Daily Agenda: Euro Slide Puts ECB in Focus

U.K. inflation data suggests no near-term shift in policy; activist investor asks Qualcomm management to consider a breakup.

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In trading this morning the euro flirted with U.S. dollar levels near multiyear lows. As the European Central Bank’s quantitative easing program kicks into full steam, it appears that investors are wagering that the common currency will continue to be pressured. In the lead-up to ECB president Mario Draghi’s rate announcement on Thursday, improving fundamental data points appear to have had little impact on market sentiment.

Qualcomm draws activist investor attention. San Diego–based smartphone chip manufacturer Qualcomm is the latest company to face pressure from activist shareholders at hedge fund firms. Yesterday Jana Partners, one of the largest Qualcomm holders, delivered a letter to investors revealing the fund’s campaign to get company management to consider breaking up the firm and accelerate its buyback program.

Deflation still looms over U.K. Producer and consumer price index levels for March released in the U.K. today demonstrated that deflationary threats continue to be present in the country’s economy. Despite beating consensus forecasts, the producer price index for the month registered a year-over-year contraction of 13 percent. Meanwhile core consumer prices rose by less than forecast. The data suggests that policymakers at the Bank of England are unlikely to begin tightening measures in the near term, leaving rates at current historic lows.

Russia to supply missiles to Iran. The Kremlin today announced that Russia is lifting its ban on supplying S-300 antirocket missile systems to Iran. The announcement comes despite an ongoing international embargo of Iran after U.S.-led negotiations over the Iranian nuclear program reached no accord.

EU industrial production rises. Eurostat released February industrial production data today that beat consensus economist forecasts by a significant margin. Production levels in the euro zone rose by more than 1 percent for the month, versus expectations for a 0.4 percent gain lead by strong activity measures among German manufacturers.

U.S. economic indicators on deck. U.S. data releases today include March producer price data. Expectations are for a bounce back in prices at the factory gate. The primary focus for market sentiment, however, will be retail sales for the month. Consensus forecasts call for a rebound in spending at the cash register after a hard stumble in February. Business inventory data will also be released.

Portfolio Perspective: U.K. Inflation Data Does Not Tell the Whole StoryKevin Doran, Brown Shipley

Today’s figures don’t tell the whole story and shouldn’t be taken at face value. I, for one, can see an abundance of inflation in asset prices, with a real threat of potential bubbles now emerging — overvalued U.K. gilts being just one example in my view. Until the models used to measure inflation are able to capture real-world inflation and asset price inflation, the figures produced each month will continue to mask the truth.

Furthermore, because of low inflation, the Bank of England is also likely to keep interest rates low for the foreseeable future. The challenge for every investor is to not only assess when rates will rise, but the pace at which they will rise thereafter.

Additionally, in a world in which the yields on fixed-income markets represent, in my view, perhaps one of the greatest misallocations of capital in history, the combination of negative real yields and naïve inflation projections make it an asset class to avoid.

Kevin Doran is the chief investment officer for Brown Shipley in Manchester.

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