Between The Lines; morning roll call…
The Eurozone is set to emerge from its double dip recession in ‘GDP day’ on Wednesday
Figures published on Tuesday by Eurostat, the EU’s official stats office, revealed that Eurozone industrial output rose by 0.7% in June, just a decimal point away from the 0.8% forecast by the economists polled, but still a significant rise on May’s 0.2% fall. The rise in June was driven by a 4.9% increase in the production of what’s termed, “durable consumer goods”. Energy production fell by 1.6% in the eurozone in June.
The largest increases in industrial output in June were recorded in: Ireland: +8.7%, Germany +2.5%, Greece: +2.5%. The largest falls were recorded in: Finland: -5.9%, Netherlands -4.1%, Portugal: -2.8%.
The rise in industrial output in the eurozone has enhanced expectation that the region’s recession actually ended in the second quarter, following six successive quarters of economic contraction. Official confirmation may be revealed on Wednesday with the delivery of the latest Eurozone GDP data. The 18-month double-dip recession is expected to end on Wednesday with the release of the official figures in Brussels revealing modest growth in the three months up to June.
The news on Tuesday of increased factory production across the 17-nation single currency area during the second quarter has convinced financial markets that the downturn from the end of 2011 is finally over. Analysts believe that the 1.2% rise in industrial production added to the stronger performance by the construction sector is enough to create growth of 0.2% – 0.3% during the spring and early summer, reversing a fall of 0.2% in the first three months of 2013.
U.S. retail sales rose 0.2% in July
The markets appeared unimpressed by the rather anemic data published on Tuesday revealing that US retail sales only rose by 0.2% in July compared with June, just below expectations of 0.3%, but lower than June’s 0.6% increase (the June rise was revised up from 0.4%). The biggest increase was recorded in the sales of sports goods, up 1% on the month according to the US Commerce Department data. Excluding cars, retail sales were 0.5% higher compared with June.
USA import data
Prices for U.S. imports rose 0.2 percent in July, the U.S. Bureau of Labor Statistics reported on Tuesday, after decreasing in each of the previous 4 months. The July upturn was driven by rising fuel prices which more than offset lower non-fuel prices. In July, U.S. exports edged down 0.1 percent for the second consecutive month. Import prices turned up 0.2 percent in July, after declining 1.8 percent over the prior 4 months. The July increase was the first advance since import prices rose 0.9 percent in February. The price index for overall imports increased 1.0 percent.
It’s all about European GDP figures on Wednesday as far as high impact news events are concerned. France publishes its second quarter GDP numbers at 6.30am UK time. The consensus of economists is for quarterly growth of 0.2% after a drop of 0.2% in the first quarter. At 7.00am UK time, German second quarter GDP data is expected to show quarterly growth of 0.6% after 0.1% growth in the first quarter. Austrian, Dutch and Portuguese GDP data are also due for release. The focus will then be on the second quarter GDP data for the eurozone, due at 10.00am. Economists expect growth of 0.2% after a decline of 0.2% in the first quarter.
European markets reacted positively to the industrial output figures published on Tuesday, across the board the majority of European bourses closed up. The UK FTSE closed up 0.57%, the CAC closed up 0.51%, the DAX closed up 0.68%, MIB up 0.68% and the PSI up 1.25%.
USA markets failed to continue the mood of optimism with retail sales at 0.2% and a tepid small business survey failing to push the markets much higher. The DJIA closed up 0.20%, the NASDAQ up 0.39% and the SPX 500 closed up 0.28%.
ICE WTI oil closed up 0.42% at $106.56 per barrel, NYMEX natural closed down 0.76% at $3.28 per therm. COMEX gold fell sharply, down 1.03% at $1320.50 per ounce, with silver up 0.02% at $21.34 per ounce.
Equity index futures
The DJIA equity index future is currently up 0.16% at the time of writing (11pm UK time), the NASDAQ future is up 0.42% and the SPX up 0.22%. The UK FTSE equity index future is currently printing up 0.59% whilst the STOXX is up 0.46% suggesting that the markets will open positively in anticipation of the EU exiting recession upon the data being published in the London and European session at 10am.
Forex in focus
The greenback increased 0.3 percent to $1.3263 per euro. The dollar climbed 1.3 percent to 98.23 yen after gaining 1.5 percent, the most since Aug 1st. Japan’s currency dropped 1.1 percent to 130.28 per euro after falling 1.2 percent, the biggest drop witnessed since June 20th. The dollar gained versus the majority of its major peers after retail sales rose moderately in July for a fourth month in succession and Federal Reserve Bank of Atlanta President Dennis Lockhart said policy makers may start to slow asset buying (tapering) as soon as September.
The yen slumped by the most in over nine weeks versus the euro after a newspaper report stated that the Japanese government is considering a corporate-tax cut. The Bloomberg U.S. Dollar Index added 0.5 percent to 1,025.61 late into the New York session after rising 0.7 percent, the biggest intraday gain since Aug 1st.
The loonie, the Canadian dollar, depreciated 0.4 percent to C$1.0343 per U.S. dollar at 5 p.m. in Toronto. One loonie was buying 96.68 U.S. cents. The currency sank after failing for a second day to close stronger than its 100-day moving average. It touched C$1.0281. The loonie also weakened for a second day due to the afore mentioned report showing that U.S. retail sales rose for a fourth straight month, signs that Canada’s economy is falling behind its biggest trading partner.
Fundamental policy and high impact news events that could affect sentiment on Wednesday August 14th
As previously mentioned earlier in our analysis there are several GDP prints that are published on Wednesday that could be the prelude of the Eurozone exiting its ‘double dip’, 18 month long recession. The French and German GDP figures are worth noting early in the London/European session and then the flash EZ GDP figure is published at 10 am UK time.
Also ranking as high impact news events are; the UK unemployment claimant count and the results of the BoE – MPC vote on quantitative easing and interest rate setting, expected to be nine to zero in favour of maintaining both the base rate the current policy and £375 bn asset purchase facility.
The USA department of labour will publish the last high impact news event of the day, the change in the price of finished goods and services sold by producers. This report tends to have more impact when released ahead of the CPI data because the reports are significantly correlated. The prediction is for a 0.4% rise.
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