Germany Could Be On Its Way into Recession
Germany saw its economy contract by 0.4 percent in the fourth quarter. With decreasing demand for its exports, Germany could fall into recession.
Germany could be joining the Eurozone recession during the current quarter (NYSEARCA:EWG). Hidden between the lines of a seemingly upbeat report from Destatis, was the news that the German economy contracted by 0.4 percent during the fourth quarter of 2012. Despite the attempted positive spin, the opening language of the report was more defensive than optimistic:
The price-adjusted gross domestic product (GDP) increased by 0.7% compared with the previous year. This is the result of the first, provisional calculations of the Federal Statistical Office (Destatis). In the previous two years, GDP growth had been much larger (4.2% in 2010 and 3.0% in 2011), but that was due to a catching-up process following the worldwide economic crisis of 2009. “In 2012 the German economy proved to be resistant in a difficult economic environment and withstood the European recession”, said Roderich Egeler, President of the Federal Statistical Office at a press conference on the gross domestic product of 2012 in Wiesbaden today. In the second half of the year, however, the economic activity in Germany slowed down considerably.
As of 11:17 EST, the Euro STOXX 50 Index declined 0.60 percent to 2,699 – staying above its 50-day moving average of 2,593. The STOXX 50 is holding above its March 19 high of 2,608 and it continues to be experiencing resistance at the 2,700 level, as its Relative Strength Index is 68.22. Most analysts consider an RSI above 70 as an “overbought” signal (NYSEARCA:FEZ). The FTSE 100 Index dipped 0.04 percent to 6,105 (NYSEARCA:EWU). The German DAX Index sank 0.87 percent to 7,662 (NYSEARCA:EWG). France’s CAC 40 Index fell 0.36 percent to 3,695 (NYSEARCA:EWQ). Spain’s IBEX 35 Index declined 0.40 percent to 8,597 (NYSEARCA:EWP). Italy’s FTSE MIB Index advanced 0.37 percent to 17,456 (NYSEARCA:EWI).
As of 11:24 EST, the euro advanced 0.38 percent against the dollar, trading at $1.3331 (NYSEARCA:FXE). Euro Holds Gains from Breakout
Spain’s ten-year bond yield declined to 5.00 percent on Tuesday from Monday’s closing level of 5.03 percent. Spain’s two-year bond yield jumped to 2.47 percent on Tuesday from Monday’s closing level of 2.20 percent (NYSEARCA:EWP).
Italy’s ten-year bond yield advanced to 4.23 percent on Tuesday from Monday’s closing level of 4.22 percent (NYSEARCA:EWI).
On London’s ICE Futures Europe Exchange, March futures for Brent crude oil declined by 34 cents (0.31 percent) to $110.61/bbl. (NYSEARCA:BNO, NYSEARCA:USO).
February Gold futures advanced by $12.50 (0.75 percent) to $1,681.90 per ounce (NYSEARCA:GLD).
China’s Customs Administration has been busily defending its January 10 report that the nation’s trade surplus increased by 48 percent in 2012 on an annual basis. The administration claimed that China’s foreign trade increased by 6.2 percent during the year, with exports rising 7.9 percent and imports rising 4.3 percent. Economists have been extremely skeptical of the report’s veracity. Suspicions about the report increased after the United States Commerce Department disclosed on January 11 that America’s trade deficit increased in November to $48.7 billion. Economists had been expecting to see the trade deficit decrease to $41.1 billion. As a result, the November trade deficit turned out to be a whopping $7.5 billion worse than previously assumed. If the global economy is recovering, how could it be recovering for China but not for the United States? Despite the inquiry, enthusiasm about the Chinese economy continued. The Shanghai Composite Index advanced 0.60 percent to 2,325 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index declined 0.14 percent to 23,381 (NYSEARCA:EWH). Will this “White Hot” Index Break Resistance?
In Japan, the the Nikkei 225 Stock Average rose to its highest level in almost three years after Bank of Japan Governor Masaaki Shirakawa said the central bank will continue to proceed with aggressive monetary easing. Meanwhile, Japanese Economy Minister Akira Amari spoke out against currency debasement with his complaints that an excessively weak yen could hurt imports and households. Panicky forex traders responded predictably, allowing the yen to advance against the dollar (NYSEARCA:FXY). Nevertheless, the Japanese government cannot have it both ways. Despite the protests of Akira Amari, as long as the BoJ continues its monetary easing program, the yen will sink. The Nikkei 225 Stock Average advanced 0.72 percent to 10,879 (NYSEARCA:EWJ).
American stock index futures were in negative territory ahead of Tuesday’s opening bell as investors began to worry about Congressional unwillingness to raise the debt ceiling. The March 13 Dow Jones Industrials future declined 0.31 percent to 13,392 as of 9:13 EST. The March 13 S&P 500 future fell 0.35 percent to 1,459 (NYSEARCA:SPY). The March 13 Nasdaq 100 future also dropped 0.35 percent to 2,719.
Bottom line: After experiencing economic contraction during the fourth quarter, Germany could be on its way into recession this quarter, as its most recent report on industrial production revealed a decreasing demand for the nation’s exports as a significant drag on the German economy.
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