EUR: Big Gap in ECB and Fed Exit Strategy Views
USD: Big Ben Dovish but Not Dovish Enough
GBP: Holds Steady in Europe and North America
NZD: Trade Surplus Turns into Deficit
CAD: Stalls After 7 Straight Days of Losses
AUD: Struggling to Hold Above 1.02
JPY: Expect BoJ Nomination Within 48 Hours
On a headline basis, GDP in the fourth quarter was left unrevised at 0.3%. However on an annualized basis, GDP was revised up to 0.3% from 0%. In other words, instead of stagnating in 2012, the U.K. economy expanded by a mere 0.3%. This improvement came primarily from the construction sector, as manufacturing output was revised up slightly and service output was revised lower. Overall the data confirms that the recovery in the U.K. economy is very sluggish and more monetary stimulus is needed if the government wants to reinvigorate activity. We knew where MPC member Fisher stood before he delivered his speech yesterday but Bean on the other was more of a centrist. In his speech he said the U.K. recovery is likely to remain “somewhat subdued” but “there’s danger of expecting too much from monetary policy.” The only piece of data due from the U.K. tomorrow is consumer confidence and given the drop in the CBI retail trade index, BK Asset Management are not expecting any improvement in consumer confidence.
Data this morning is likely to reconfirm that Spain’s GDP contracted at its sharpest rate since 2009 in Q4 2012 and that euro area HCIP inflation remained contained at 2% y/y in January. Slow growth and low inflation lend support to the ECB’s current accommodative monetary policy stance. Meanwhile, labour market conditions in Germany continue to hold up, despite slow economic growth in euro area periphery countries. The unemployment rate in Germany is anticipated to remain at 6.8% in February, a near record low for the decade.
Given all of the problems in Italy, forex traders may be surprised to hear that the best performing major currency pair today is the EUR/USD. There’s been no additional clarity on the Italian elections and if anything, Grillo’s refusal to support Bersani could put Italy on track for new elections if Bersani fails to form a coalition with Grillo or Berlusconi. Prolonged political uncertainty makes Italy a major source of risk for the euro this year. After yesterday’s sharp sell-off in Italian stocks and rise in Italian bond yields, investors appear to have calmed a bit with stocks recovering 1.7% and bond yields retreating.
The main focus for today will be the revision to the Q4 GDP number. The market was left disappointed after the initial estimate surprised largely on the downside, with Q4 growth contracting by 0.1% q/q annualised. Market is expecting this to be revised up to 0.5% q/q saar, helped by the stronger December data for trade and construction. NAPM-Milwaukee and Chicago PMI could also be of interest. Sentiment indicators released so far this month have been mixed.
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