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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 29 May 2015 at 5:08 GMT

3 Numbers: Germany's retail bounceback, EZ money, US GDP estimate

Blogger / MoreLiver's Daily
Finland
  • German retail sales to recover following a surprise plunge
  • European M3 money supply and bank lending signal recovery
  • US Q1 GDP seen to be revised much lower - but will it matter?

By Juhani Huopainen

Today is one of those days where the data calendar does not include any critical releases, but it is full of second-tier items, each of which could become a market-moving item.

During the early part of the day the final first quarter’s gross domestic production (GDP) of several European countries are published (Switzerland 05:45, Sweden 07:30, Italy 08:00, UK 08:30, Greece 09:00, Portugal 10:00). Spain’s GDP was already published yesterday, and was unchanged from the initial estimate, which was also the consensus forecast.

Investors are thus not expecting surprises from European GDP data. That suggests to me that there could not only be data surprises, but also price reactions. Portugal is especially interesting as elections are approaching, and of course Greece is in the spotlight.

Germany April Retail Sales (06:00 GMT) Retail sales are expected to recover by a full 1% in April, after falling a devastating 2.3% in March. The consensus forecast was expecting an increase of 0.4%, so the negative surprise was huge. Luckily, the monthly data is very volatile, and such moves have happened relatively often in the past. Retail sales still remain around 3.5% higher than a year ago.

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 No more shockers: German retail sales are expecting a bounceback. Photo: iStock

The GfK consumer climate index has continued posting increases, and the Ifo Business Climate indices remains on a positive track – suggesting that retail sales will continue perform strongly in the near future
GER retail sales
Source: Saxo Bank


Eurozone April monetary developments (08:00 GMT): The seasonally adjusted M3 money supply is expected to have increased by 4.6% from a year ago, up from 4.1% in March. In March, the banks’ loans to the private sector finally showed a year-on-year increase of 0.1%. The last time the loan growth rate was positive was in early 2012.

The turnaround started in mid-2014, when the European Central Bank chief Mario Draghi indicated that easier monetary policy must and will follow. After introducing piecemeal measures from asset purchases to negative deposit rates, finally the sovereign bond purchase program was added to the mix
EZ M3
 Source: European Central Bank

Money is what keeps the economy humming.  At the same time, a healthy economy creates money. The turnaround in M3 and credit formation’s recovery is the single most important factor supporting a brighter outlook for the euro area.

For traders, interpreting the data will be difficult. If the M3 and loan data do not improve, either it is just a temporary setback – or a sign that even the ECB’s aggressive measures are not enough to turn the Eurozone around. In such a case it would be uncertain whether the ECB could or would introduce additional dovish policies.

On the other hand, if the data is very positive, we could again begin to hear politically-motivated speeches from Germany over the ECB’s monetary largesse – bringing back fears that the ECB could taper its asset purchase program.

The report, and the previous one, can be downloaded here.

US Q1 Gross Domestic Production (12:30 GMT) The first quarter’s GDP was initially reported to be much lower than the consensus forecast was expecting, but today’s first revision is expected to push it even lower from a meage growth of 0.2% to a straight contraction of 1%.
US GDP
 Source: Saxo Bank

The investors have generally accepted that the first quarter’s data was a temporary hiccup – bad weather led to a bad quarter, and the numbers looked even worse because of seasonal adjustments.

There also seems to be a consensus that the first quarter’s weakness has spilled over to the second quarter, and although some of the recent data (jobs, housing, inflation) suggest the worst is over, some still suggest that the second quarter will remain weak, too.

The Atlanta Fed’s GDPNow tracker correctly guessed the first quarter’s weakness, and it is currently expecting growth of 0.8% in the second quarter – against the blue chip consensus forecast of 2.9%.  With the Federal Reserve currently planning its first rate hike since the crisis, the economic data during the next couple of months will be critical. Even a slightly better-than-expected GDP-figure could reinvigorate the USD bulls.

See the Bureau of Economic Analysis and this blog article on The Fat Pitch for more on the seasonal adjustments.

-- Edited by Adam Courtenay

Juhani Huopainen is a blogger and a macro analyst at More Liver’s Daily. Follow Juhani or post your comment below to engage with Saxo Bank's social trading platform

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