Eurozone grows faster than expected in Q4;
Letta’s resignation overshadows first quarterly growth figure since Q2 2011;
Focus turns to US consumer as the week draws to a close.
Indices are expected to open relatively flat on Friday, following a very good week for US equities, with the S&P seen opening unchanged, the Dow 9 points higher and the Nasdaq 4 points higher.
It’s been a positive start to the day in Europe with GDP figures exceeding expectations pretty much across the board in the eurozone. It all got off to a great start as we learned that not only did France avoid falling into recession in the fourth quarter, with 0.3% growth, it was never at risk of recession in the first place as it never contracted in the previous quarter. The initial -0.1% reading was revised to 0%.
Clearly this tiny amount of growth still isn’t good enough for a country like France, but avoiding another recession and recording some growth is a good platform for improvement. Just look at the UK last year to see what a difference it can make. It may be difficult to quantify, but I fully believe that headlines highlighting higher levels of growth rather than recessions have an impact on consumer sentiment and therefore growth in the quarters ahead.
The figures were also better than expected for other countries, with Germany once again leading the way with 0.4% growth. The eurozone as a whole also performed better than expected, with 0.5% in the final quarter of the year, up from 0.1% in the third.
It’s been a mixed day for Italy, as news of the first quarterly growth figure since the second quarter of 2011 was completely overshadowed by reports that Prime Minister Enrico Letta will resign after the Democratic party called for a change of government. Political instability in Italy is unfortunately not that uncommon but it was hoped that the coalition government that was formed last year could drag Italy out of the rut it is in. Clearly the Democratic Party believe not enough has been achieved on the reform and growth side and have decided it’s time for a change.
This doesn’t appear to be weighing on sentiment this morning, although this may be due to the fact that reports yesterday had all but confirmed this would happen. Investors are instead choosing to focus on the positives around the better levels of growth in the region.
The end of the week in the US should be relatively quiet, although there are a couple of important pieces of data being released that could impact the markets. Industrial production in January is expected to have grown by 0.3%, the same as in December, which given the difficult months, on the weather front, isn’t too bad at all.
Finally we have the preliminary UoM consumer sentiment reading which is going to have additional importance following yesterday’s disappointing retail sales figures. This figure should tell us whether the data in December and January was just weather related or whether it is the start of a longer, and troubling, trend.
If you would like to discuss these points further please call me on 0207 426 2844 or 07970 073 088.
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