After a slew of disappointing Japanese, Chinese and Australian data during Asian trading hours, attention shifted to Europe, and Germany in particular. The latter’s economy unexpectedly expanded during the third quarter. Growth printed at 0.1% q/q (0.5% y/y) on the back of government and consumer spending. Markets braced for 0.1% q/q contraction, which would have pushed the country in a technical recession. The second quarter performed worse than previously thought however, as growth was revised downwardly from -0.1% to -0.2% q/q. The German outcome is a double edged one however. Having avoided a recession was a sigh of relief. At the same time it alleviates (external) pressure on the government to dig into the money pockets and have its (and the European) economy reinvigorated. Germany’s positive growth surprise had no effect on EMU growth though, which was unchanged at 0.2% q/q compared to the first reading. On financial markets the dampened prospects of fiscal stimulus (see below) dominated and added further to the already dented sentiment. The German yield curve bull flattened with yields changing -1 bps (2-yr) to -5 bps (30-yr). Peripheral spreads widened with Greece (+8 bps) underperforming. Spain adds 3 bps. The Catalonian ERC party said it would not back the accord between Sánchez’ Socialists and the anti-austerity party Podemos. US yields decline 3.5 bps (2-yr) to 6 bps (30-yr). EUR/USD was whipsawed around the 1.10 barrier. The pair erased a knee-jerk upleg after the German growth figures fairly soon before grinding higher again on the weakest US jobless claims since June (225 000 vs. 215 000 expected). EUR/USD is eventually trading almost stable vs. yesterday’s close at 1.10. USD/JPY (108.67) is slipping further south.

Weaker than expected UK retail sales close a series of high profile data for the country (GDP, inflation, labour market). Headline sales declined 0.1% m/m vs. a modest 0.2% increase anticipated. Core measures (excluding cars and fuel) fell 0.3% m/m vs. an expected rise of 0.2%. As has been the case for quite some time now, the data had little to zero impact on the British pound. In an otherwise technically driven session, EUR/GBP initially lost ground as sterling gained in the run up to a speech from Brexit Party leader Farage. Farage said he will “fight Labour in every seat in this country”. After having pledged not to contest the Tory seats, some sterling bulls (and Tory members) hoped Farage would have stand aside altogether. From that point on, EUR/GBP gradually recovered, erasing earlier losses partially. The currency pair is currently filling bids in the 0.856 area, that’s virtually unchanged vs. open. Trading in cable was similar. GBP/USD is changing hands at 1.284, coming from 1.285.

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News Headlines

German Finance Minister Olaf Scholz said that the Germany economy doesn’t need the boost from additional (fiscal) spending. The economy is growing slowly, but according to the Finance Minister it isn’t in a crisis. The German Finance minister considers additional stimulus inappropriate at a time of already expansionary fiscal and monetary policy and as the slowdown is mostly due to external factors.

Growth in Polish economic activity grew slightly less than expected in the third quarter. The Polish economy expanded 3.9% in Q3 down from 4.6% in Q2. The statistics office indicated that weaker growth in construction and industry offset continued strong consumer demand. The Q3 GDP data release probably won’ affect the assessment of the Polish central bank on monetary policy. The reaction of the zloty was very limited. EUR/PLN is trading in the 4.29 area.


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