Weaker-than-Projected Ezone GDP Depresses Euro and European Equities

February 14, 2013

The dollar has risen 0.9% against the euro and 0.6% versus the Swiss franc.  The U.S. currency otherwise is up 0.2% relative to sterling and 0.1% against the loonie and Aussie dollar but down 0.3% against the yen and 0.5% versus the kiwi.  The yuan is steady, showing no reaction to confirmation remarks by Jacob Lew, Obama’s nominee for Treasury Secretary.  Lew said the yuan had not appreciated enough, but in separate comments endorsed the long-standing “strong dollar policy” of the Treasury Department, saying such bolsters competitiveness (it doesn’t) and buoys economic growth.

Negative fourth-quarter growth was reported in both Japan and Europe.

The Bank of Japan Board did not expand its monetary easing, which met market expectations.  A virtual zero interest rate policy continues with a target of 0.0-0.1% range, and the asset buying program continues to total JPY 101 trillion.  Officials upgraded the economic assessment, as the government had done already.

One potential candidate for a BOJ leadership position after March, Iwata, said a reversal of prior yen excessive strength will be necessary to achieve a 2% price target.

By a split vote, policymakers at the Bank of Korea left the benchmark 7-day repo rate at 2.75%, its level since a 25-bp cut in October.  There is concern about won strength against the dollar and yen.

In the Pacific Rim where Chinese markets remain closed, Japan’s Nikkei rose 0.5% and stocks in Hong Kong rose by 0.9% and 0.7%.  India’s market fell 0.6%.  In European trading so far, stocks are down 1.5% in Spain, 1.0% in Germany and Italy, 0.8% in France, and 0.7% in Britain.

The 10-year German bund fell three basis points.  The 10-year British gilt edged one basis point lower, while the 10-year Japanese JGB is up two bps.

Commodities are generally steady.  Gold firmed 0.2% to $1647.70 per ounce, and oil dipped 0.1% to $96.95 per barrel.

GDP contracted by 0.6% in the euro area last quarter, more than pessimistic analysts were assuming and the largest drop since 2009.  Such was the third consecutive decline and left GDP 0.9% weaker than a year earlier and 0.3% softer than two years ago.  GDP results were worse than forecast in most individual Ezone members including the largest ones of Germany, France, and Italy.

  • German GDP slid 0.6% on quarter, its first drop since 4Q11.  On-year growth was only 0.4% versus a gain of 0.9% in the year to 3Q.
  • French GDP dropped 0.3% both on quarter and on year.
  • Italian GDP recorded a sixth sequential drop in a row, this time by 0.9% after sliding 0.3% in 3Q.  GDP fell by 2.7% on year and by 3.2% from 4Q10.
  • Spanish GDP sank 0.7% on quarter and 1.8% on year.
  • Greek GDP plunged 9.5% on quarter, 6.0% on year, and 13.4% over the last eight quarters cumulatively.  Greek unemployment rose to 27.0% in November from 26.6% in October.
  • Dutch GDP was one of the few results to show a smaller drop (0.2%) in 4Q than in 3Q (1.0).  GDP was 0.9% weaker than at end-2011.
  • Portuguese GDP plunged 1.9% on quarter, 3.8% on year, and 6.7% from 4Q10.
  • Finnish GDP decreased 0.5% from 3Q and 1.6% from the end of 2011.
  • In besieged Cyprus, GDP fell 1.0% on quarter and by 3.0% on year.
  • The Baltic nations continued to experience positive growth — 1.3% in Latvia, 1.0% in Lithuania, and 0.2% in Slovakia.

In Eastern Europe, GDP recorded quarterly declines of 0.9% in Hungary and 0.2% in the Czech Republic but grew by 0.2% in Romania and 0.1% in Bulgaria.  Hungarian CPI inflation slowed to 3.7% in January from 5.0% in December.

Japanese GDP edged 0.1% lower last quarter (an annualized pace of minus 0.4%).  Real GDP was only 0.3% higher than in the last quarter of 2011 after ticking 0.3% higher between 4Q10 and 4Q11.  Residential investment jumped 14.7% at an annualized rate between 3Q and 4Q, but non-residential investment dropped 9.9%.  Net exports exerted an 0.6 percentage point drag on GDP growth, as exports fell faster than imports.  Public investment went up 6.0% after sharper advances of 10.4% in 3Q, 26.8% in 2Q, and 38.0% in 1Q.  Inventories depressed growth by 0.7 percentage points.  Personal consumption climbed 1.8% and enhanced the growth rate by 1.1 percentage points.  Nominal GDP fell 1.8% annualized and by 0.3% between 4Q11 and 4Q12.  The GDP price deflator was 0.6% lower than a year earlier. 

New Zealand’s business PMI rose 4.8 points to an eight-month peak of 55.2 in January.  New Zealand food prices increased 1.9% last month, and consumer confidence went up 2.3%.  These signs of strength bolstered the kiwi.

Expected inflation in Australia accelerated 0.2 percentage points to 2.2% this month. 

Indian wholesale price inflation unexpectedly declined last month from 7.2% in December to 6.62%, the lowest 12-month increase in somewhat more than three years.  South African wholesale turnover contracted by 3.5% on month in December and posted a smaller 12-month gain of 3.4%.

U.S. weekly jobless insurance claims data arrive today.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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