Market Drivers for February 28, 2014

EU flash CPI beats sending euro through 1.3800

New Zealand Business confidence at multi decade highs

Nikkei -.55% Europe .10%

Oil $102/bbl

Gold $1329/oz.

Europe and Asia:

NZD ANZ Business Confidence 70.8 vs. 64.1

EUR GE Retail Sales 2.5% vs. 1.2%

EUR Flash CPI 0.8% vs. 0.7%

EUR Unemployment 12% vs. 12%

North America:



USD U of M 9:55 AM

USD Pending Homes 10:00 AM

The EUR/USD spiked through the 1.3800 figure on the final trading day of the week, after the release of the EZ flash CPI data suggested that deflationary pressures in the region may be starting to recede.

EZ CPI printed at 0.8% versus 0.7% eyed – still very low but off the lows of the year. More importantly the figure now allows the ECB to delay any action for perhaps another months as monetary authorities monitor economic activity in the region and hope for a pickup in demand and an uptick in price pressures.

The EUR/USD has been under constant threat of possible further rate cuts since the start of the year as deflation appeared to have taken hold in the EZ. The CPI data still remains woefully low – below 1% and well below the 2% ECB target – but the small rise in the flash reading today indicates that the worst of the deflationary pressures may have passed.

The ECB, which has been hampered in its attempts at a more active monetary policy by opposition from German courts, is loathe to act at this juncture as the interest rate cut option may be its only policy choice left. Mr. Draghi and company would no doubt like to reserve any such action for a more critical need. Therefore, the markets outsized reaction to today data release is understandable as it virtually removes the possibility of a rate cut this month.

Elsewhere, on the economic front, the New Zealand business sentiment survey soared to a multi-decade high reading of 70.8. The prior reading was 64.1. The surge in business optimism occurred against a backdrop of a rising currency and prospect of rate hikes suggesting that demand is extraordinarily robust. The kiwi tacked on 70 points in overnight trade and could now target the key 8500 figure as more speculative moves into the unit in anticipation of higher rates.

In North America today, the focus will turn to GDP readings, Chicago PMI and U of M data as well as Pending Home numbers. Markets are anticipating some weaker prints given the recent weather disruptions. However, perhaps the most interesting data set will come from Canada where the month over month GDP is expected to print at -0.2% versus 0.2% prior. The loonie has been markedly weak on fears that a further slowdown in Canada may force the BOC to consider lowering rates in the near term. A worse than expected GDP reading would only bolster that thesis and could put further pressure on the loonie, sending USD/CAD to a fresh test of the 1.1225 yearly highs.

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