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The First Estimate Of The EMU GDP


Yesterday, global markets enjoined a rather calm, constructive trading session. Uncertainty on the China regulatory overhaul moved a bit to the background. The Fed’s ongoing accommodative policy stance also contributed to a benign trading environment. Investors had to cope with an avalanche of data both the Europe and the US. Especially European data almost unequivocally printed stronger than expected. EC economic sentiment for EMU hit record high. German unemployment declined much faster than expected. At the same time, German HCPI inflation jumped to the highest level since August 2008 (3.1% Y/Y). Still, the combination of strong activity data and higher inflation was no game-changer for European interest rate markets. German yields hardly changed. At 0.45%, the German 10-y yield continues to feel the forces of gravity. The headline figure of the US Q2 GDP at 6.5% Q/Qa printed softer than expected, but amongst other this was due to lower inventories. Private consumption remains strong. The core PCE deflator jumped sharply to 6.1%, but this was expected. The US yield curve succeeded a modest post-Fed steepening, with yields rising between 0.2 bp and 3.9 bp (30-y). However, this didn’t change the broader picture after recent flattening trend. A better risk sentiment and steeper US curve also caused further USD profit taking. EUR/USD tested the 1.1881/95 resistance (close at 1.1887). US and European equites mostly gained up to 0.5%.

This morning, Asian equities can’t maintain yesterday’s more constructive bias. Uncertainty on China regulation still lingers. Disappointing Q2 revenue and outlook of Amazon published after the close in the US, are causing a setback in US futures. US Treasury yields are declining (2.5 bp 10-y). The risk off also slows the decline of the dollar. (EUR/USD 1.1880, DXY 91.95).

Today, the US June spending and income data are probably less important after yesterday’s GDP release. The Chicago PMI (expected to ease further to 64.1) might be a pointer for next week’s key US early month data. In EMU, several countries will report Q2 GDP data. The first estimate of the EMU GDP is expected at 1.5% Q/Q and 13.2% Y/Y. The Flash EMU CPI is seen at -0.3% M/M and 2.0%. Yesterday’s German CPI data suggest upside risks, but did little to lift European yields. This might be even more difficult in a risk-off context. The -0.47% support for the 10-y German yields remains at risk. The US 10-y yield (1.2450%) also fails to move higher in the 1.20%/1.30% ST consolidation pattern. EUR/USD left a ST downtrend channel. However, the 1.1881/95 resistance (previous intermediate top) already might be a first roadblock in case of a less positive risk sentiment. EUR/USD regaining 1.1975 would call off the setback that started end May. Sterling had a good run of late. The focus is turning to next week’s BOE policy meeting. With already some good news for sterling discounted, a sustained break below the 0.85/0.8472 support might be difficult ahead of Thursday’s BoE announcement.

News headlines

The economic recovery in Japan was gaining traction in June, according to several data series published this morning. Industrial production jumped a stronger than expected 6.2% M/M after declining 6.5% in May. Output was 22.6% higher compared to the same period last year. The rebound in June production was mainly driven by auto production and machinery. Labour market conditions in Japan remain tight. The Unemployment rate declined from 3.0% to 2.9%. The Job-to-applicant ration jumped from 1.09 to 1.13, indicating ample job availability. Retails sales data were more mixed with sales gaining 3.1% M/M to be up 0.1% Y/Y. A new jumped in infections currently suggests that the rebound in domestically oriented sectors of the economy might slow in current quarter.

South Korea June production data showed a similar pattern as was the case in Japan. Production rebounded in 2.2% in June after a 1.0% decline in May. June production was 11.9% higher compared to last year. An rise in semi-conductors and auto production supported the rise in production.

Note: There will be no KBC Markets-Economics reports from Monday August 2. We resume our publications Tuesday August 10.


KBC Bank
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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