German GDP overtakes UK in BREXIT shocker!..

Week Commencing Monday 15th May 2017

 

GERMANY: GDP Blasts into the stratosphere with solid 0.6% print!

Economists have hailed Germany’s economic resilience after it grew by 0.6 percent in the first quarter of the year, twice as fast as the UK and France.

Business investment, consumer spending and exports all helped Germany’s GDP expand at a faster pace, up from 0.4 percent in Q4 2016. The report concluded that mild winter weather contributed to a sharp rise in construction, while rising foreign demand for German goods also helped lift first-quarter growth from an annualized 1.7 percent in the fourth quarter of 2016.

Private consumption and government spending rose slightly at the start of 2017. Europe's largest economy is widely forecast to maintain solid growth, despite global geopolitical and economic uncertainties.

The European Commission forecast on Thursday that Germany's economy would grow by 1.6 percent in 2017-and 1.9 percent in 2018. Official tax revenue estimates published on Thursday suggested Germany's strong economy and labour market would deliver a EUR 54 billion windfall through 2021, creating scope for tax cuts. You know the world has turned on its head when a UK Conservative government is looking to put taxes up, while Germany seeks to reduce them!

US/CHINA TRADE: Have we seen the last of Trump's "China Bashing"?

The US and China have reached a 10 point trade deal that opens the Chinese market to US credit rating agencies and credit card companies.

Under the deal, China will also lift its ban on US beef imports and accept US shipments of liquefied natural gas. In return, the US will allow Chinese meats and banks to enter the US market.

The deal marks the first tangible results of trade talks that began last month, and is widely seen as Donald Trump toning down his rhetoric versus Beijing post his election. Indeed, this is seen as something of a victory for Trump, with many suggesting Trump’s pre-election China-bashing had given him some “leverage” over Beijing and highlighted his focus on economic issues.

 

FX Forecast

Sterling (GBP) - Sterling continues to maintain its current range as market makers continue to watch for the general election. In the absence of any short term geo-political events on the horizon, this week should be reasonably quiet for FX markets. We expect GBP/USD to continue to test the 1.30 range, while GBP/EUR should maintain around the 1.18 pivot.

US Dollar (USD) - The Greenback has seen its previous gains eroded over the past weeks, with EUR/USD pushing 1.10 for the first time in a year. With a light week of FX news, we expect the Dollar to hold firm, with the Euro failing to break 1.10 while Sterling continuing to trade around 1.29.

Euro (EUR) - The Euro continues to perform well after Macron’s election victory last week. With all eyes now on the German elections and solid economic performances there, we expect the Euro to be the strong performer of the week.

 

Economic Calander for the Week

UK Data:

We have a relatively light week for the UK on the economic data front, with all eyes continuing to focus on the general election.

The highlight of the week will be Tuesday’s CPI inflation, which could peak as high as 2.6 percent as post-Brexit Sterling weakness continues to filter into the real economy. Retail sales is also expected on Thursday for April, with 1.0 percent vs last months -1.8 percent figure widely expected.

US Data:

We have a surprisingly light week for the US with the Philadelphia Fed’s Manufacturing Survey the only release of note. We expect the index to come on in at 19.8 versus last months 22.0 print, indicating a moderate slowdown in manufacturing activity for the month.

EU Data:

We have Eurozone GDP out on Tuesday, with most analysts pitching the print at 0.5 percent for the quarter. This would push the expectation for annual growth within the zone to 1.7 percent, considerably more solid than previous years.

 

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