US economic recovery stalls as GDP data surprises markets

Tom Tong31/Jan/2013Currency Updates

USD

GDP figures from the US surprised markets with a contraction of 0.1% in the first quarter, its first in 3 years since the end of the recession in 2009. The main catalyst was a cut in defence spending and it has fuelled fears that further cuts across the board scheduled in March would have damaging effect on the economy and long term recovery. In addition reversal in business inventories also knocked 1.3% off growth. Whilst analysts are still confident of positive growth, the forecast is in the region of 1 – 2%.

Non-farm payrolls tomorrow at 13.30 GMT will provide further indication of the health of the economy. The consensus is that the figure will rise to 160k from 155k. There was positive data released yesterday from the ADP, with the private payrolls processor stating that there were 192,000 new jobs in December.

EUR

Yesterday saw Spanish GDP growth data released, with more negative figures than were expected. In spite of this, the euro continued to appreciate slowly against sterling yesterday, most likely due to confidence indicators for the entire eurozone collectively being higher than was expected. However, EUR started to depreciate this morning against USD and GBP. This could be attributed to negative retail sales figures being released from Germany, with MoM data showing -1.7%, against a previous consensus of +0.6%.
Today we see eurozone CPI data being released, with an expectation of a reduction of Germany’s (YoY) CPI from 2.1% to 2%. It is likely that the rest of Europe will experience a similar decline. German figures for (MoM) CPI figures are forecast to fall from 0.9% last month to -0.4%. A negative figure will show deflationary pressure, which tends to breed uncertainty.

GBP

Sterling decoupled from its European counterpart, consolidating gains against the dollar after the improvement in Nationwide Housing Prices during January. Prices rose 0.5% month-on-month and came flat throughout 2012. The Funding for Lending Scheme (FLS), which provides banks with cheap funds, has seen a diversion of cash back into the mortgage market, fuelling a boom in mortgage lending. Lenders approved over 55,000 loans in December an eleven-month high, reaching £8.3bn for the year. Such improvements lead us to believe that the FLS was finally revitalising the housing market; the first sign of easing credit conditions. Expectations for the general economic situation over the coming year jumped by six index points, as British consumers have started the year feeling less pessimistic about the UK’s prospects.

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Written by Tom Tong

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