Market Focus for 19 JAN 2010: German ZEW survey

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Market Focus for 19 JAN 2010: German ZEW survey

Economic expectations index to ease to 50.0
Greece, Spain and Portugal sovereign credit problems to add to dampening optimism
Concerns remain over German/eurozone GDP growth in Q4 2009/Q1 2010


The Centre for European Economic Research (ZEW) based in Mannheim, Germany, will release its economic sentiment and current situation indices on Tuesday 19th January at 10:00GMT and the economic sentiment index (a leading indicator) will provide clues as how analysts expect the German economy to develop in the first half of 2010.

December’s ZEW economic expectations index came out at 50.4, off the previous month’s reading of 51.1 and also extending the retreat from the September 2009 peak of 57.7. The rebound in global equities last year saw the index rebound from negative territory (the low of –63 in October 2008 surpassed the previous bottom of –62.2 seen in 1992) and positive readings (which implies that the number of analysts polled who were optimistic outnumbered those who were pessimistic) have been recorded since April 2009.

However, the latest news surrounding the sovereign debt problems of Spain, Portugal and most notably Greece, have weighed on the eurozone region as a whole and a weaker reading is expected for January, with the median forecast of economists in a Reuters survey pointing to another easing to 50. German GDP for 2009 was reported as –5%, which was slightly weaker than expectations of –4.8% and although the second quarter and third quarter showed growth rates of 0.4% and 0.7% respectively, a statistics office official in Germany said last week that GDP may have stagnated over the last three months of 2009 and severe winter weather is also likely to negatively affect GDP for the first quarter of 2010. Fourth-quarter GDP for Germany is due out on February 12.

Currency markets are likely to react to a much lower-than-expected figure, with a reading of 47/48 to be regarded as bearish for the euro with a ‘gap’ seen between the June 2009 figure of 44.8 and the 56.1 reported in August. A weak result would also push down eur/jpy and eur/gbp again, with these two crosses seen being sold heavily in recent sessions. A rise above December’s 51.1 figure would provide traders with an optimistic sign but the positive effect on the single currency should be brief.


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