Eurozone GDP figures on focus

US Retail sales fell 0.4 per cent in the month of January which
was much weaker than anticipated. This is now the second month in a
row and consumer spending contracted by the largest amount since
June 2012. Excluding auto and gas purchases which can be volatile,
core retail sales also fell 0.2 per cent, the largest decline in 11
months. The disappointing result is blamed by many on the poor
weather that is affecting the US this winter and has led analysts
to cut their forecast for US growth in the first quarter. If the
retail sales and non-farm payrolls don’t pick up soon, the
Federal Reserve may have to slow the pace of reduction despite
last week optimism about the US economy. On another report released
yesterday jobless claims rose slightly from 331k to 339k.

The
British pound climbed to fresh multiyear highs today after the
disappointing U.S. retail sales report. There was no UK data
released so the move in sterling represents a consolidation
following the Bank of England’s decision to drop its unemployment
rate threshold and upgrade their growth forecasts. As there are no
additional UK or US economic reports scheduled for release today
the market will start focusing on next week’s releases. There are a
number of economic reports that will either validate or question
the central bank’s decision to upgrade its GDP forecasts and the
outcome will decide whether sterling will continue strengthening
against the greenback.

Yesterday was quiet in the Euro area with only the ECB monthly
bulletin on the docket. The bulletin confirmed a sharp downward
revision for HICP (Harmonised Index of Consumer Prices) in 2014 to
1.1 per cent from a previous estimate of 1.5 per cent. The estimate
for 2015 was also lowered to 1.4 per cent from 1.6 per cent. The
news confirmed that inflation remains muted in the region and
offers the ECB an opportunity to ease further. Today the market
will focus on Eurozone fourth quarter GDP numbers scheduled for
release later this morning. Based on the current consensus
forecast, economists are looking for faster growth in the fourth
quarter. The expectations are mixed as a sharp decline in German
and French consumer spending towards the end of last year was
counterbalanced by an improvement in trade activity which could
help the overall number. It seems encouraging to see that 2013 Q4
figures out of Germany, France this morning were better than
expected printing respectively 0.4 , 0.3 and 0.7 per cent.

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