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Germany and France out of recession?!?

 

Germany and France out of recession?!?

Official data this morning has confirmed that Q2 GDP has come in positive 0.3% for both France and Germany- far better than expected and very surprising against a back drop of heavily contracting GDP for the nations at the back end of 2008 and early 2009. In addition Eurozone GDP has just come in at -0.1% much better than the forecast of -0.5%- this means that the Eurozone as a whole is nearing a turn to positive growth. In the markets the euro has gained a little against the USD but no move at all against the pound. Personally I thing the good numbers should be taken with a pinch of salt as the GDP gains could align to stimulus input over a real turn in demand. Recently we saw that Eurozone Industrial Production fell 0.6% with falls noted in France and Germany and credit conditions remain tight- especially in Germany. I feel we need to look for more economic feedback to substantiate this gain in GDP before we can declare that France and Germany are on the road to recovery.

Yesterday we had lots of news; firstly in the UK unemployment came in at 7.8% higher than forecast and the eagerly awaited Bank Of England quarterly inflation was released. The report offered no real surprises but was slightly more upbeat than expected. In summary lets look at the negatives- the recovery could be slow and protracted, interest rates will remain low for some time and inflation could fall below 1% by the autumn. On the upside growth should resume in Q1 2010 and attain a level of 3% in 2 years. Sterling gained slightly on the news but no big movements as the FED decision loomed.

Onto the FED and again no real surprises…more optimism noted as the Fed affirmed that the US economy is leveling out and no expansion of the $300 bn treasury purchase programme which should expire in October- 1 month later than predicted. There naturally was a cautious tone noting that the economy could remain weak for some time and that interest rates should remain exceptionally low for an extended period. This last point on interest rates is important as the market was hoping that interest rates could rise in the near future; this could now lead to USD weakness again in the near term as global optimism will reinforce the risk appetite momentum with less optimism on interest rate hikes which is USD positive.

Huge volatility in the markets as they change gear quicker than a Ferrari (not that i would know).  The return to risk appetite has seen GBP/JPY now move from 156 back to 159 and GBP/AUD from 2 down to 1.97 so a complete reversal to the position yesterday morning...

report by Phil McHugh

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

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