European Market Update - Preliminary GDP Figure Reach Multi-Year Highs In Europe

- The European indices are currently trading higher with the exception of the SMI. The European indices are being led higher on a series of favorable earnings reports.
- European government bonds are currently trading lower in the session, but are off their worst levels. Long gilt futures are currently trading higher in the session. After trading down sharply early on, long gilts quickly pared their losses upon the release of lighter than expected inflation data in the UK.
- According to the preliminary readings German GDP grew by 0.9% Q/Q, 3.7% Y/Y on a workday adjusted basis, and 3.5% Y/Y on an unadjusted. Both Y/Y figures reached their highest level since September of 2000. GDP accelerated in the fourth-quarter on strong exports and increased consumer spending ahead of the VAT hike.
- The French flash forecast for fourth-quarter economic growth was released overnight at 0.6% to 0.7%, above estimates of 0.5%. According to most analysts the stronger than expected forecast is a result of lower oil prices, and a pick up in construction.
- Preliminary fourth-quarter GDP in Spain reached its highest level since March of 2001 on a Q/Q basis, and December of 2001 on a Y/Y basis. Shortly after the results were released Spain’s Solbes said that the Spanish economy doesn’t show any signs of slowing down before March comes.
- In line with the day’s trend Italy reported preliminary fourth-quarter GDP of 1.1% Q/Q its highest level since January of 2000, and at 2.9% Y/Y its highest level since June of 2001. In a chain reaction an increase in export demand boosted employment levels, which in turn boosted consumer spending during the fourth-quarter resulting in strong economic growth.
- Advanced GDP in the Euro-Zone also climbed to a multi-year high, reaching its highest level since December of 2000 on a Y/Y basis. Economic growth increased as unemployment fell and consumer spending rose.
- The economic sentiment measure of the German ZEW survey came in at 2.9, below estimates of 5.0, while the current situation rose to a new all time high at 70.9. In the Euro-Zone economic sentiment rose to 6.8, above estimates of 3.0, its fourth consecutive rise. Investor confidence rose in Germany as the DAX reached a new six-year high, and as consumers shrugged off the recent VAT hike.
- In the UK CPI slowed to 2.7% Y/Y below expectations of 2.9%, causing a sharp rise in the March long gilt, and a sharp drop in the GBP. Both the M/M CPI and the M/M RPI fell to their lowest levels since July of 2001.
- The EU released its GDP forecasts boosting the lower end of the Q1 and q2 2007 ranges. The EU forecasted Q107 GDP in a range of 0.4% to 0.8% against November’s forecast of 0.3% to 0.8%. The EU forecasted Q2 2007 GDP in a range of 0.4% to 0.9% against November’s range of 0.3% to 0.9%. Additionally, the EU forecasted Q307 in a range of 0.3% to 0.9%.
- The IEA boosted its oil demand growth forecast to 1.55M bpd from 1.39M bpd (or to 1.8% from 1.6%) overnight citing increased demand from China. The IEA also boosted the need for OPEC oil by 400K bpd to 30.6M bpd. Finally IEA said that oil demand growth may outstrip supply in three years. In other energy news, a senior OPEC delegate said overnight that it is too soon to judge the need for further output cuts, pushing front month crude futures into negative territory.