Euro crisis fears continue
Eurozone services and manufacturing output contracted for the seventh consecutive month adding to signs of a deepening economic slump across the region. Though the pace of contraction in manufacturing eased, mostly driven by improvements in Germany and France, there was a noticeable deterioration across the rest of the eurozone. This release is consistent with the eurozone slipping into outright recession in Q3 after the -0.2% GDP figure in the previous quarter.
Eurozone debt crisis fears re-emerged ahead of a high-profile meeting between German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras in Berlin today. Samaras is attempting concessions on the country’s bailout conditionality, including a two year extension on the deadline to complete the required budget adjustments. Spain on the other hand is negotiating with eurozone partners over conditions for aid to bring down its borrowing costs, though the country has not made a final decision to request a bailout. The option being discussed is that the existing European rescue fund, the EFSF, would purchase Spanish debt at primary auctions, while the ECB would intervene in the secondary market to lower yields. Investors appear to be increasingly frustrated by the lack of directional cues – whether positive or negative from Eurozone officials.
The Olympics didn’t provide the much needed boost to the UK retail sector according to the CBI distributive trades survey for August. While the official sales data for July showed unexpected growth, over 30% of retailers reported a fall in sales in August compared to a year ago. The second revision of second-quarter UK GDP figures saw a slight upward revision showing the UK economy shrank by 0.5% between April and June, less than previously thought.
After losing ground following the FOMC meeting minutes the US dollar was able to stabilise against the euro yesterday while GBP/USD dropped back below the $1.59 level.
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