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German Confidence Improves, but European Markets Open Lower

  • December 19th, 2016
  • Author: Simon Birch
German Confidence Improves, but European Markets Open Lower

The global economic calendar this week starts out relatively quiet, but heats up considerably towards the latter part of the week. The week has commenced with economic releases straight out of Germany showing solid improvement in the nation’s business sentiment. The Ifo survey indicated that German business climate index advanced surpassing market expectations in December, its highest level since April 2014. The Ifo expectations index and current assessment index, both advanced more than expected in December.

Today, the UK economic calendar looks empty in terms of economic releases. Moving to the Eurozone, market participants will watch construction output data for further cues. Separately, the German Buba monthly report released by Deutsche Bundesbank will also be on investors’ radar. Across the Atlantic, the flash print on Markit services PMI for December is up for release today.

Pound Sterling – UK Markets

The Pound is trading lower against the greenback and the shared currency this morning. The UK economic calendar kicks off the week on a quiet note with no crucial data points scheduled for today. Although, as the week progresses, there are a few high-impact economic releases lined up, which will grab market attention. These include the final print for UK’s third quarter gross domestic product which is anticipated to print in line with flash estimates. Moreover, the nation’s GfK consumer confidence survey for December and public sector net borrowing for November will be on investors’ radar.

On Friday, the Confederation of British Industry’s (CBI) industrial trends survey showed that the UK’s total order balance unexpectedly rose in December and reached its highest level in 20 months. Separately, the Bank of England (BoE), in its quarterly economic bulletin, called on UK’s lenders to have their contingency plans, like possible divestitures, in place in an event of probable future financial crisis.

US Dollar – US Markets

On Friday, the US Dollar weakened against the Pound and the single currency, after the release of lacklustre housing sector data in the US. However, the greenback remained close to a 14-year high against the shared currency following the Federal Reserve’s decision to increase interest rates for the first time since December 2015. On the data front, the number of housing starts in the US fell more than expected in November, while the nation’s building permits trailed market expectations last month, dampening optimism over the health of the nation’s housing sector. Separately, the Richmond Fed President, Jeffrey Lacker, indicated that the US central bank will likely need to increase interest rates more than three times in 2017 and faces challenges in gradually cooling off the US economy.

The greenback is trading higher against the Pound and lower against the Euro this morning. Market participants will keep a close eye on US flash Markit services and composite PMI’s for further direction, scheduled to be released later in the day.

Euro – European Markets

This morning, the Euro is trading on a stronger footing against the Pound and the US Dollar after data released earlier during the session indicated that Germany’s Ifo business climate, current assessment and business expectations indices surpassed market estimates in December, reaffirming the upbeat outlook for the German economy. Ahead in the day, investors await Eurozone’s construction output data for October along with Germany’s Buba monthly report. Looking forward, currency traders will also focus on the German producer price index for November, set to release tomorrow for further cues.

On Friday, the shared currency ended higher against its major peers. Final reading of Eurozone’s consumer price inflation data suggested a retreat on a monthly basis in November amid cheaper energy prices after remaining in positive territory for three consecutive months. However, on a yearly basis, the inflation increased, as initially estimated, during the same month, suggesting that the ECB’s ultra-loose monetary policy is reaping benefits. Meanwhile, the region’s seasonally adjusted trade surplus narrowed to its lowest level in eight months in October.

Other Currencies – Highlights

The Kiwi Dollar has managed to claw back up against the greenback this morning, after New Zealand’s ANZ business confidence advanced in December, following robust economic and business outlook and higher profit expectations in the near term. Also, companies’ own activity expectations are festive and hiring, and investment expectations are robust, thereby collectively hinting strong growth ahead. Over the weekend, nation’s Westpac consumer confidence improved in the fourth quarter, posting its largest quarterly rise in 4 years. It was driven by a recovery in milk prices which has soothed pressure on farmers in recent months, although households remain cautious. In other economic news, the total number of seasonally adjusted new building permits issued in New Zealand jumped on monthly basis in October.

Ahead in the week, traders will focus on New Zealand’s trade balance, GDP and current account data along with the Westpac leading index for further trend in the Kiwi Dollar.

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