Investors surprisingly upbeat despite more poor US data yesterday

• European indices expected to open relatively flat;

• Investors surprisingly upbeat despite more poor US data yesterday;

• France avoids recession with marginal growth in Q4 and upward revision to Q3 figure;

• Italy expected to announce quarterly growth for the first time since Q2 2011 as Prime Minister Letta resigns.

European index futures are looking pretty flat ahead of the open on Friday, with the FTSE seen opening 7 points lower, the CAC 2 points higher and the DAX 21 points higher. Only the DAX move represents more than a tenth of a percentage point move in either direction from yesterday’s closing price so therefore point to a relatively unchanged open.

I guess we should be quite encouraged by this considering the US data yesterday afternoon wasn’t exactly encouraging. Not only were retail sales for January lower than expected, December’s number was revised lower and the weekly jobless claims were higher, raising further fears about the strength of the labour market.

Still, investors remained quite positive, focusing instead of the earnings results along with reports of increased M&A activity. I guess Fed Chair Janet Yellen’s assurances about the economy on Tuesday didn’t do any harm either, as she highlighted the temporary distortions in the data due to adverse weather conditions. I think this was pretty clear all along but when markets are a little overstretched, as they were at the end of the year, investors will use anything as an excuse to sell, or lock in profits.

Investor sentiment at the end of the week could be determined by this morning’s fourth quarter GDP figures for a number of eurozone countries and the region as a whole. Things have got off to a very good start, with France managing to avoid another recession, with growth of 0.3%. As it turns out, a recession was never really on the cards, as the previous quarters reading was revised out of negative territory, to 0%. While this is good news, it does represent yet another quarter of marginal growth in France, with forward looking data, such as PMI readings, showing no sign of improvement.

Still to come we have GDP readings for Germany, Italy, Greece, Portugal and the eurozone as a whole. The Italian release could mark a turning point for the country, with it having not recording positive quarterly growth now since the second quarter of 2011, resulting in the longest recession on record.
Expectations today are for 0.1% growth, which isn’t much but hopefully it’s a sign that, slowly but surely, things are starting to improve. Although, given the fresh political crisis, with Prime Minister Enrico Letta being forced to hand in his resignation, it may be a little early to celebrate.

If you would like to discuss these points further please call me on 0207 426 2844 or 07970 073 088.