Uncertainty surrounding European economic development

Fundamental Analysis

EUR

“[The fact that confidence] only shows a slight upward movement is a reflection of the current uncertainty surrounding future economic development. With regard to the economic situation in Germany, no clear conclusion can be drawn from the most recent economic signals”.

- Achim Wambach, ZEW

Investor sentiment in the Euro zone’s largest economy, Germany, improved markedly in March but less than analysts expected, a report released on Tuesday showed. The Mannheim-based Centre for European Economic Research (ZEW) said its German Economic Sentiment Index came in at 12.8 points for March, slightly up from the preceding month’s 10.4. However, market analysts anticipated a bigger increase to 13.2 during the reported period. Data also showed the Current Conditions Index climbed to 77.3 from 76.4 points seen in February, falling behind analysts’ expectations for a rise to 78.0. The ZEW President Professor Archim Wambach highlighted that risks surrounding the upcoming federal elections and the future of US foreign policy remained high, and, therefore, it was not possible to provide a clear view on the current state of the German economy. In the meantime, the Euro zone ZEW Indicator of Economic Sentiment advanced to 25.6 points in March from the prior month’s 17.1, surpassing forecasts for a reading of 19.3. Furthermore, the indicator for the current economic situation in the region came in at 7.4 in March, up from February’s 2.8. Any reading above the 0.0-point level reflects general investor optimism. The Euro fell against other major currencies shortly after the release.

USD

“The annual rate of the PPI index reached the highest level in almost five years in the United States”.- Matías Salord, FXStreet.com

The seasonally adjusted Producer Price Index for final demand rose 0.3% in February, the Bureau of Labour Statistics revealed on Tuesday. Over 80% of the increase in final demand Index was associated with 0.4% advance in prices for final demand services. The Index for final demand goods, in contrast, advanced only 0.3%. The surge in final demand services was mainly driven by traveller accommodation services, which increased 4.3%, while the rise in final demand goods was mostly attributable to higher electric power prices, which rallied 1.6%. In general, the price advance for total final demand in February was half of the January rise. With respect to intermediate demand, prices for unprocessed goods plunged 0.2%, while prices for processed goods jumped 0.4% and prices for services climbed 0.5%. Prices of processed goods posted the sixth straight monthly increase, driven by a 0.5% spike in prices for processed materials less foods and energy. In contrast, the surprising fall of prices for unprocessed goods was attributed to a 4.3% drop in the price of unprocessed energy materials. In terms of products, the rise of prices for processed goods was attributable to higher demand for primary basic organic chemicals and higher services prices. The slip of prices for unprocessed goods was triggered by lower natural gas prices, which went 18% down.

NZD

“New Zealand earned $2.0 billion from investment overseas, $129 million more than in the September quarter. A large portion of this extra income was reinvested back into the overseas subsidiaries, instead of being paid out as dividends”.

- Daria Kwon, Statistics New Zealand

New Zealand’s current account deficit dropped markedly during the last quarter of 2016 amid stronger tourism and higher reinsurance flows into New Zealand, following the November earthquake, official figures revealed on Tuesday. Statistics New Zealand reported the country’s current account deficit fell to NZ$2.34 billion in the Q4 of 2016, surpassing analysts’ expectations for a NZ$2.43 billion deficit. Meanwhile, the preceding quarter’s gap of NZ$4.89 billion was revised up to NZ$5.03 billion. On an annual basis, the country’s deficit came in at NZ$7.112, accounting for 2.7% of GDP, following 3% in the Q3 of 2016. Analysts expected the deficit to account for 2.8% of GDP. Data also showed that the number of tourists coming to New Zealand and the amount of money they spend rose markedly. Thus, service spending climbed to a $1.2 billion surplus, $174 million up from the prior quarter. Moreover, Statistics New Zealand said that overseas reinsurance claims, submitted after the November 7.8 magnitude earthquake hit the town of Kaikoura, also boosted fund flows in the country. Analysts suggest that the better-than-expected current account deficit would be highly welcomed by the Reserve Bank of New Zealand that holds a meeting next week. However, markets do not expect the Central bank to raise its key interest rate at the upcoming meeting.

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