European GDP story expected to remain bleak
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
The larger than expected contractions in Greek and Portuguese Q3 GDP yesterday merely served to underline the reasons behind the widespread protests against austerity measures which unfolded all across Europe. With unemployment continuing to rise, Portugal?s rose to 15.8% according to data released yesterday, protests and unease are growing across all of Europe as to the direction that official policy is taking the direction of the number of unemployed and growth prospects.
The likelihood is that this anger will continue to grow unless European leaders and policymakers start to act as if they have a clue as to how to resolve the crisis starting to unravel before their eyes.
Following on from yesterday?s disappointing numbers out of Greece and Portugal, markets will also be looking at the latest revisions to Q3 GDP for Spain, Italy, France and Germany. Spain is expected to be confirmed at -0.3%, Italy -0.5%, France 0% and Germany 0.1%. The combined Eurozone number is expected to show a quarterly contraction of 0.1%, confirming the region is in a double-dip recession.
This might not be too much of a concern if it was expected to be a one-off but initial analysis of some of the data so far in Q4 suggests that the final quarter of 2012 will be even worse than Q3.
This deterioration has prompted IMF chief Christine Lagarde to call once again for a ?real fix? for Greece as the organisation continues to push back against EU leader?s reluctance to countenance a debt restructuring, despite the fact that it remains inevitable, at some point in the future.
While this week?s UK data hasn?t been that bad compared to Europe, the outlook for growth continues to remain cloudy. Bank of England governor Mervyn King?s pessimism won?t have helped yesterday but this week?s economic data does bear out that reality.
The rise in October jobless claims, the bigger than expected rise in inflation, as well as the rise in average earnings, points to a consumer that will continue to feel the pinch.
This is likely to be borne out in today?s October retail sales data which is expected to come in negative at -0.1%, down from September?s 0.6% rise. The September numbers had managed to get a boost as people went out and spent money on new clothes after the Olympics had finished, however with prices rising on food and energy we could see a fall back in October.
Given that inflation outstripped average earnings by over two to one in October, and with Christmas fast approaching, it seems likely that cash strapped consumers could well rein in their spending after the rise seen post Olympics, and hold back further expenditure until just before Christmas, when prices might start to come down as retailers look at discounting.
EURUSD ? yesterday?s move above 1.2740 triggered a range of stops to 1.2770, but the real barrier remains at 1.2825 and the 200 day MA.
The key support remains at the 1.2650 level and 100 day MA, while just below that we also have 1.2605 which is 50% retracement of the 1.2045/1.3170 up move. A rebound needs to overcome the 1.2900 level to stabilise and target 1.3000.
GBPUSD ? yesterday?s close below the 200 day MA at 1.5850 opens up a move towards 1.5790 trend line support from the 1.5270 lows as well as 1.5660.
Rebounds need to get back above the previous support level at 1.5960 level to retarget last week?s high at 1.6050.
EURGBP ? the break above 0.8030 yesterday suggests a move towards the 31st October highs at 0.8075 and the 200 day MA at 0.8084. A move back below 0.8000 suggests a revisit of the lows this month at 0.7955.
USDJPY ? yesterday?s break above the 79.70 level and 200 day MA has sent us back above the top of the recent range at 80.70. The next target now lies at 81.80.
The 79.75 level should now act as support; otherwise we?ll end up heading back towards last Friday?s low at 79.00.
Equity market calls
FTSE100 is expected to open 37 points lower at 5,685
DAX is expected to open 46 points lower at 7,056
CAC40 is expected to open 27 points lower at 3,373