Eurozone GDP improves but inflation remains mixed

The much anticipated Eurozone GDP and CPI figures were released today at 8AM GMT following data from France and Germany. The Euro which was seemingly upbeat since yesterday’s trading session initially saw some gains on a better than expected French and German data.

France quarterly GDP beat estimates of 0.1%, rising 0.3% while the previous quarter’s GDP was revised downwards to 0.1%. The yearly GDP to date was in line with expectations at 0.4% after 0.1% last month. Germany GDP data was closely watched on anticipation that Europe’s powerhouse might fall into a recession. Headline numbers however managed to come out better than expected at 1.2% on a y/y basis while the quarterly GDP was in line with estimates of 0.1%, after previous quarter declined -0.2%.

Italian GDP was disappointing at -0.1% on a quarterly basis while the year to date GDP was lower at -0.4% as expected. The latest quarterly GDP data from Italy marks a second quarter of contraction in the economy after previous quarter saw the GDP decline -0.2%. Overall Italy’s growth in the second half of 2014 has been dismal with frustratingly low inflation hindering any efforts to reduce debt along with weak credit inflows. On an annual basis, Italy, which makes up for the third largest economy in the Eurozone has seen a -0.4% GDP growth.

The other silver lining came from Greece’s GDP. The country which was teetering on the brink of bankruptcy just a few years ago saw its annual GDP rise 1.7%, well above estimates of 0.7% and above the previous reading of -0.3%

Overall, the Eurozone’s CPI and GDP were more in line with expectations without any nasty surprises. CPI on a yearly basis ticked softly higher at 0.4% as expected while the core CPI on a yearly basis remained unchanged at 0.7%. GDP for the Eurozone rose 0.2% for the quarter above estimates calling for a soft 0.1% while the GDP on a yearly basis to date saw 0.8% rise, softly higher above the consensus calling for 0.7% growth. The rise in the GDP numbers was well supported as falling international crude prices helped support growth.

With the GDP and CPI coming in line with expectations the speculation for QE continues to remain uncertain. However, the fact that conditions are not deteriorating could see the ECB put off any QE talk until its January meeting, while it embarks on its covered bond purchases later next week.

Earlier in the day, EURUSD declined on comments from ECB’s Christian Noyer in an interview where he was quoted as saying that he wouldn’t have any objections if the ECB decides to purchase other assets including government bonds while also hinting that the ECB could purchase corporate bonds as well. The dovish comments quickly weighed in on EURUSD which declined towards making an intra-day low towards 1.24254 before pushing higher.

With the fundamentals from Eurozone not surprising the markets and closely in line with expectations, the next data set to watch out for will be the US retail sales data, which is expected to show an increase of 0.2% both on the headline and core readings.