January 30 2013

In the broadcast today: How will the Fed’s Decision Impact the USD? Following the report of a surprising contraction of the U.S. economy in the fourth quarter of 2012, we focus on the upcoming FOMC announcement and examine the scenarios of how the Fed’s monetary policy decision could impact the markets and the U.S. dollar, we analyze the anticipated bullish breakout in the EUR/USD currency pair, we keep an eye on the continuation of the rally in USD/JPY pair, we highlight the market’s reaction to the Spanish GDP, and the U.S. ADP Employment and GDP estimate, we discuss new forecasts from Deutsche Bank, BNP Paribas and HSBC, and prepare for the trading session ahead.

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US GDP unexpectedly drops by 0.1% q/a in the final quarter of last year after growing by 3.1% q/a in the third quarter. Is it just a temporary setback? Spanish GDP also registers a larger decline by 0.7% in Q4. Spanish Prime Minister promises stimulus…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: US GDP in surprise fall, after Spain’s recession deepens” was written by Graeme Wearden, for guardian.co.uk on Wednesday 30th January 2013 15.50 UTC

3.50pm GMT

Here’s Dominic Rushe, our Wall Street correspondent, on the surprise drop in US GDP in the last quarter:

The US economic recovery juddered to a halt in the final months of 2012 as government slashed defense spending, businesses cut back, and Washington fought over the fiscal cliff budget crisis.

The nation’s gross domestic product (GDP) shrank for the first time in three and a half years during the fourth quarter, dropping at an annual rate of 0.1%, the Commerce Department said Wednesday. It was the US’s worst economic performance since October 2009, and came as economists had been expecting mild growth of around 1%.

More here.

3.27pm GMT

Photos: Riot police clash with protesters in Athens

I’ve now got hold of some photos from Athens, where union members broke into the office of the labor minister, and were then ejected by riot police.

According to those at the scene, the riot police used tear gas to force the demonstrators out of the building.

It also appears that at least one protestor was hurt – he’s shown lying on the ground being helped by another union member.

As explained at 11.22am, around 30 members of the communist-affiliated PAME union invaded Yiannis Vroutsis’s office after the minister made comments about “clientelism in the social security sector”

Updated at 3.48pm GMT

2.39pm GMT

And Wall Street opens all-but flat, with the Dow Jones up a bold 1.6 points in early trading….

2.33pm GMT

Inman: Look at the positives

It’s possible to put a positive spin on the dire-looking US GDP figure, says our economics correspondent Phillip Inman:

From the figures we can see that businesses, caught with an excess of stock in their warehouses in the third quarter, cut back on orders in the final three months of the year, slicing 1.27 percentage points from fourth-quarter GDP growth.

Excluding the cut in inventories, the economy grew at a healthier 1.1%.
Also, consumer and business spending were up, and household disposable incomes increased. Consumer spending, which accounts for more than two-thirds of economic activity, rose at a 2.2% , accelerating from the previous quarter’s 1.6% growth rate.

And as Reuters points out:

Business investment rebounded after its first drop in 1.5 years in the prior quarter. The housing market was another bright spot. Residential construction grew at a 15.3 percent rate after notching a 13.5 percent growth pace in the third quarter. Homebuilding added to growth last year for the first time since 2005.

Updated at 2.39pm GMT

2.18pm GMT

CEBR: US GDP just a setback

Tim Ohlenburg, senior economist at the Centre for Economics and Business Research, agrees that today’s unexpected fall in US GDP isn’t a disaster.

He called the 0.1% drop in output (annualised) a “manageable setback”, following a strong third quarter:

Falls in public spending at the national and local levels as well as a drop in export revenue driven by the Eurozone crisis were the main culprits. Despite a rise in household consumption, de-stocking by businesses pushed output into negative territory for the quarter after a strong inventory build-up in the previous three months.

With US house prices rising, the US economy appears to have started 2013 well. However, concerns remain:

Business and consumer confidence have dropped amid the fiscal stand-off between Democrats and Republicans. Uncertainty around the effects of fiscal consolidation are weighing on domestic demand already, evident in slowing retail sales and trade growth. Public spending cuts will add to the mix, suggesting that the year ahead is going to see limited growth.

2.09pm GMT

US GDP: Experts say ‘don’t panic’

After the immediate shock, the early reaction to the 0.1% drop in annualised US GDP is that it’s not as bad as it sounds. Not exactly great, but not a reason to panic.

Here’s an early round-up:

Updated at 2.10pm GMT

1.59pm GMT

US GDP – the details

The surprise fall in US GDP in the last quarter was due to several factors

1) a 5.7% drop in exports

2) a 6.6% decline in government spending, which included a 22.2% fall in defense spending

3) a big drop in private inventories, which knocked 1.3% off GDP

But more encouragingly, consumer spending rose by 2.2% and business investment was 8.8% higher. That doesn’t suggest a country in serious trouble….

1.40pm GMT

US GDP in shock (small) decline

And now a real shock – the US economy shrank in the last three months of 2012.

Annualised GDP* fell by 0.1%, much worse than analyst expectations of a 1.0% rise. This is the first time that US GDP has fallen since the second quarter of 2009.

More to follow.

* so on a quarter-on-quarter basis output was around 0.025% lower.

1.36pm GMT

Upbeat comments from the Portuguese prime minister, Pedro Passos Coelho, today. He told reporters in Lisbon that Portugal’s recession will slow this year, meaning a return to growth in 2014.

Passos Coelho said:

All forecasts point in one direction, that in 2014 the Portuguese economy will recover in terms of growth and that throughout 2013 a turnaround in the recessive trend will occur.

The key for Portugal’s economic future is whether it exits its IMF-led bailout and returns to the markets in 2014…

Updated at 1.57pm GMT

1.27pm GMT

US jobs data beats forecasts

Another day, and another piece of decent economic news from America. 192,000 private sector jobs were created across the US economy in January, according to the ADP index.

That’s more than economists expected, and suggests the US economy is growing well now that the fiscal cliff debacle is over.

12.40pm GMT

Poor GDP data hints at deficit miss for Spain

Here’s Tim Kirkham, director of risk advisory services at currency specialist HiFX, on the deepening Spanish recession:

Spain has been in the headlines since the beginning of the eurozone crisis. It suffers from record high unemployment, negative growth and a significant deficit shock could be just around the corner, which may reignite fears about the country’s fiscal situation and increase the risk of a ratings downgrade in the near term.

The release of the preliminary 2012 budget-deficit figures on February 22nd will be key. Spanish officials have already paved the way for slippage, as they did in 2011, so we can pretty much count on a bigger number than the 7.3% of GDP (including 1 percentage point for bank recapitalisation) the government estimated in November.

Updated at 12.41pm GMT

12.09pm GMT

Over in Brussels, David Cameron‘s plan for a referendum on Britain’s membership of the EU has been blasted by Hungary’s prime minister, Viktor Orban.

Orban called the pending in-out vote “the most dangerous thing I can imagine”. My colleague Ian Traynor was there, and reports:

Being criticised by Orban might irk Cameron – given the criticism of the Hungarian leader’s attempts to interfere with its central bank.

11.47am GMT

Italy gets another bond auction away

Italy has successfully auctioned 10-year government bonds at the lowest borrowing costs since October 2010.

The Italian treasury sold €3.5bn of 10-year bonds at average yields of 4.17%, down from 4.48% in December.

It also sold another €3bn of five-year bonds at yields of 2.94% (down from 3.26% last time) – meaning it hit the top of its target of raising €4.5bn to £6.5bn.

As Nicholas Spiro of Spiro Sovereign Strategy points out, Italian bond auctions are now routine, when once they were quite exciting:

Just over three weeks to go to a critical parliamentary election, and Italy’s government bond market shows no signs of nervousness. Quite the opposite – it’s increasingly resilient to domestic political and economic risks.

While demand at today’s auction was not particularly impressive, the Treasury still managed to get all its debt out the door at cheaper rates, reflecting the dramatic improvement in sentiment towards the eurozone periphery in the face of severe economic weakness.

Spiro adds, though, that next month’s general election could shake this cosy consensus:

If the outcome of the election is a deeply fragmented parliament, which is increasingly likely, the prospects for a stable, reform-minded and harmonious coalition government are slim.

11.22am GMT

Reports from Athens that 30 members of the communist-affiliated PAME union briefly invaded the office of employment minister Yiannis Vroutsis, before being evicted:

Via Kathimerini:

The unionists were protesting comments made by the minister on Tuesday regarding clientelism in the social security sector.

Riot police forces subsequently raided the ministry and removed the unionists.

No photos yet…..

11.01am GMT

Markets calm…

European stock markets are mostly treading water this morning, with no sign that the deepening Spanish recession is alarming the City.

FTSE 100: up 7 points at 6346, + 0.11%

German DAX: down 13 points at 7835, -0.17%

French CAC: down 4 points at 3781, -0.1%

Spanish IBEX: up 1 point at 8644, +0.02%

Traders say this could be the new normal…

Italy’s FTSE MIB is the big faller, though, down 344 points or 1.9% at 17548. That follows a shock profit warning from Italian oil services firm Saipem, which slashed earnings forecast by 80% last night.

Updated at 11.03am GMT

10.49am GMT

Nowotny optimistic for Germany and Austria

While Spain’s recession deepens, the head of Austria’s central bank has suggested that he may revise up his forecasts for Austrian and German growth this year.

Ewald Nowotny, who also serves on the European Central Bank’s governing council, said there were signs for optimism.

The confidence indicators such as the Ifo index that we are receiving show an upwards trend – admittedly, one must soberly say, with low growth rates as a whole.

And asked whether he saw ‘positive contagion’* flowing to the real economy from the financial markets, Nowotny replied:

To a certain, careful extent.

* – Mario Draghi coined this phrase at the ECB’s last monthly press conference

10.37am GMT

In better news, economic confidence across the eurozone rose in January, for the third month in a row.

The European commission found the confidence in all sectors rose, with consumers and the construction industry making the biggest gains. The top-line reading rose to 89.2, from 87.8 in December (I don’t have regional breakdowns, though).

Updated at 10.55am GMT

10.21am GMT

Spain’s PM pledges new stimulus package

Spain’s prime minister, Mariano Rajoy, has told MPs in Madrid that he will soon announce fresh measures to stimulate the deteriorating Spanish economy.

Reuters has the details:

Rajoy told Spain’s parliament that the measures would include help to entrepreneurs.

Tax breaks for young entrepreneurs are among a series of measures Spain’s government could announce in February, Reuters reported earlier this week.

Rajoy’s government has vowed, however, to stick to plans for budget cuts as it tries to slash a gaping deficit.

As mentioned yesterday, Olli Rehn has hinted that Spain’s fiscal targets for 2013 (to cut its deficit to 4.5% of GDP) could be relaxed. That could give Rajoy the wriggle room needed for a stimulus package…

Updated at 10.44am GMT

9.02am GMT

Analysts at UBS fear that Spanish GDP will keep falling through 2013:

9.01am GMT

The deepening Spanish recession hasn’t hit optimism in Europe’s financial markets.

The euro has hit $1.35 against the US dollar for the first time since December 2011. with traders seemingly happy to ignore the poor data coming out of Madrid:

8.38am GMT

This graph shows how Spain’s economy struggled out of recession in 2010, only to slide back last year:

8.29am GMT

The official statement

You can read the official announcement that Spain’s GDP fell by 0.7% in the last three months here, on the Instituto Nacional de Estadistica website.

It explained:

This result was basically caused by a more negative contribution in the domestic demand, which was compensated partially by a positive contribution of the external demand.

8.15am GMT

This morning’s poor GDP data comes just a day after we learned that Spanish retail sales had tumbled by over 10% in December (details here).

As my colleague Giles Tremlett wrote from Madrid:

With sales tax hikes biting, unemployment growing and many workers and pensioners watching the real values of their income fall, Spaniards kept their wallets tightly closed, helping to produce a 10.7% fall in sales in December compared with the same month in 2011.

And last week we learned that Spanish youth unemployment was now 60%.

Updated at 8.16am GMT

8.01am GMT

Spanish economy shrinks again

Good morning, and welcome to our rolling coverage of the latest economic and financial news across the eurozone and beyond, and other key developments.

Just in: the Spanish recession has deepened in the last three months, and by more than economists or Spain’s own central bank had expected.

Data just released showed that Spanish GDP fell by 0.7% in the last three months of 2012. We were expecting a 0.6% decline in economic output.

That means the country’s economy was 1.8% smaller than a year ago in the last quarter, as the country’s austerity package and the wider eurozone crisis hits output and consumer demand.

This follows a 0.3% contraction in the third quarter of 2012, and a 0.4% drop in the second quarter.

More to follow….

Updated at 8.18am GMT

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