Germany ZEW Index Up As Europe’s Exports Rise, But The UK’s Trade Deficit Widens

Sep 18 • Morning Roll Call • 2946 Views • Comments Off on Germany ZEW Index Up As Europe’s Exports Rise, But The UK’s Trade Deficit Widens

European car sales slumped in the month of August, with the exception of the UK, whose bi-annual August new registration habit, helped boost figures to buck the trend. Sales in Cyprus tumbled by 40% so far this year, illustrating the impact of its bailout, in particular the capital controls which are restricting how much money depositors can take out from the bank. However, faith in the European economy was restored by the latest export figures. Rising exports have helped to widen the euro zone’s trade surplus.

Eurostat, the official statistics office of the European Union, reported that the eurozone ran a surplus of €18.2bn in July, up from €13.9bn year on year. Exports were 3% higher year-on-year, while imports were flat. Looking at the total trade of Member States, the largest surplus was observed in Germany (+€98.0bn in January-June 2013), followed by the Netherlands (+€28.0bn), Ireland (+€18.6bn) and Italy (+€12.3bn).

France (-€38.0bn) registered the largest deficit, followed by the United Kingdom (-€31.7bn) and Greece (-€9.7bn). The large export/import deficit reported by the UK will once again be largely ignored by the mainstream financial press as their infatuation with the UK ‘recovery’ shows no signs of abating. And that ‘love-in’ has been continued by Citigroup, who have astonished the investment and analyst community by predicting that the UK FTSE will reach 8,000 by December 2014. Let’s revisit this bold prediction in December next year;

“We stay bullish on UK and European equities over the coming 12-18 months: 1) better macro, 2) better earnings, 3) rising risk appetite. There may be better near-term entry points, but we see healthy 25% returns to the end of 2014.

“In Europe, we expect a GDP and earnings inflection in 2014 versus 2013. Negative GDP and earnings growth to be replaced by positive growth, in our view.”

Germany’s ZEW index reached a recent high, the highest since April 2010, the print came in at 49.6 for August from 42 in July. Clemens Fuest, president of the ZEW thinktank:

“The financial market experts hold the view that the German economy is still gaining momentum. In particular, the experts’ economic optimism has increased due to the improved economic outlook for the euro zone.”

Market overview

Despite the overall balance of good news regarding the export figures, European indices failed to recover the lost ground after the dismal car sales and manufacturing print early in the morning session. The STOXX index closed down 0.47%, the FTSE closed down 0.80%, the CAC down 0.16% and the DAX down 0.19%. The Portuguese index, the PSI, closed down 1.37%. The Athens exchange bucked the trend by closing up 0,67%, whilst the Istanbul exchange closed up 0.71%.

ICE WTI oil was down 1% at $105.52 per barrel, whilst NYMEX natural was down 0.13% at $3.73 per therm. COMEX gold was down 0.57% on the day at $1310.30 per ounce, with COMEX silver down 1.15% at $21.76 per ounce.

Forex focus

The dollar fell 0.1 percent to $1.3353 per euro after reaching $1.3386 yesterday, the weakest level seen since Aug 28tb. The U.S. currency rose 0.1 percent to 99.14 yen while the 17-nation euro added 0.2 percent to 132.39 yen. The dollar declined, trading close to its lowest level in a month, as analysts trimmed their projections for Federal Reserve reductions to the central bank’s bond-buying during a two-day meeting starting Tuesday

The Bloomberg U.S. Dollar Index, tracking the greenback versus the performance of a basket of ten major currencies, dropped by 0.1 percent to 1,019.83 in the New York session, after falling to 1,017.30 on Monday, the lowest level seen since Aug 12th.

Australia’s dollar advanced by circa 0.4 percent to 93.59 U.S. cents after reaching 93.94 on Monday, the strongest level seen since June 19th. The New Zealand dollar climbed for a second day, gaining 0.9 percent to 82.41 cents. It touched 82.30 yesterday, the most since May 16th.

The euro has gained 4.7 percent this year, by far the best performer of the 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indexes. The dollar has risen 3.3 percent, whilst the yen has tumbled 11 percent.

The loonie gained 0.3 percent to C$1.0296 per U.S. dollar in the Toronto session. It touched C$1.0275 per U.S. dollar, the highest level seen since Aug 1st. One loonie buys 97.13 U.S. cents. The Canadian dollar gained to its plus six-week high due to factory sales rising at their fastest pace in over five months in July, adding to signs that economic growth in Canada is picking up speed.

Fundamental policy decisions and high impact news events that could affect market sentiment on September 18th

The minutes of the most recent BoE MPC will be revealed early in the London morning session, the expectation is that the votes were unanimous for both base rate setting and the monetary easing (quantitative easing) programme, which was kept at £375 billion.

Building permits are revealed for the USA construction industry, the expectation is that the number will be constant at 0.95 million for the month. Housing starts are predicted to fall marginally for the month to 0.93 million. The markets will expect the USA crude oil inventories to have fallen, to print a negative figure of -1.2 million barrels.

The rest of the high impact news events have at their core the decisions and ongoing commentary from the FOMC. The decision on the base rate is fairly straight forward, it’ll stay at between zero and 0.25%, however, it’s the commentary regarding tapering that all investors, traders and analysts will be eagerly awaiting given the dramatic effect the markets will experience if a reduction in the month’s asset purchase scheme is announced. The overall consensus appears to suggest that the Fed will trim its programme by $10 billion per month.