German GDP could disappoint ahead of UK inflation numbers
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
With concerns about growth in Europe, or rather the lack of it, at the forefront of investors? minds, markets are likely to get the first indications of the extent of how badly the German economy has been affected by the recession in the rest of Europe with the publication of its annualised GDP numbers for 2012 this morning.
Monday?s disappointing November industrial production numbers don?t augur well for this GDP number and it?s hard to be too optimistic about a significant bounce back in December. The GDP numbers are expected to show a sharp drop from last year?s 3% growth to a much lower 0.8% for 2012, which would equate to a significant contraction in Q4.
If recent economic data is anything to go by you would be right in thinking that the UK economy is having a pretty tough time of it in light of recent data that suggests that Q4 could well have seen the UK economy drop back into contraction.
Last week the NIESR warned that the UK economy contracted 0.3% in the final quarter, however it would appear that the OECD has a different view with the organisation suggesting that of all the G7 nations the UK?s performance over the last 12 months has been the best of all, with its composite leading indicator coming in above 100 for the past three months.
Be that as it may it seems unlikely that this week?s economic data will reinforce that view, with the publication of the latest December CPI and RPI inflation numbers expected to show an increase of 0.5% and 0.4% respectively, driven by increases in energy prices.
This is expected to translate into an annualised increase of 2.7% and 3% respectively, though it wouldn?t be a surprise to see the annual rate push up even higher to 2.8%. Factory gate producer prices are also expected to edge higher as well.
If prices do remain elevated which seems likely with higher rail and transport prices set to come in the January numbers and potentially higher food prices in the coming months, it seems much less likely that the Bank of England will be restarting its asset purchase program anytime soon, and will more than likely pinning their hopes on the funding for lending scheme.
Last night?s speech and Q&A session by Fed Chairman Ben Bernanke didn?t shed any further light on the divisions that came out of last week?s FOMC minutes, though the Fed chairman was at pains to point out that the US was still in a ?relatively fragile recovery? and that the debt ceiling needed to be raised swiftly.
Today?s US economic data is expected to confirm that consumers remain cautious into the Christmas period with retail sales for December expected to show only a small rise of 0.2%, down from November?s 0.3% rise.
The manufacturing recovery continues to look patchy with Empire Manufacturing for January expected to recover after the -8.1 in December, expected to show a recovery into positive territory, coming in at 1.
EURUSD ? the euro hit its highest levels since March last year above 1.3400 before slipping back yesterday. The key level remains at the 1.3500 level which is the 200 week MA as well as the 50% retracement of the 1.4940/1.2045 down move. A move through 1.3500 targets 1.3835, the 61.8% measure. Expect support to come in at 1.3300 now on any pullbacks, and 1.3170.
The long term support line from the 1.2045 lows now at 1.3007 remains the key level on the downside.
GBPUSD ? continues to range trade between resistance near the 1.6180 level and support just above 1.6000. To retarget the resistance at 1.6310 the cable needs to get above 1.6180. A break below the 1.6000 level is needed to target major trend line support now at 1.5970 from the 1.5270 lows, the 200 day MA at 1.5900, as well as 1.5660.
EURGBP ? the euro remains on course for the 0.8420 level, which is a 50% retracement of the down move from 0.9085 to the lows at 0.7755. Pullbacks are likely to find support at 0.8225 and 0.8170.
The long term trend line support at 0.8090 from the 0.7755 lows remains a key level, a break of which could well signal further losses towards the November lows at 0.7960.
USDJPY ? the 90.00 level is slowly coming into view, after last week?s 89.45 high.
Ultimately the current rebound could well head to the 94.00 level over the coming weeks, however current momentum is looking rather stretched. Pullbacks could well see support at the 88.40 area and the 87.50 level.
Equity market calls
FTSE100 is expected to open 7 points lower at 6,101
DAX is expected to open 12 points lower at 7,717
CAC40 is expected to open 2 points lower at 3,706