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Daily Agenda: Draghi Reiterates Call for Structural Reform

ECB president calls on EU states to take growth; Dong IPO largest in Europe this year; Chinese producer inflation beats forecast.

In a speech before the Brussels Economic Forum on Thursday, European Central Bank President Mario Draghi reiterated his call for elected officials of European Union countries to institute structural economic reforms to offset growing demographic headwinds for growth. Draghi’s comments echo those of many central bank policymakers worldwide who, upon approaching the limits of monetary policy, have been frustrated by a failure of their political counterparts to make difficult choices in lowering competitive barriers to growth and employment. Japan, where Prime Minister Shinzo Abe has delayed a sales tax hike needed to offset crushing debt levels in a rapidly aging population, stands out as the prime example of this lack of follow through as the economy remains moribund despite unprecedented easing by the Bank of Japan. Many long-term investors now question whether monetary policy and stimulus alone can sustain current growth levels globally. Draghi apparently does not believe so.

Dong Energy IPO values company at $15 billion. On Thursday, Dong Energy completed an initial public offering valuing the Danish state-controlled energy firm at more than $15 billion after raising $2.6 billion through the floatation. In addition to oil and gas operations, the company operates the largest offshore wind-generation facilities globally. The IPO ranks as the largest floatation in Europe year-to-date.

Mixed inflation data from China. Price data released this morning by China’s National Bureau of Statistics indicated that deflationary pressure in wholesale markets may have moderated in May with a headline producer price inflation index contracting by 2.8 percent year-over-year, the lowest reading since 2014 and better than consensus forecasts. The news, coming one day after surprisingly robust import figures, provides hope that demand at the factory level is improving. Separately, consumer price inflation for the month registered weaker than consensus forecasts at a contraction of 0.5 percent versus April or 2 percent year-over-year.

Bank of Korea makes surprise rate cut. In a move that took currency markets by surprise, the Bank of Korea, the country’s central bank, lowered its benchmark rate by 25 basis points to 1.25 percent in an attempt to support growth levels after a slump in exports in recent quarters. The move comes after the bank trimmed its full year gross-domestic-product forecast for South Korea from an annualized 3 percent to 2.8 percent.

Restoration Hardware earnings disappoint. On Wednesday, Restoration Hardware became the latest luxury retailer to report a difficult first quarter with a net-loss of $0.05 per share versus consensus analyst estimates for a profit. The high-end home-furnishing chain lowered full year guidance to a range of $1.60 to $1.80 per share, far below consensus targets. During the accompanying shareholder call, management indicated that it will move towards a membership-based rewards model in place of promotional discounts.

Jobless claims fall by more than expected. Department of labor figures for weekly unemployment claims declined to 264,000 while continuing claims declined to 2.1 million -the lowest level since 2000. The decline of 4,000 from an upwardly revised prior week suggests that despite moderating payroll growth in recent months the pace of layoffs also remains low.

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