Article / 12 February 2016 at 6:00 GMT

3 Numbers: ECB on tenterhooks over Eurozone GDP

Blogger / MoreLiver's Daily
  • 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

Friday’s calendar is quite heavy: in addition to Q4 GDP and monthly inflation data released for several European countries and US retail sales and consumer sentiment, Federal Reserve president William Dudley will be speaking and the European finance ministers meet.

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

 Source: Saxo Trader

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.

Damage controller: WIlliam Dudley is more oriented toward financial
 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%.

Source: Saxo Bank

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.

Sentiment short
Source: Saxo Bank

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:

Sentiment longer
Source: Saxo Bank

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.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail