in London, Blaise Robinson in Paris and Lisa Twaronite in Tokyo; Editing by Mark Trevelyan, James Dalgleish and Dan Grebler)

Euro zone and U.S. manufacturing expand, China struggles

By Jonathan Cable and Caroline Valetkevitch

LONDON/NEW YORK (Reuters) – Euro zone businesses ramped up activity this month as the European Central Bank started printing money to spur economic growth, while a slowdown among Chinese factories fueled expectations of more monetary stimulus.

U.S. manufacturing activity growth also edged up despite a stronger U.S. dollar and the threat of an interest rate rise from the Federal Reserve later this year.

The Eurozone Composite Flash Purchasing Managers’ Index (PMI) from data vendor Markit, based on surveys of thousands of companies and seen as a good growth indicator, jumped to a near- four-year high of 54.1 from February’s 53.3.

The surveys pointed to first-quarter euro zone economic growth of 0.3 percent, Markit said, matching the previous three months’ but shy of the 0.4 percent median forecast in a Reuters poll taken earlier this month. [ECILT/EU]

The ECB began its quantitative easing program to buy bonds worth more than a trillion euros in March.

“I wouldn’t want to give QE too much credence at this stage. The ECB has only been buying for a couple of weeks and QE takes a long time to have any impact – if at all,” said Peter Dixon at Commerzbank. “The outright QE itself has had zero impact; growth was already happening.”

A sub-index measuring euro zone prices jumped to an eight-month high of 49.0. But it has spent three years below the break-even level of 50, suggesting inflation will not return any time soon.

Oil prices have tumbled over the past nine months and inflation rates across the world have followed suit.

European shares and the euro edged up after the surveys were published but the slowdown in China kept oil and commodities-linked assets under pressure. [MKTS/GLOB]

CHINA BRAKES

China’s flash HSBC/Markit PMI dipped to an 11-month low of 49.2 in March, below the 50 level that separates growth from contraction.

“The deteriorating PMI confirmed that downside risks to China’s 2015 growth have started to materialize. We expect an accelerated monetary easing cycle and somewhat loosening of the fiscal stance,” said Jian Chang at Barclays.

Some analysts expected China’s first-quarter economic growth to slip below the government’s new full-year target of 7.0 percent, widely seen as the level needed to keep employment steady.

China’s economic slowdown is stabilizing, with employment and services among the bright spots, Vice Premier Zhang Gaoli said on Sunday.

The country’s leaders have said they would be willing to tolerate somewhat slower growth as long as the labor market remained resilient. But the latest PMI employment sub-index contracted for a 17th straight month, hitting its lowest since the depths of the global financial crisis.

U.S. MANUFACTURING GROWTH AT FIVE-MONTH HIGH

Growth in the U.S. manufacturing sector edged up to a five- month high in March, according to Markit.

The preliminary U.S. Manufacturing Purchasing Managers’ Index rose to 55.3, its highest since October, when the final PMI was 55.9.

“Manufacturing regained further momentum from the slowdown seen at the turn of the year, with output, new orders and employment growth all accelerating in March,” said Chris Williamson, Markit’s chief economist.

The flash reading of the index measuring new orders also rose in March to the highest since October, coming in at 56.4, compared with February’s final reading of 55.8.

Employment growth also rose in March from February, Markit said.

(Corrects paragraph 15, subhead, to 5-month high from 4-month high for U.S. PMI)

(Additional reporting by Kevin Yao in Beijing; Editing by Jeremy Gaunt, Clive McKeef and Dan Grebler)

Currencies: Euro down against dollar, yen after staging rally

The euro fell against the dollar and the yen in Asia trade Tuesday, with some traders adjusting positions after the currency staged a rally overnight.

The euro EURUSD, +0.31%  was at $ 1.0920 from $ 1.0946 late Monday in New York. That compares with a high of $ 1.0972 overnight but still below $ 1.1037 soon after the outcome of the Federal Open Market Committee last week.

The common currency EURJPY, +0.13%  was also at ¥130.53 from ¥131.07.

“After rising for no particular reason yesterday, (the euro) inevitably met with selling as it came closer to $ 1.10,” said Yuzo Sakai, manager of FX business promotion at Tokyo Forex & Ueda Harlow. Also investors are showing less of an appetite to buy the euro around ¥131, he added.

The single currency extended its recent rebound overnight after the Federal Reserve’s policy statement indicated it intends to proceed cautiously on interest-rate rises, much less aggressive than many had expected.

“It is natural to see a rebound to this extent” after the rapid pace of decline in recent sessions, said Sakai.

WSJ market wrap: March 23, 2015

U.S. stocks edged higher Monday, extending last week’s gains, though the Nasdaq Composite pulled back from its 15-year high. Tenet Healthcare agreed to a deal that will hand it control of United Surgical Partners International.

Federal Reserve Vice-Chairman Stanley Fischer said Monday the U.S. central bank remains on track to raise short-term rates this year.

Fischer said once rates begin to rise, they could easily move “up and down” depending on how the economy performs.

Over the near term, the euro may get a boost from short covering triggered by possible strength in eurozone PMI data later today, said Takuya Kawabata, analyst at Gaitame.Com Research Institute.

“If the pair manages to surpass the $ 1.10-mark, further gains are possible,” said Kawabata, who expects the pair to move in a $ 1.080-$ 1.1070 range Tuesday. But if U.S. inflation data also scheduled later today shows a stronger-than-expected pace of inflation, that may reignite hopes for an early U.S. rate increase that would bring about a return to the dollar buying.

Elsewhere, the Australian dollar AUDJPY, -0.28%  briefly hit as low as ¥93.85 after weak Chinese manufacturing activity data. The Aussie was most recently at ¥93.97.

The preliminary gauge of Chinese manufacturing activity by HSBC Holdings PLC fell to 49.2 in March, from 50.7 in February. A figure below 50 indicates contraction.

The WSJ Dollar Index BUXX, -0.17% a measure of the dollar against a basket of major currencies, was up 0.11% at 86.86.