Germany records its first recession since 2009, while unemployment increases by almost one million in a single week
Germany’s economy contracted -5% during 2020 according to the final GDP statistics published on Thursday morning. The contraction beat the news agency forecasts which predicted a metric of up to -5.7%.
The negative reading is entirely due to the COVID-19 virus, and for context, Germany only chipped in with 0.6% GDP growth in 2019. The final 2020 figure compares favourably with other European G10 countries; the UK is currently at -8.60%.
The effect of the German GDP reading on the euro was benign, EUR/USD whipsawed in a tight range, alternating between bearish and bullish sentiment, to end the trading day flat at 1.2159 after falling through S1 in the afternoon.
The most traded currency pair is down -0.48% year-to-date and is -0.90% down weekly. The 50 DMA plotted on the daily time frame is sited close to the 1.200 level/handle, which could be regarded as the next target if the price continues trading in its bearish channel.
The leading German equity index DAX 30 reacted favourably to the better than forecast GDP figure, closing the day 0.34% up while France’s CAC 40 finished the day 0.31% up. The rise may have been capped by Germany recording a record amount of daily COVID-19 deaths on Wednesday, which left Chancellor Merkel both furious and determined to enact harsher lockdown conditions.
US equity markets continue their complete disassociation with the real economy and loss of USA workers
The initial weekly unemployment claims data for the US came in at 965K, way above the Reuters forecast of 795K. The combined number is close to 1.4M when weekly claims get added to self-employed claimants.
The sobering fact is that pre-pandemic the US was averaging less than a 100,000 unemployment claims per week, and estimates suggest the total unemployment could be as high as 25 million, close to 20% of the adult working-age population.
As is the norm, market analysts, traders and overall participants were quick to draw the conclusion that with $2 trillion of stimulus promised by Biden, with over half earmarked to reach households directly, equity markets would benefit. That confidence got enhanced after Jerome Powell, the Federal Reserve chair delivered a bullish and supportive broadcast during the New York afternoon session.
The SPX 500 closed -0.34% down, the DJIA 30 down -0.22% and the NASDAQ 100 closed the day out down -0.12%. All three main US equity markets plunged towards the end of the New York session.
USD endures mixed fortunes versus its peers
The USD fell versus several of its main peers during the day’s sessions. The dollar index traded -0.16% down at 8:30 pm UK time but retained its position above the 90.00 level at 90.22. USD/JPY and USD/CHF were trading close to flat after both currency pairs had whipsawed in broad ranges, both bearish and bullish.
AUD/USD and NZD/USD traded up, by 0.57% and 0.58% respectively, and above the first level of resistance R1. The antipodean commodity currencies move in tandem with the cost of oil, and crude oil traded 1.38% up on Wednesday, and up 12.62% weekly. Gold and silver arrested the recent sell-off precious metals have experienced; gold traded 0.21% up while silver was up 1.67% on the day.
Sterling and the UK begin to face Brexit consequences
GBP/USD traded up 0.41% as New York trading began to end, the currency pair traded above R1 at 1.3697, is up 0.94% weekly and 1.87% monthly. Versus other peers GBP is mostly down year-to-date. Except for EUR/GBP which is down -0.37% on the day and -0.67% so far in 2021.
GBP could come under scrutiny over the coming weeks as reports begin to surface that the UK is starting to endure the Brexit problems many analysts predicted. Supermarkets are experiencing shortages, and shelf gaps are already appearing, particularly in Northern Ireland.
Fresh fruit is scarce because several European hauliers have cut their UK routes due to the document compliance needed and the extra cost making the journeys economically unprofitable. The UK prime minister described the situation as “teething troubles”, but doubts remain if a quick fix exists.
Calendar events to be mindful of during Friday’s sessions
GBP pairs could experience volatility during the London session as the latest production data series are published. The industrial, manufacturing and construction sectors should show improvements month on month in November, adding up to an improvement in the balance of trade figure.
The three-month GDP figure is forecast to come in at 2.9% up to November, falling from 10.2% previously. However, market analysts will look ahead to where the UK economy will be in Q1 and Q2 2021, due to the lockdowns which began in November 2020. The UK is undoubtedly facing a double-dip recession. It’s a busy day for USA economic data, retail performance, the Michigan sentiment index, industrial production, and NY Empire manufacturing will all be published. The cumulative effect could be bearish or bullish, depending on the metrics published.
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