Market News & Insights
15 August 2013

Eurozone Out of Recession But Not Out Of Troubl

EUR/USD 1.3292
GBP/USD 1.5546
GBP/EUR 1.1697 (0.8550)
EUR/CHF 1.2401
GBP/CHF 1.4500
GBP/AUD 1.6928

Data released yesterday confirmed the Eurozone has exited recession with the regional figure boosted by better than expected results from Germany and France, declines in the peripheral have stabilised somewhat but risks to the Eurozone remain. Eurozone output grew .3% in Q2, yet despite this the EUR remained under pressure losing ground to both GBP and USD as well as several of its other major counterparts.

The Q2 GDP figures highlight the economic disparity across the region. Yes the core performed well with France and Germany expanding .5% and .7% respectively but the Netherlands contracted by .2%, following declines of -.1% and -.2% from Spain and Italy with expected declines also from Ireland in Q2. The peripheral economies are still some way from the expansion needed to see current economic and fiscal problems addressed. The recession in the region may be over but the debt crisis is set to remain a constant issue for some time yet.

Yesterday also saw the release of the MPC minutes and there were some surprises. It had been expected that Carney would have achieved a unanimous vote in favour of their forward guidance objective but there was one dissenter. Martin Weale wanted to have a shorter time horizon for the first inflation knock out condition, currently standing at 18 to 24 months.

There was also some dissension in policy views also with some members inclined to see policy tighten, while other still feel there is scope for further loosening. Elsewhere labour market data saw little change in the unemployment rate which remained at 7.8%. Behind the headline figures there were some signs of encouragement, however with employment claims rising by more than expected +69k vs 34k expected, whilst jobless claims declined by 29.2k, vs -15k expected. One thing is clear however, and that is whilst outlooks remain mixed GBP is set to remain volatile.

PPI data from the US yesterday was softer than expected with the core reading falling to its lowest level in three years at 2.1%. The more important Consumer Price Inflation reading is due out today and is expected to show an increase in July to 1.7% from 1.6% in June. This is expected to confirm the trough in inflation readings with a gradual rise in prices easing concerns of Fed members, further supporting the September Taper theory.

European releases are light today with UK retail sales topping the bill for the European session. The summer heat wave has seen a pickup in confidence and is expected to see a rise in food consumption but this may not be beneficial as people stayed out of the shops to enjoy the sunshine.