The eurozone is in a recession right now. And it is the banking sector where downside risk lies. Will the US also double dip? What about China’s faltering housing and stock markets?
Tag: economic data
The euro was recovering in early Europe, moving back toward the upper end of its recent narrow range and it reversed course sharply, triggering stops along the way as it dropped nearly a cent to $1.2695. The technical failure yesterday at $1.2820 may also have been more telling. News from the German stats office that its economy may have contracted 0.25% quarter-over-quarter in Q4 is a bit disappointing as some hoped for stagnation.
Late yesterday the US reported the biggest jump in consumer credit in a decade. It reinforces the signal of the gradual healing of the labor market and the resilience of the US consumer. The report increases the risk that the November personal consumption expenditures are revised higher from the initial 0.1% estimate.
The light news stream, adequate bill auction receptions and comments from Fitch suggesting France’s AAA rating is secure this year encouraged short-term players to take profits. However, sentiment is still wholly euro negative and a large investment bank was out today with new calls to sell the euro. Resolution of credit watch decisions are still awaited from Moody’s and S&P. Separately France defied expectations and contradicted poor PMI readings by posting a 1.1% jump in November industrial output. The consensus was for a 0.1-0.2% gain.
Here is something to flag; there has been a lot of chatter amongst economic pundits about the seasonality effect on recent data. Those with a sceptical view have been saying that the upside surprise in the Friday jobs data in particular is the result of seasonal factors. Here are two examples.
In a Tokyo-less Asian session the dollar had begun the week bid, but this quickly reversed in early Europe, which saw the euro rise more than a cent off the $1.2666 low. It was largely a short-covering bounce, but as North American players take their posts, it is running out of steam, unable to take out the $1.28 level and trigger another round of short covering. Sentiment toward the single currency is still overwhelmingly bearish, but seems to be a growing sense that it may have come too far too fast.
Here’s what I had to say about Europe on Capital Account with Lauren Lyster on Thursday night. I’m not bullish on the real economy there (but I still expect relative share outperformance due to lower P/Es). The US is having a bit of a data surge to the upside: housing, employment, manufacturing, all of these numbers have been better of late.
The US is a continental country, meaning that its economy is mostly domestic with only a small percentage coming from outside via trade. That makes the US much less beholden to external demand than countries like Germany that are export-led. That said, I still see the odds of a recession in 2012 as high given the global backdrop
The US jobs report is the main economic release today. In recent months, better than expected employment reports have spurred risk on trading and this has been dollar negative. Given the ADP report, despite the December skew in that time series, market expectations appear to have crept higher and it will take a stronger than expected number of give the dollar much of a lift. However, with Spanish and Italian bond auctions next week, the extent of a relief rally in the euro may be constrained.
The main price action to note is that the euro fell through the JPY100 level for the first time since mid-2001. For the most part, the dollar is confined to yesterday’s ranges against the major currencies. The day’s economic highlights include: HSBC’s Chinese PMI, Hungary’scontroversial law that further erodes the central bank’s independence, South Korea’s CPI and the new PBoC currency fix of 6.3009.
US dollar is softer vs. majors Friday as markets head into holiday mode; sentiment improving a bit in the absence of any major negative euro zone developments. France Q3 GDP revised weaker, Italy confidence lower than expected; euro zone recession in 2012 will likely exacerbate debt problems. RUB outperforms as central bank narrows interest rate corridor; TRY weaker after central bank auctions only $50 mln today vs. $1 bln bid.
Only three positive months in the last year. Lots of pain out there. Be charitable this holiday season, our friends. The return is tremendous.