Tags: euro | economy | growth | trump | fed

Euro Economy Growing Faster Than Expectations

Image: Euro Economy Growing Faster Than Expectations
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Tuesday, 30 Jan 2018 07:15 AM Current | Bio | Archive

Today is of course the day that President Donald Trump will deliver his State of the Union address, which will be his first formal State of the Union address as last year he delivered in fact his first address to a joint session of Congress less than two months after taking office.

Today he will, among a lot of other things, certainly underline the strong U.S. economy and push for bipartisan congressional action on immigration.

According to a White House official, Trump’s speech will be one of unity as he tries to appeal to a fiercely divided Congress.

It will be interesting to see what comes out.

In the U.S., in the refined world of central banking, the FOMC meeting begins its first day of its two-day policy meeting, which will the last one that will be presided by Fed Chair Yellen. No Fed funds rate change is expected. The FOMC March meeting will be a different story.

On U.S. data, today we’ll get the Johnson Redbook Index, which is a sales-weighted index of y/y same-store sales growth in a sample of large U.S. general merchandise retailers representing about 9.000 stores. The index represents over 80 percent of the equivalent "official" retail sales series collected and published by the U.S. Department of Commerce. In the week ending January 20 the Redbook Index increased by 3.80 percent y/y, The Redbook index has averaged 2.29 percent from 2005 until 2018.

Today, we will also get the S&P CoreLogic Case-Shiller composite home price index of 20 metropolitan areas that in October last year rose 6.4 percent y/y that was the biggest increase in house prices since July 2014. 

The consensus for the unadjusted year-on-year rate is 6.4 percent.

Finally, we’ll get consumer confidence for January that is expected to come in at 123.4, which would be up from December's dip to 122.1 which, however, did not reflect any slowing at all in current conditions or the assessment of the current labor market. This report rose steadily last year to 17-year highs in sharp contrast to the consumer sentiment report which has been flattening out.

From the Euro area we got the first estimate of the 4th quarter GDP that came in at 2.7 percent year-on-year (y/y), in line with market expectations and following an upwardly revised 2.8 percent growth in the previous period.

What does this tell investors about the Euro area economy?

It does not tell us that the Euro area is growing at 2.7 percent. In fact, one of the things investors can be pretty sure of is that the actual growth number will be somewhat different. Data like this, which of course also applies to the just released first estimate of the U.S. GDP growth number for the 4th quarter that came in at 2.6 percent, is revised all the time.

However, it does tell us that that the euro economy has good growth and is probably growing above trend. The euro area has clearly started to catch up with the growth numbers of the United States, which are performing at about trend.

All this will have its influence on the price of the euro. Nominal GDP growth matters of course in managing debt.

The implication after these relatively good growth numbers is that the President of the European Central Bank (ECB), Mr. Draghi’s addiction to “easing” is simply not supported by the economic realities of the Euro area economy.

The data would have to be monumentally revised downwards to suggest that the ECB’s bond buying program is still needed today, and other data sources are also signaling that the economy is operating at above trend.

Besides that, we also got the first estimate of French GDP annual growth that was 2.4 percent, up from 2.3 percent and that was its strongest print since the beginning of 2011.

Now, it remains a fact that French GDP has languished since the crisis.

France has underperformed the annual GDP growth rates of Germany that stands at present at 2.8 percent and the United States that stands at 2.6 percent.

France has however outperformed Japan’s annual GDP growth rate that stands at 2.1 percent  and the UK that has weakened to 1.5 percent.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments. 

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However, it does tell us that that the euro economy has good growth and is probably growing above trend. The euro area has clearly started to catch up with the growth numbers of the United States, which are performing at about trend.
euro, economy, growth, trump, fed
Tuesday, 30 Jan 2018 07:15 AM
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