Macro Morning: GDP whacks euro

Terrible numbers out of Europe overnight and likewise weak growth in Japan so as Houses and Holes posted earlier much of the world shrank in Q4 2012.

Certainly the Japanese weakness was unsurprising but the data out of Europe, particularly Germany, was truly disquieting and suggests that the ECB will need to ease and if a recovery isn’t on the horizon as we had thought potentially joining the ranks of the quantitative easing club eventually.

Looking at the data even though we said that we weren’t surprised by the weakness in Japan the actual out turn for Q4 GDP of -0.1% was on the wrong side of the line with pundits having expected a rise of 0.1%. This quarterly result left the year on year growth rate at -0.6% clearly strengthening the hand of Abe and his plans for the BoJ. On that front the BoJ left rates unchanged at yesterday’s monthly meeting.

In Europe the news was more shocking. Shocking is not a word often used in a financial summary but the data really was horrible. German GDP contracted a worse than expected 0.6% but it was the export engine particularly exports to the rest of the Eurozone that is clearly spluttering. French, Italian and Portugeuse GDP were equally all weaker than expected falling 0.3%, 0.9% and 1.8% respectively. Overall Eurozone GDP fell 0.6% in Q4 2012 and the year on year fall was 0.9% for 2012.

The Chinese recovery, or at least soft landing, has been encouraging me to think that German can push through but the acute weakness in its neighbors is clearly weighing on Europe’s powerhouse economy. What is that they say? Lie down with dogs and you get up with fleas.

Euro came under pressure as a result falling from a high of 1.3455 to a low of 1.3313 before rallying back to 1.3341 at present but it has been a damaging day technically as you can see in the chart below.

Elsewhere in FX land the Aussie has been unable to resist the US dollar’s strength falling back from the high of 1.0370 to be down 0.22% at 1.0346 but this is not really material when the euro is down 0.81% and USDCHF is up 0.72%. Technically the Aussie is hanging around this 1.0330/60 range at the moment without a decent catalyst to push it either side. We know there is solid buying below 1.03 as we saw earlier in the week but the topside still seems limited.

In stock markets Europe was under pressure from the weak GDP with the DAX down 1.05%, the FTSE off 0.50% and the CAC down 0.77%. France looks to be under real economic pressure and while it may not yet have the issues of Spain and Italy it is heading that way. Speaking of Spain and Italy their benchmark indices were off 0.75% and 1% respectively.

In the US the weaker lead from Europe has largely been nullified by the $23 billion Buffet led bid for Heinz foods which set a better tone. Equally jobless claims dropped 19,000 which is good news for the stock market if you invert that relationship.

So at 7.40 with 20 minutes before the close the Dow is down just 1 point, the S&P is up 2 points or 0.15% at 1522 and the Nasdaq is up 0.11%.

On commodity markets gold continues to lose its lustre off another 0.6% to $1634 oz and I retain our bias that this is headed lower. Silver was hit harder losing 1.66% to $30.95 oz and it may be headed toward $29.25/30 support. Nymex crude was 0.34% higher at $97.34 Bbl. Sugar fell 1.11% and natural gas was more than 4% lower.

Lets have a look at some Meta 4 charts from my  AVATrade platform.

EUR/USD: 

The focus for euro is now is on the support line from the low in November which comes in today at 1.3264 which is also where the latest uptick above 1.35 kicked up from. I always respect trend lines unless or until they break, but my guess is that this level is going to be taken out in the next week:

eur, eurusd, euro, euro (eur) price quote

AUD/USD:

The Aussie has found resistance at our fast moving average over the past two trading days and it came in at 1.03708 overnight just above the high. It needs to get through this level to kick higher:

aud, audusd, australian dollar, australian dollar quote, audusd

Data

Chinese New Year holiday’s.

Kiwi retail sales this morning before Japanese Industrial production, Italian and Eurozone trade, British retail sales and then US industrial production.

Of course G20 could give us something to trade with over the weekend as well.

Twitter: Greg McKenna

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Comments

  1. There should be worse to come and I can’t see how it can surprise people. More companies are laying of workers around the world, many countries are turning full time workers into part time workers, this is just less money for people in general. With the EU been one of China’s biggest markets and the EU fast imploding it would make sense that sooner or later this is going to all catch up on Chinese export growth. I have no confidence in the EU and I don’t think it’s going to be able to pull though. I think that nothing has changed since 1 year ago except this, there is a lot more people who have lost jobs and a lot more government workers who have lost jobs or had pay cut backs.