3 Numbers: ECB on tenterhooks over Eurozone GDP
- Euro area’s Q4 GDP modest, but 2016 will be below ECB’s projections
- Fed president Dudley’s speech is an opportunity to soothe the markets
- US consumer sentiment to continue erasing earlier gains
By Juhani Huopainen
China’s Lunar New Year holiday is over after today, and the Chinese officials’ response to the market mayhem could prove interesting next week.
In the current very bearish market environment, fundamentals don’t carry much weight anymore – it is all about flows, herding and guesswork about the eventual policy response from the central banks and governments.
The key remains the European Central Bank’s and the Federal Reserve’s reaction. This suggests that things would probably have to get really nasty before we arrive at a new “whatever it takes” moment.
I am making a big judgement call here and stating that today's US retail sales numbers will not be an important piece of data. The Eurozone's GDP acts as a good excuse for the ECB to act (it cannot say it is saving Deutsche Bank), while Dudley's speech could be the first proper post-hike, post-Janet Yellen hint on how the Fed will react.
EURUSD monthly chart
One potential surprise later in the evening could be a dinner speech by UK’s Prime Minister David Cameron, likely to focus on Britain and EU. German chancellor Angela Merkel will also speak at the event. The event starts at 1900 GMT.
market and banking stability than macroeconomics. Photo: Flickr
Euro area Q4 Gross Domestic Production (1000) Euro area’s gross domestic production is expected to have increased by 0.3% in the final quarter of 2015. This would be an unchanged growth rate from the third quarter and would leave the latest year-on-year growth rate at 1.5%.
The latest negative surprises from the monetary aggregates and industry surveys suggest that the growth rate in the first quarter of 2016 is not going to see much improvement. If growth remains modest in the Q1, it would probably invalidate the European Central Bank’s latest growth projection for the whole year.
With ever-lower oil prices and smaller-than-expected economic growth – not to mention the stronger EUR – the reality is forcing the ECB’s hand, and it must present something believable at its next policy meeting on March 10.
US Federal Reserve President William Dudley speaks (1500) Fed New York president William Dudley participates in a press briefing on trends in household borrowing and indebtedness, and will answer questions in a panel. Dudley is generally considered to be in the dovish camp and he is the vice chairman of the Federal Open Market Committee.
Due to the NY Fed’s history of looking after the country’s largest mega-banks and Dudley’s past work as the chief economist at the Goldman Sachs, he is more oriented toward financial market- and banking stability, at least when compared to other members with more macroeconomic backgrounds.
Everyone seems to agree that the Fed’s chairwoman Janet Yellen failed to provide the much-expected dovish signals in her congressional testimony. It is time for the other Fed board members to begin making dovish talks, present test balloons and try to convince the markets that the Fed knows what it is doing and is listening to the markets.
After a long selloff, I wouldn’t be surprised if we would hear the magic words – preferably “hiking was a mistake” or “quantitative easing during a hike cycle is not ruled out”.
US February U.Michigan Consumer Sentiment (1500) The mid-month estimate of the consumer sentiment index is expected to decline to 91.8. January’s month-end reading was 92, which was much lower than the mid-month estimate of 93.3 and less than December’s month-end 92.6.
While sentiment remains at levels historically associated with “good times” and the trend for the past five years has been solidly positive with relatively controlled corrections, the high level worries me:
Outside the IT fever of the late nineties, the index has not really gotten any higher than where we are now. Sentiment is usually high right before a major downturn in the real economy and the financial markets.
Sure, gas is now even cheaper and the job data is solid. But usually the going is about to get rough exactly when everyone is as optimistic as they could be.
– Edited by Adam Courtenay
Juhani Huopainen is a blogger and a macro analyst at MoreLiver’s Daily. Follow Juhani or post your comment below to engage with Saxo Bank's social trading platform.