August 6th, 2014

Italy Recession, German Orders Signal Euro-Area Struggle

• Italy’s economy shrank 0.2% in the Q2 after contracting 0.1% in Q1
• It is a preliminary estimate. Will be updated on Aug. 14 along with Germany, France and Spain
• 74.0% Service industries, 23.9% manufacturing, 2.1% Agriculture
• “Today’s data are a serious reason for concern and confirm that the euro-area recovery is still sluggish at best”
• However, its industrial production ▲0.9% MoM in July; compared with -1.2% in June
• German Factory Orders ▼ 3.2% in June from May
• The E.U. agreed last week on its widest-ranging sanctions on Russia
• Russia counts Germany as its biggest trading partner in Europe
• German Vice Chancellor blocked a deal for Rheinmetall AG to build a military training center east of Moscow in light of the sanctions

Thought
    Even ECB proposes negative interest rate to boost economy and inflation, geopolitical risks and unemployment hold back its effect. For example, even Italy's unemployment rate fell to 12.3% from 12.6% in June, it is still higher than EU unemployment rate (10.4%).

     Germany's factory order has been decreased by geopolitical risks as well. It is not about it's policy or economic environment. Its economy expects to rise once the risks are solved.

U.K. House Prices Rise at Fastest Pace Since 2006

• U.K. house prices ▲1.4% MoM in July (▲0.4% forecasted); -0.4% in June
• “Demand continues to be supported by a continuing economic recovery, growth in employment, improving consumer confidence and low mortgage rates”
• The market is cooling after stricter lending rules took effect; the price may decrease soon
• There is “uncertainty over the true state of the housing market”

U.K. Industrial Production Increases Less Than Forecast

• Industrial Production ▲0.3% in June (forecasted ▲0.6%), when it ▼0.6% in May
• ▲1.2% YoY (forecasted ▲1.5%); ▲2.3% in May
• Output in Q2 rose 0.3%, below 0.4% estimated published in last month’s GDP data
• Manufacturers battling a stronger pound and strains in the euro area
• Last week, new orders survey was 51.5
• Showing that factory growth cooled to the slowest pace in a year in July as new orders and output cooled

Thought
     Since few days ago, IMF kept warning that overpriced housing may hurt U.K. economic expansion. U.K. recently got out from recession and fully expanding its economy. Interest rate, which will be decided tomorrow, will be the key for its future growth. BOE would decline the interest rate if it believes housing price is too high, but it is unlikely that the global economy is yet to be fully expanded.

Trade Gap Shrinks to Five-Month Low as U.S. Imports Drop

• The trade deficit in the U.S. unexpectedly narrowed in June
• The biggest drop in imports in a year
• The economy moved closer to energy independence
• The gap ▼7% to $41.5 billion (forecasted $44.8 billion)
• Imports dropped 1.2%
• The drop in purchases of foreign goods include decline in autos and cellular phones, while petroleum imports were the lowest in more than three years
• Yet it seems like to be rebounded by growing household spending and business investment
• Exports ▲0.15 to a record $195.9 billion
• Sales of civilian aircraft, pharmaceuticals and chemicals were among the biggest gainers
• Mixed signals
• Recent data signal a mixed performance for growth outside the U.S.
• In the U.K. index of services expanded in July to the highest level, while a similar measure in the euro area grew less than initially estimated
• China’s growth accelerated for the first time in three quarters after the government speed up spending and freed up more money for loans to counter a property slump

     It was quite a dynamic day. Even the index stayed almost stayed constant, but there were a lot of ups and downs in the market today. Geopolitical risks hit the market, which contributed to decline industrial sectors. Decline in energy import and oil stock raised energy sector.

Despite recession in Italy and decline in factory order in Germany, EUR/USD stayed almost constant, increased by 0.01%