Daily Market Reports | Feb 16 2010
By Greg Peel
US markets were closed last night for the Presidents' Day public holiday leaving thin and unadventurous trading in other major centres around the globe.
The big news yesterday was the first release of Japan's fourth quarter GDP. Economists had expected Japan's economy to expand by 0.9-1.0% so a result of 1.1% was welcomed. The domestic economy accounted for 0.6% while exports net of imports added 0.5%. The number suggests Japan's economy grew by 4.6% over 2009.
This was in contrast to the equivalent EU result released last week, which showed only 0.1% growth and a 2009 net result of 4.1% contraction. The EU and US battle it out for who is the world's single biggest economy, with China having just pipped Japan for third against fourth. Germany, individually, closely follows Japan.
China's economic growth is running at double digits, forcing the central bank to adopt tightening measures. The US fourth quarter GDP measured 5.7% on first estimate, but there is not a lot of faith in the magnitude of this number being sustained by the first revision. America's third quarter GDP was slashed on its first revision, and NAB economists point out that the Japanese GDP can come in for similar treatment. Japan posted 1.25% growth in its first estimate of third quarter GDP, cut that to 0.3% on first revision, and the final revision included in yesterday's numbers was a flat result.
That's why we wait so long for Australia's quarterly GDP results – they come out only as the final calculation. Across the oceans, other economies seem eager to rush out early guesses. As for Chinese data, well, we won't go there.
While Americans spent the day shovelling snow, over in Europe attention was focused on the latest gathering to discuss the Greek debt situation. As we speak the euro-zone finance ministers are meeting in Brussels and markets are hoping the meeting will result in some more robust detail about exactly what last week's vague pledge from the EU on preventing Greek default actually meant. As the meeting is scheduled for two days, markets are expected to remain timid in the meantime.
At present the euro-zone's, and thus the EU's, biggest looming problem is electoral resistance on both sides of the equation. There have already been strikes in Greece over government requirements to slash public sector spending, including wages. In Portugal, parliament has already voted against austerity measures put forward by the government before Portugal, too, has to go cap in hand to the EU. While in Germany, Angela Merkel's coalition partners have rejected any suggestion of using German taxpayer funds to help bail out Greek taxpayers, and electoral polls are showing two-thirds resistance to such a concept.
Germany is not in any way keen to provide hand-outs. France wants to wait a month to see if Greece can really show some progress on budget cuts. The governments of Greece and Portugal are now under threat domestically, and there is nothing the EU can do to interfere with electoral processes. In short, the EU and euro are facing the biggest threat to their sheer survival in only the first decade of a common currency. With such a disparity of economic contribution to a common currency, perhaps it was never going to work.
The euro remained under pressure against the US dollar last night as forex markets await the outcome of the meeting in Brussels. Commentators believe some sort of positive outcome in Brussels would likely spark a sharp short-covering rally in the euro but that fundamentally weakness will prevail.
European stock markets were nevertheless slightly stronger last night in thin trade. Trading in London base metals was also thin, but improvements were made after a bit of a sell-off on Friday. Copper gained 1%, lead, tin and zinc 2-3% and nickel 4%.
Gold rose US$7.10 to US$1099.50/oz while oil slipped a few cents to US$74.00/bbl in electronic trade. The Aussie is barely higher at US$0.8893.
The SPI Overnight fell 4 points.
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