Eurozone's GDP grows 0.3% ending 18 months of economic recession

Tom Tong15/Aug/2013Currency Updates

GBP

Yesterday morning, sterling strengthened against most major currencies following the minutes from the MPC meeting on the 1st of August, which showed that most members agreed with Mark Carney’s forward guidance on interest rates. All but one of the members took a strong stance to Carney’s outlook on inflation, with member Martin Weale stating that the inflation ‘knockout’ was shorter than proposed. The minutes also showed that there was a unanimous vote to the leave the quantitative easing programme unchanged at £375b. Off the back of these minutes the yields on 10 –year gilts rose 3.2 basis points to 2.63% and due to the lack of unanimity on Carney’s forward guidance U.K stocks fell.

A report, from the Office of National Statistics also showed that unemployment rate in Q2 was left unchanged at 7.8%. Yesterday all eyes were focused on this piece of data as it is the major factor for the MPC to consider. Although it has fallen from 0.2% from last year, UK unemployment needs to reach 7% for there to be further impact.

Meanwhile the labor-market showed that jobless claims fell 29,200 to 1.44 million, the lowest rate since Feb 2009. Much of this data does signal evidence that Britan’s economy is strengthening, however there still needs to be a significant amount of consecutive positive data for the UK to consider tapering QE.

Today the only data out for the UK is Retail sales which gauges consumer spending. However we could be set for a volatile for the sterling as there is important figures from the US.

USD

Yesterday saw a two-day rebound in the Dollar, this was due to the S&P 500 dropping, hinting that a larger downward reversal may be in progress. This along with a weaker-than-expected US Producer Price index report dragged the dollar lower as it raises threat for deflation.

The Greenback weakened across the board, led by a 0.55 percent advance in Sterling. Although some of these gains can be attributed to positive news out of the UK, a number of weaker than expected reports from the US was the lead contributor.

FED member James Bullard also offered up commentary that obscured his lean at the highly debated September policy meeting, which many believe will bring the long-awaited taper for QE3. On one hand, he noted high risk of a swell in inflation going forward, but he also said the FOMC needs more data before making a call on the taper. According to Bloomberg, 65% of economists expect a taper next month.

Investors will focus on results of the weekly report on the US labour market and consumer prices. Also the US manufacturing sector will also be in the limelight, with regional gauges by the NY Empire State index and the Philly Fed survey.

EUR

Eurozone GDP was released yesterday and was widely expected to see growth. Predictions proved correct as the Eurozone has emerged from recession after a record 18 months of economic contraction, and the spectacular bailout of 3 key member states, namely- Portugal, Spain, and Ireland.

The bloc’s GDP grew by 0.3% in the second quarter slightly ahead of forecasts. The growth was aided by Germany, the Eurozone’s largest economy rising 0.7% between April and June. France posted 0.5% growth. Portugal one of the smallest and weakest nations showed the fastest growth at 1.1%.

Italy Spain and the Netherlands are still suffering from shrinking GDP. Olli Rehn European Commission VP said the figures displayed the EU economy was gradually gaining momentum, however there is no room for complacency, with collective growth remaining low and record levels of unemployment. EU unemployment levels are 12.2% with youth unemployment at 23.9%

The on-going divergence creates serious problems for the one size fits all policies of the EU and the ECB. After artificially low interest rates bolstered financial and housing bubbles, the last thing the Eurozone wants is a repeat of this miserable scenario. Different needs will inevitably transform its political and social divisions if they continue unchecked.

The Euro was trading higher in early morning trading thanks to encouraging GDP out of France and Germany, however markets have since soured. The Euro also traded lower against the dollar and sterling. Today is a bank holiday in France and Italy, and we have no data of note scheduled for release.

Print

Written by Tom Tong

Vestibulum id ligula porta felis euismod semper. Donec ullamcorper nulla non metus auctor fringilla. Cras justo odio, dapibus ac facilisis in, egestas eget quam. Morbi leo risus, porta ac consectetur ac, vestibulum at eros. Donec ullamcorper nulla non metus auctor fringilla.