European Market Update - German GFK Consumer Confidence Falls to 14-Month Low

- The European indices are currently trading in positive territory in the session led higher by the commodities stocks as oil and copper prices move higher for the fourth consecutive trading session.
- European government bonds are trading higher in the session after lower than expected GFK consumer confidence data was reported in Germany. Over in the UK gilts are also trading higher, shadowing their European counterparts in a quiet session.
- German GFK consumer confidence fell to its lowest level in fourteen months at 4.4 in March as the VAT hike curbed consumer’s desire to make large purchases. The drop to 4.4 in March represents the fourth consecutive decline in GFK consumer confidence.
Spanish producer prices for the month of January were ahead of estimates for the month of January reaching a six-month high as prices for electricity rose.
- The Swedish trade balance narrowed to a surplus of SEK 11.1B in January from a surplus of SEK 14.1B in December. The trade balance narrowed as imports surged, rising 15% y/y, while exports rose by 7% y/y.
- The Bank of England’s Barker made a single comment in a telephone interview overnight noting that the home shortage in the UK will take a long time to solve, furthermore saying that the problem is unlikely to be solved anytime soon. Note that, according to Hometrack, house price inflation in the UK reached its highest level in three years this month.
- The Times in the UK is running an article about the changes in the methodology used to calculate GDP in the UK planned by the Office for National Statistics. The changes are seen inflating Britain's GDP by 2.5% next year. "An expected rise of about 2.5% in the level of GDP means that both government borrowing and the national debt will be taking a smaller bite out of national income in future. With the Treasury still deep in the red, and the national debt climbing dangerously close to Mr Brown’s self-imposed ceiling of 40% of GDP, the increase in the reported size of the economy will give the next Chancellor welcome extra room for manoeuvre in the management of the public finances." Additionally, figures measuring productivity levels will be given a boost without anyone having to boost their efficiency; the measure is calculated by dividing GDP by hours worked (or numbers employed). With inflated GDP figures the method will yield a larger result indicating higher levels of productivity, while the only real change will in fact be the method of calculation. As for GDP the new methodology will include estimates of the economic benefit of companies’ in-house production of software, as well as an estimate of the output generated by banks related to the higher rates of interest they charge on loans compared with deposits.
- The German Banker’s Association boosted its 2007 GDP forecast to 2.0% from its previous range of 1.25%-1.5%. The association assumes that the ECB will raise interest rates in March, and sees another rate hike during the summer. The Association also warned that the ECB should not overestimate the risk from a strong Euro.
- Front moth crude oil futures are currently trading higher in the session on some geopolitical news over the weekend, as well as cold weather and snow in the Northeast. According to the Guardian President Bush has given the Pentagon the task of devising an expanded bombing plan for Iran that can be carried out at 24 hours notice.