Germany, Europe's Growth Engine, Loses Steam

Analisi Giornaliera - 24/02/2016

Pressure on Equities and Oil See Traders Turn Tail


The markets were back into risk aversion mode yesterday with the Swiss Franc and the Yen gaining across the board. The CHF gained strongly despite comments from Swiss National Bank Chairman Thomas Jordan, who stated that the Franc was still overvalued. Equity markets were also came under pressure as oil prices turned lower, with WTI futures closing at $31.3 a barrel and down 6% for the session.

German Ifo Sentiment Declines for Third Month Consecutively

Germany's Ifo Business Climate Index fell sharply in February to 105.7, missing estimates of 106.8. The decline marks a third straight month of falling sentiment with a manufacturing slowdown pointing to a weaker pace of growth in Germany. This gap down was its largest since December 2012, when it fell from 102.3 to 98.8. Ahead of the Ifo data, Germany's GDP for the fourth quarter showed the economy expanding at a pace of 0.3%, unchanged from the previous month. On a yearly basis, GDP expanded at a pace of 2.1%, unchanged monthly but above the 1.60% read last year. Earlier on Monday, flash manufacturing PMI figures from Germany printed at a 15-month low, further evidence of stagnation as Europe’s largest economy suffers from the slowdown from China. The Euro continued to decline yesterday and fell to session lows of 1.099 before pulling back higher by end the day.


US Home Sales Surprise

In contrast to expectations of a decline of -2.50%, US existing home sales surprised by rising 0.40%. Home sales picked up at a pace of 5.47 million in January, compared to forecasts of a decline to 5.32 million according to the data from the National Association of Realtors. December's numbers were revised lower from 14.7% to 12.1%. Compared to January 2015, sales increased 11% with last month notching the second highest reading since 2007. Earlier, the S&P/Case Shiller 20-City house price index rose 0.8%, falling below estimates of 0.9%, and gained 5.7% compared to a year ago, below estimates of 5.8%. USDJPY closed at 112.093, back at February 11th lows.


Riksbank MPC Meeting Minutes

The Swedish Riksbank's monetary policy meeting minutes from February 11th are due today during the European trading session. The Swedish Riksbank had cut interest rates further by 15 basis points, bringing the central bank's interest rates from -0.35% to -0.50%. The rate cut came as a surprise due to Sweden's fairly resilient economy. The bank said that it was forced to act due to weaker confidence in reaching the 2% inflation target, and noted that it could further expand its policy tools in order to safeguard the metric if necessary. Following the release, the Swedish Krona fell over 1.6% against the Euro. The meeting minutes due today will shed light on the future course of action from the Swedish Central Bank. EURSEK has retreated the past 5 days after topping out near 9.520, closing lower yesterday at 9.347.


Central Bank Speeches from England, Canada and US

The economic calendar is light today with the US trading session seeing the release of new home sales data. Expectations are for a dip of -4.4% on a monthly basis in new sales, following an increase of 10.8% a month before. US crude inventories are also due later with forecasts of an increase of 2.03 million barrels for the week. The remainder of the evening is packed with central bank speeches from officials such as the Bank of England's Deputy Governor John Cunliffe. Cunliffe previously sounded hawkish, noting that the market expectations for postponing rate hikes in the UK to 2019 were not justified. The Bank of Canada's Deputy Governor Lawrence Schembri is slated to speak at a conference in Ontario as well. Finally, the Federal Reserve's Dallas President, Robert Kaplan, is due to speak on economic conditions and monetary policy in the US.


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