Euro Drops on Bets ECB Policy Will Weaken Currency

ECB officials led by President Mario Draghi will leave monetary policy unchanged tomorrow, according to analysts in a Bloomberg News survey. The Frankfurt-based central bank unveiled unprecedented stimulus measures at its previous meeting on June 5, including negative deposit rates that tend to weaken a currency. Markit Economics said its construction index, based on a survey of purchasing managers, increased to 62.6 from 60 in May. That’s the highest since February and compares with the forecast for a decline to 59.8. The index has been above the 50 level that indicates expansion for more than a year. An index of housing activity increased to 66.6 in June from 62.7 in May, Markit said. That’s the highest since the gauge rose to 67.3 in January, which was the strongest reading in more than a decade. Commercial building grew the fastest in five months. The euro fell versus the dollar for a second day as investors prepare for speeches from Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi. The 18-nation currency fell after French Prime Minister Manuel Valls said in an interview with Les Echos newspaper that the ECB needs to go further to weaken euro. Policy makers meet in Frankfurt tomorrow.

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Euro economy; swinging between growth, expansion and slow inflation.

While Germany is scheduled to grow 2 percent this year, Italy will expand 0.3 percent in 2014, To ensure its debt is sustainable, Prime Minister Matteo Renzi is under pressure to push through spending cuts and foster growth in an economy burdened by the threat of deflation and the highest number of people unemployed in modern history.

The euro is poised to decline against its counterparts in the U.Sas well as those inemerging markets such as Brazil amid monetary easing from the European Central Bank, according to Barclays Plc, The dollar fell as a Commerce Department report showed U.S. consumer purchases increased 2 percent last month after being little changed in April. U.S. jobless-benefit claims declined less than forecast last week, another report showed. They decreased to 312,000, versus a Bloomberg survey’s projection for 310,000. The dollar gained 0.2 percent to $1.3607 per euro.

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WTI on three days high, Brent decline

West Texas Intermediate crude pared gains amid speculation that an Obama administration ruling on U.S. fuel exports would have limited impact on global markets. Brent’s premium narrowed as Iraq pledged to increase exports. WTI was traded 0.4 percent higher in New York, trimming an earlier advance of as much as 1.4%. Brent declined 0.7% in London, narrowing its spread against WTI to the least in a week. The Commerce Department granted Pioneer Natural Resources Co.’s request to classify stabilized condensates as petroleum products eligible for export, the company said. Oil production in Iraq remained unaffected as the government promised higher crude exports in July. Crude stockpiles reached 399.4 million barrels in April, the highest level since the EIA started publishing weekly data in 1982. Inventories probably fell by 1.7 million barrels.

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U.S. housing regaining footing as supply improves

U.S. home resale rose more than expected in May and the stock of properties for sale was the highest in more than one and a half years years, suggesting that housing was pulling out of a recent slump. The National Association of Realtors said on Monday existing home sales increased 4.9% to an annual rate of 4.89 million units. May's increase was the largest since August 2011. The forecast was that the sales will rise only 2.2% to a 4.73 million-unit pace last month. Sales, which rose in all four regions, were driven by the single-family home segment, the largest portion of the market. They likely reflected a pause in mortgage rates. The housing recovery stalled in the second half of 2013 as interest rates increased and prices surged against the backdrop of a dwindling supply of properties available for sale. Despite the second consecutive month of gains, sales were down 5.0% compared to May last year. They remain down 9% from a peak of 5.38 million units hit in July. Still, the increase in sales will be welcomed by the Federal Reserve, which is closely watching the housing market as it contemplates the future course of monetary policy.

 Fed Chair Janet Yellen has warned a prolonged slump could undermine the economy. The relatively bullish housing report offered further evidence that the economy has regained strength after weakening sharply in the first quarter. Rising sales and a steady pace of groundbreaking should help residential investment to modestly rebound in the second quarter after two straight quarters of decline. A separate report showed manufacturing expanding strongly in June. Financial data firm Markit said its preliminary or "flash" U.S. Manufacturing Purchasing Managers Index rose to 57.5, the highest reading since May 2010, from 56.4 in May. A reading above 50 signals expansion in economic activity. While home sales are rising, pockets of weakness remain. First-time buyers, a necessary ingredient for a strong housing market, continue to hug the sidelines. Many have also been priced out by stringent lending practices. Last month, first-time buyers accounted for only 27 percent of the transactions, hovering near their lowest level since the Realtors group started tracking the series. A market share of 40 percent to 45 percent for first-time buyers is considered by economists and real estate professionals as ideal. Investors, who have propped up housing are retreating fast, accounting for only 16 percent of transactions in May. The inventory of unsold homes on the market increased 6.0 percent from a year-ago to 2.28 million in May, the highest level since August 2012. In May, the month's supply of existing homes increased to 5.6 months from 5.7 months in April. Six months' supply is normally considered a healthy balance between supply and demand. Still, the improving supply is helping to temper price increases. The median home price increased 5.1 percent from a year ago, the smallest increase since March 2012.

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Euro-Zone, More loans for more liquidity…

The shared currency edged lower against the greenback on Friday, but still ended the week higher after the Federal Reserve indicated that its isn’t going to raise interest rates for a long period of time. The greenback remained under pressure after the Fed gave no indication of when interest rates could start to rise at the conclusion of its two-day meeting on Wednesday. In addition, the Fed’s forecast of where interest rates might reach in the long term fell from 4% to 3.75%. The central bank cut its bond purchases by $10 billion a month, to $35 billion, saying there was "sufficient underlying strength" in the U.S. economy to continue tapering. Despite this, the Fed also lowered its forecast for growth this year to a range of 2.1% to 2.3% from 2.8% to 3.0% previously, due to "unexpected contractions" in the first quarter as a result of the unusually harsh winter.

The Fed acknowledged the recent increases in inflation and drop in unemployment, but Chair Janet Yellen said no formula was in place for when interest rates would start to rise. In the blue region, The ECB plans to offer banks targeted long-term loans, or TLTROs, of as much as 400 billion Euros ($544 billion) for four years, with the condition that they boost credit to companies and households. By offering the loans at a small premium to current ultra-low rates, the ECB is signaling that borrowing costs will eventually increase. Banks have an incentive to use the program if they believe rates would be higher at the end of the loan period. The ECB’s benchmark rate is 0.15%. Euro dipped 0.06% to 1.3598 late Friday, but posted a weekly gain of 0.47%.

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WTI decline as production rose

WTI crude slid 0.4 percent today to $105.97 a barrel on the New York Mercantile Exchange. The grade is up 4.3 percent this quarter. Brent, the European benchmark, climbed 0.7 percent to $114.26, for a 6 percent gain in the quarter. U.S. gross domestic product will increase 2.2 percent this year and 3 percent in 2015, following a 1.9 percent gain in 2013, U.S. crude production increased 17,000 barrels a day to 8.477 million, the most since October 1986. Output has surged this year as a combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations, including the Bakken in North Dakota and the Eagle Ford in Texas.

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First export drop in more than a year in Japan

Japan’s exports fell in May for the first time in 15 months on weak demand from the U.S. and Asia, Outbound shipments decreased 2.7% from a year earlier, the finance ministry said in Tokyo today, steeper than a median forecast for a 1.3 percent decline as estimated. Imports dropped 3.6%, with the trade deficit narrowing to 909 billion yen ($8.9 billion).adding to challenges for Prime Minister Shinzo Abe as he tries to steer the economy through a forecast contraction this quarter. Masahiko Shibayama, chairman of the lower house cabinet committee, Data showed U.S. industrial production expanded more than forecast in May, a sign gains in manufacturing are supporting growth as the U.S. economy picks up.

The New York Fed’s Empire manufacturing report rose to 19.28, exceeding the average estimate, a separate report indicated. The dollar rose after a measure of U.S. inflation accelerated in May faster than forecast as Federal Reserve Chair Janet Yellen and policy makers meet to consider further reductions in monetary stimulus. Yen fell 0.3 percent to 102.15.

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