Draghi optimism on inflation sends euro higher

Mario Draghi has said he is confident that the European Central Banks policies would restore inflationary pressures in the eurozone and that the scars inflicted by the crisis will fully heal.

The bullish assessment of the eurozone recovery will fuel speculation that monetary policymakers could soon begin discussing a withdrawal of stimulus.

All the signs now point to a strengthening and broadening recovery in the euro area, the ECB president told the banks annual conference in Sintra, Portugal, on Tuesday. Deflationary forces have been replaced by reflationary ones.

As Mr Draghi spoke, the euro climbed 0.7 per cent against the dollar to $1.1258, its highest since June 14, although the rally coincided with a wider trend for a weaker US currency. In late London trading, it broke through the $1.13 mark for the first time since September.

The ECB president said all the evidence suggested the central bank was managing to raise demand. He also indicated he was not overly european vix etf concerned about the recent weakness in inflation, which he said was down to global factors and changes in the labour market that meant there was less pressure on companies to raise wages.

He described the weakness in inflation as temporary and predicted that the ECB could achieve its target of just under 2 per cent in the medium term. He said the risk of so-called hysteresis effects where damage inflicted by crises becomes permanent had diminished too.

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Central bank support for bonds, better looking banks and a rosier economy lift mood

Tuesday, 27 June, 2017

Now we can be confident that our policy is working and that those risks have abated, Mr Draghi said.

However, he signalled some central bank support would need to remain in place and that a rise in inflationary pressures was not yet durable and self-sustaining.

Our policy needs to be persistent and we need to be prudent in how we adjust its parameters to improving economic conditions.

Frederik Ducrozet, economist at Pictet Asset Management, said: Draghi does sound fairly confident as regards political risks and the potential for eurozone-wide reforms, surprisingly so given the disappointment from the past few years. However, Mr Ducrozet said he sounded as cautious as usual on inflation.

As Draghi said, not all the criteria are met at this stage for a rise in inflation to be self-sustaining, suggesting to us that a tapering announcement could well be postponed beyond September, Mr Ducrozet added.

The ECB has edged towards an end to its quantitative programme, under which it is now buying 60bn worth of government bonds a month. Earlier this month, the bank dropped a promise to cut rates should conditions worsen.

This shift in rhetorical tone is seen as a key step towards tapering QE next year. A discussion on tapering is expected to come later in the summer. The programme, aimed at boosting inflation and growth, is set to surpass the 2tn mark this year.

Mr Draghi continues to use the eurozones structurally low-inflation environment as the crutch for a slow removal of policy accommodation, said Stephen Gallo, European head of foreign exchange strategy at the Bank of Montreal.

There is nothing positive for the euro in his remarks at all and were the dollar not soft today the euro would probably be lower. The general environment in the market has been characterised by a soft dollar.



COWEN: We counted at least 7 retail companies that can’t get eaten up by Amazon (AMZN, COST, WFM, ROST, WMT, TJX, TIF, LVMH, BID)

rotisserie roasted chicken Costco’s $4.99 rotisserie chicken is symbolic of its price leadership in the industry, Cowen said. Wikimedia

Amazon spread its reach further into the retail industry on Friday when it announced its jaw-dropping acquisition of Whole Foods for $13.7 billion.

The market’s instant reaction Amazon’s shares rallied while those of its competitors tumbled sent a clear message: Investors are bullish on Amazon’s success in the delicate business of fresh-food delivery, and they’re worried about its effect on established grocers like Target and Walmart.

But at least seven retail companies’ stocks are “un-Amazon-able,” according to a note on Monday from Oliver Chen, a senior equity research analyst at Cowen:

“Taking a step back in the sector at large, we continue to believe investors will have more defense vs. AMZN’s domination if they follow our Super Stock theory we think deep value companies or luxury goods companies are more Un-Amazon-Able and less vulnerable to share losses vs. Amazon.

“In our view, Un-Amazon-Able qualities include at Super-Value retailers Costco, Walmart, Ross Stores, TJX or extreme brand, store and vertical integration focus at Super-Premium luxury stocks (Tiffany, LVMH, Sotheby’s).”

Americans gravitated toward discount retailers like Ross Stores during the recession, and those companies still benefit from an aversion to full-price items. Meanwhile, Amazon’s issues with counterfeit goods make luxury a tough market to crack, Digiday reported.

Chen and his team focused mainly on Amazon’s effect on Costco in their note. They reiterated their outperform rating on the wholesale retailer because of its deep vertical integration its strong relationship with farmers down the production chain that would be hard to replicate in a cost-effective way.

“$4.99 rotisserie chicken and a $1.50 hot dog meals are symbolic but indicative of a low-price and high-quality strategy which generates consistent global growth and price leadership in the industry,” Chen said.

“Price leadership is a competitive advantage and important way to draw new and existing customers, and perhaps COST does not really even need the digital bells and whistles if it can just offer the cheapest and best goods, services, and gas in the marketplace,” he added.

These low prices are also possible because Costco owns some of its production facilities, Cowen said, such as a meat-processing plant, a hot-dog factory, and an optical grinding factory for eyeglasses.

Chen said it was unlikely another big retail company would steal away Whole Foods from Amazon with a higher bid. He wrote that Costco would most likely stick to its strategy instead of putting down a higher offer and that Target was not large enough to easily bid.


Grab the 30% Off Coupon on Kroger

It is clearance season in the stock markets grocery aisle.

The weekend couldnt possibly arrive soon enough for owners of Kroger stock. On Thursday, the company lowered its full-year profit guidance for this year and warned of a looming price war in the industry. The company now expects fiscal year 2017 adjusted earnings per share in the range.

CarMax is hoping it can offset that financing challenge by making improvements to its customer shopping experience, which will keep traffic churning higher. Gross profit margin will be worth watching, too, since pricing pressures could mount if new car dealerships boost their promotions. Meanwhile, look for CarMax to continue an aggressive expansion plan that will see it add 15 new locations to its store base this year.
Finish Line’s profit margin

Finish Line shares are down sharply this year as its business struggles to find traction in a weak selling environment. The sports apparel and footwear retailer had an especially brutal end to its fiscal year, announcing in March that comparable-store sales fell by a surprising 4.5%.

Executives explained that competitors scaled up their promotions, and Finish Line was forced to follow suit, which sent profitability lower. “As elements of our footwear offering did not resonate with our customers as we expected and the overall retail environment in February became increasingly difficult,” CEO Sam Sato said in a press release, “we made the decision to get more aggressive on pricing to be competitive and clear slow moving product.”


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