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90 seconds at 9 am: ECB's Draghi warns about strong euro; Dow falls; NZ$ weaker vs US$, but not euro; BoE's Carney sticks with inflation targeting
Here's my summary of the key news overnight in 90 seconds at 9 am, including news the European Central Bank President Mario Draghi has warned overnight about the effects of a strong euro on the euro zone economy.
European politiicans have warned in recent days that the strong euro is hurting exporters. French President Francois Hollande called this week for the euro to be 'managed' lower, sparking another round of accusations that the global economy is descending into a series of tit-for-tat 'beggar-thy-neighbour' currency devaluations.
As the European financial crisis has calmed down, the euro has strengthened in recent months to 14 month highs vs the US$ and 3 year highs vs the yen as first the US Federal Reserve and then the Bank of Japan have pledged to print money in an unlimited fashion to boost their economies.
Much of this printed money is spilling out into the international financial markets and into currencies such as the New Zealand dollar, which has higher interest rates and listed companies offering dividend yields higher than 0%. This has helped boost the New Zealand dollar to near record highs and lift New Zealand stocks by more than 25% in the last year. There was strong overseas investor demand for the inaugural auction of 10 year inflation-indexed bonds, which yielded 1.5% and was 6.5 times bid. See more here on Interest.
Draghi's comments increased fears about these currency tensions, although he was careful to say the ECB was not targeting a level for the currency. He said he was watching the euro's level closely, which was also forcing down inflation. See more here at Bloomberg.
Meanwhile, the Bank of England's Mark Carney testified before a UK parliamentary committee for the first time and appeared to downplay his initial support for a change in the Bank's economic framework. He had previously mused about moving to targeting Nominal GDP, which would allow the bank to boost inflation beyond its regular target if the economy was in recession.
Overnight he praised flexible inflation targeting, which allows the banks to target an inflation rate with the flexibility to vary the time over which it can be targeted. See more here at Bloomberg.
US stocks fell after Draghi's comments and were down around 0.4% in late trade. This reduced appetites for riskier assets such as the New Zealand dollar, which was down to around 83.1 USc in morning trade. This is down more than a cent from a day earlier, driven lower mostly because of weaker than expected New Zealand labour force figures.
However, the New Zealand dollar was up slightly against the weaker euro.