Yuk is about all we can say about the GDP reports that came out in the last 24 hours. Certainly the Japanese weakness was unsurprising but the data out of Europe, particularly Germany, was truly disquieting and suggests that the ECB will need to ease and if a recovery isn’t on the horizon as we had thought potentially joining the ranks of the quantitative easing club eventually.
Looking at the data even though we said that we weren’t surprised by the weakness in Japan the actual outturn for Q4 GDP of -0.1% was on the wrong side of the line with pundits having expected a rise of 0.1%. This quarterly result left the year on year growth rate at -0.6% clearly strengthening the hand of Abe and his plans for the BoJ. On that front the BoJ left rates unchanged at yesterday’s monthly meeting.
In Europe however the news was more shocking. Shocking is not a word often used in a financial summary but the data really was horrible. German GDP contracted a worse than expected 0.6% but it was the export engine particularly exports to the rest of the Eurozone that is clearly sputtering. French, Italian and Portuguese GDP were equally all weaker than expected falling 0.3%, 0.9% and 1.8% respectively. Overall Eurozone GDP fell 0.6% in Q4 2012 and the year on year fall was 0.9% for 2012.
The Chinese recovery, or at least soft landing, has been encouraging us that German can push through but the acute weakness in its neighbors is clearly weighing on Europe’s powerhouse economy. What is they say? Lie down with dogs and you get up with fleas
Euro came under pressure as a result falling from a high of 1.3455 to a low of 1.3313 before rallying back to 1.3341 at present but it has been a damaging day technically as you can see in the chart below.
The focus now is on the support line from the low in November which comes in today at 1.3264 which is also where the lastest uptick above 1.35 kicked up from. We always respect trend lines unless or until they break, but our guess is that this level is going to be taken out in the next week.
Likewise the Yen looks to us to be finally consolidating its move against the USD with USDJPY off 0.32% to 93.06. This might seem incongruous given the weak GDP released yesterday but you’d have to say that there is a lot of Japanese bad news and aggressive monetary policy already baked into the cake and Dollar Yen has been due for a consolidation for some time.
But we have been fooled within our overall bullish framework a couple of times by USDJPY as it marched ever upward so it is reasonable to ask what’s different this time. The answer is nothing YET! The trend is more mature now, it has become more extended and our indicators are suggesting that the chance of a test of the recent uptrend is growing.
Looking at the chart above you can see that USDJPY hasn’t yet touched our fast moving average so is still in an uptrend and this would be expected to be support as would the middle of the Bollinger Bands which is only a little above the recent uptrend line. But based on the combination of indicators that we use we think that a test is coming. As always unless or until the trend line breaks we respect it but if it does a deeper retracement is in the offing.
Short term a break of 92.70 signals a run to 92.00/05.
Elsewhere in FX land the Aussie has been unable to resist the US dollars strength falling back from the high of 1.0370 to be down 0.22% at 1.0346 but this is not really material when the Euro is down 0.81% and USDCHF is up 0.72%. Technically the Aussie is hanging around this 1.0330/60 range at the moment without a decent catalyst to push it either side. We know there is solid buying below 1.03 as we saw earlier in the week but the topside still seems limited at the moment.
As you can see in the chart above the Aussie has found resistance at our fast moving average over the past two trading days and it came in at 1.03708 overnight just above the high. It needs to get through this level to kick higher.
G20 is over the weekend so we’d expect some sort of announcement.
In Stock markets Europe was under pressure from the weak GDP with the DAX down 1.05%, the FTSE off 0.50% and the CAC down 0.77%. France looks to be under real economic pressure and while it may not yet have the issues of Spain and Italy it is heading that way. Speaking of Spain and Italy their benchmark indices were off 0.75% and 1% respectively.
In the US the weaker lead from Europe has largely been nullified by the $23 billion Buffet led bid for Heinz foods which set a better tone. Equally jobless claims dropped 19,000 which is good news for the stock market if you invert that relationship.
So at 7.16 with 44 minutes before the close the Dow is up just 2 points, the S&P is up 3 points or 0.18% at 1523 and the Nasdaq is up 0.13%.
On Commodity markets gold continues to lose its lustre off another 0.6% to $1634 oz and we retain our bias that this is headed lower. Silver was hit harder however losing 1.66% to $30.95 oz and it may be headed toward $29.25/30 support. Nymex crude was 0.34% higher at $97.34 Bbl. Sugar fell 1.11% and Natural Gas was more than 4% lower.
Kiwi retail sales this morning before Japanese Industrial production, Italian and Eurozone trade, British retail sales and then US industrial production.
Of course G20 could give us something to trade with over the weekend as well.