indicate ongoing weakness in world trade
Â·Q1 GDP data
makes further downward revisions to growth forecasts necessary
Euro rally stopped by growth fears
This week, stock markets once again proved to be a
reliable risk barometer. At the beginning of the week, risk appetite was still high, but this changed
in the second half of the week when stock prices turned, showing that market
participants had become more cautious again. Accordingly, higher yielding currencies were sold, and financing
currencies benefited: The yen rose not only against the dollar but also against
most other currencies. EUR-USD dropped from a peak of 1.3722 in the middle of
the week (close to its 3- month high) to 1.3550, and most emerging market currencies
also suffered losses.
Risk aversion rose again because after a number of
favourable results, several economic indicators came in worse than expected.
This started on Tuesday with Chinese export figures â€“ the first to be released
for April. After the relatively favourable results in March, markets had
expected the drop to be less pronounced again in April, indicating a
stabilization in world trade. But then the figures showed that total Chinese
exports had fallen faster again â€“ by almost 23 % year-on-year.
This does not bode well for the April figures of other
major export countries. Therefore, foreign demand could remain a drag on growth
in the second quarter. The figures for German steel production are pointing in
the same direction: Output fell to fresh record lows in April. This dampened
rising hopes of a recovery which had been supporting stock markets for weeks.
Moreover, production figures in the other major European
countries were much worse than in Germany. As a result, total production in the eurozone was
lower than market participants had expected. So it looks as though the second
quarter is off to a bad start, which means that GDP will very probably shrink
First quarter GDP figures for the EMU have confirmed the
expected decline in the first quarter. Germany was hit particularly hard with â€“3.8 % qoq. Even if
the German economy stagnated in the remaining three quarters, the minus for
2009 would be close to 6 %. Bundesbank president Axel Weber is not expecting
GDP growth rates to turn positive this year. We are forecasting a further decline.
In the euro area, the extent of the decline in GDP was
less pronounced, but even so the drop in the first quarter would mean a minus
of almost 4% for the entire year if GDP was to stagnate from now on. In the
latest ECB Monthly Bulletin, the professional forecasters have assumed a
decline of 3.4% for the euro area in 2009, but given the result for the first
quarter, this appears too â€śoptimisticâ€ť. Therefore, the ECB forecasts will
probably have to be revised down further. On the bond markets this led to a lot
of speculation in the past few days that interest rates would fall, which helped
to weaken the euro in the second half of the week.
The US figures on the other hand were mixed. Given the trade
and inventory data, first quarter growth looks set for a significant upward
revision. However, retail sales were on the weak side and initial jobless
claims indicated an ongoing deterioration in the jobs market.
Next week, markets are going to focus on the sentiment
indicators for May: Will the upward trend of the past two months have
continued? If it has not, growth fears will increase again. In this case,
EUR-USD is likely to trade at the lower end of the 1.37 to 1.29 range that has
been intact since the middle of March.
Uwe Angenendt +49 69 718-3648
Grabbe / Klaus NĂ¤fken
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