US Q4 GDP weak, focus on EU summit dead ahead
Asset markets backed off the bid again today after a lacklustre US GDP report - particularly given the high expectations. The market will quickly forget about this one as the EU summit lies dead ahead, however.
US GDP came in at a weaker than expected 2.8%, particularly weak given that the GDP price index for the quarter came in at -1.5% below expectations at a mere +0.4% annualised. See our Macro Mads for more perspective on the report. Asset markets are backing off further in the wake of this report after yesterday's reversal from strong new highs, with pro-risk commodity currencies understandably taking it more directly on the chin vs. the USD relative to the Euro (where there is far more influence from relative balance sheet considerations and possibly positioning overhangs, as we have discussed recently).
No Portuguese contagion so far
While the news is disturbing that Portugal may queue up for a second bailout (see the Telegraph's Evans-Pritchard's column from last night and note the study he cites that the country would need to run impossibly large surpluses for years to get on a sustainable path for its debt.), this news has failed to impress the larger Euro Zone peripheral countries' debt markets, as Spanish 10-year yields dropped below the critical 5 per cent level - which has effectively been the resistance area for that maturity of Spanish debt since late 2010. Italian 10-year yields also plunged all the way back well below 6 per cent today. This despite rumours that the idea of 50 per cent haircuts for Portuguese is currently making the rounds and that endless uncertainty remains on the Greek PSI front.
Swiss miss
The leading indicator for Switzerland plunged to a new low for the cycle and the lowest level since mid-2009, a development that is no doubt raising eyebrows at the still leaderless SNB and among Swiss government officials. This comes at the same time we are seeing notable stabilization elsewhere in the Euro Zone economies. The Swiss may be getting restless soon on the intervention front. We also note the interesting technical levels in USDCHF in the chart below.
Chart: USDCHF
USDCHF has settled over the last couple of days at an important basic trend support, the 0.382 Fibo of the huge move from the sub 0.8600 lows. There's not much else to go on for those looking for a turnaround and rally save for the EURUSD pair, which is hemming and hawing at its 55-day moving average. USDCHF needs to work back above the flatline resistance/55-day moving average area to help neutralise this latest sell-off wave.
Dovish Fed = bond rally = JPY resilience
USDJPY made a perfect test of resistance (range highs and 200-day moving average) and as we said before the FOMC, interest rates would be the prime motor for movements in the JPY. Indeed, the JPY has put up a strong fight in direction proportion to the rally in major bond markets and is now suddenly within 50 pips of the range lows between 76.50 and 76.30. It's tough to imaging Japanese officialdom allowing new lows, but let's see if they are willing to let it slip a bit farther than expected before making their move.
Looking ahead
It's summit time for Europe next week, and expectations are predictably dropping as we all have lost count of the EU summits and the inevitable disappointment. This time, of course, the main topic of interest is the “fiscal compact” and whether it can gain momentum. Most of the rhetoric on the prospects for its success from various sources in the press has been pessimistic, the fortunate thing for EU politicians being that the ECB has bought them some time by putting a lid on peripheral EU bond yields since the launch of its wildly successful (for now!) 3-year LTRO back in December.
That LTRO's success could possibly extend the timing for the next aggravation of the EU debt crisis to sometime after the actual LTRO at the end of next month. The jury is out on whether this also means that the Euro can stay resilient until then - that's a hard one to swallow, at least in terms of EURUSD (EURAUD and EUR/risk might be a different ballgame in the event risk rolls over while EU peripheral yields and other systemic indicators remain placid). Preferring to stay very short term for now, we note with interest the inability of EURUSD to take out the 55-day moving average (1.3130 yesterday, a bit lower today) once again today, and we'll use this as the shortest term swing level since the rally faded ahead of the higher resistance at 1.3210/40.
Have a wonderful weekend and be very careful out there.
Economic Data Highlights
- Germany Dec. Import Price Index out at +0.3% MoM and +3.9% YoY vs. +0.3%/+3.8% expected, respectively and vs. +6.0% YoY in Nov.
- Switzerland Jan. KOF Swiss Leading Indicator out at -0.17 vs. -0.10 expected and +0.01 in Dec.
- Sweden Dec. Household Lending rose +5.2% YoY vs. +5.1 expected and +5.3% in Nov.
- Sweden Dec. Retail Sales out at0.1% MoM vs. -0.5% expected and +0.7% in Nov.
- US Q4 GDP out at +2.8% Annualized vs. +3.0% expected and +1.8% in Q3
- US Q4 Personal Consumption rose +2.0% Annualized vs. +2.4% expected and +1.7% in Q3
- US Q4 GDP Price Index rose +0.4% Annualized vs. +1.9% expected and +2.6% in Q3
- US Q4 Core PCE rose +1.1% Annualized vs. +0.9% expected and +2.1% in Q3
Upcoming Economic Calendar Highlights (all times GMT)
- US Jan. Final University of Michigan Confidence (1455)
- New Zealand Dec. Performance of Services Index (Sun 2130)
- UK Jan. Hometrack Housing Survey (Mon 0001)
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