Shock Contraction in US GDP

The US economy shrank 0.1% in the
fourth quarter of 2012 for the first time since the end of the
recession in 2009.  If you contrast the contraction of 0.1%
against the 3.1% growth in the third quarter then you can get some
grasp of the sharpness of the fall and the surprise in the data.
The fall in GDP is being attributed to steep cuts in defence
spending and weather related hits to consumer activity.  The
FOMC in their monthly interest rate meeting were fairly upbeat
about the US economy and suggested that the stall in growth was
temporary as they left their $85 billion bond buying stimulus plan
in place.  The USD has continued to lose ground in the FX
markets and the euro has now hit a 14 month high against the
USD.  Interestingly the weak data which would normally lead to
USD strength as a safe haven instead led to Euro gains.

Elsewhere we have actually had some
good news for a change from the UK economy with GfK January
consumer confidence coming in at an improved -26 against an
expected -28, not quite a surge in optimism but at least ahead of
expectations. The Euro has held good levels after mixed economic
data with weak German retail sales and lower French Producer Prices
countered by a fall in German unemployment. 

In other news, the credit ratings
agency S&P have noted that China amongst others may be spending
too much after they ranked economies on their vulnerability to an
investment led collapse.  China is accompanied by Brazil,
Australia and South Africa who have invested heavily in recent
years to supply China with natural resources.  The AUD has
lost ground following the report as concerns of a slowdown in China
will always hurt commodity related currencies such as the
AUD.