Eurozone Economy Stumbles and Fumbles

Front and center this morning, the non-dollar currencies led by the euro (EUR), are sliding against the dollar… Yesterday, the currencies range-traded all day, and in the overnight Asian session that pattern remained tight… But in the European session this morning, as economic growth in the Eurozone slowed in the fourth quarter of 2009, only one of the currency area’s four largest economies expanded.

Gross domestic product in the 16 countries that use the euro rose by a weaker-than-expected 0.1% from the previous quarter, and fell 2.1% on an annual basis.

It appears, folks, that the nascent Eurozone economic rebound has lost some steam, eh? I read where economists believe the loss in economic growth here came from a loss of the boost it received from global restocking. That and the fact that the European Central Bank (ECB) began to remove stimulus in the fourth quarter, helped to slow the Eurozone economy… And with the goings on in Greece and the rest of the PIIGS, I would have to believe that as of right now, the Eurozone economy will take a double dip on the recession front.

There’s also a story out this morning from a strategist at Societe Generale by the name of Albert Edwards, who sent out a report saying that he believes the Eurozone is headed to a break-up because of the problems of the PIGS… (Notice I left one “I” off, for Ireland, as this is mostly centered on the Club Med countries of Portugal, Italy, Greece and Spain).

Now… I don’t believe, right now, that a break-up is in the cards, for as long as Germany is committed to the Eurozone, they will make every effort to keep it alive. I think statements like the one about the break-up, are a bit none-too-comforting to euro holders. Well… There’s always the euro-alternative, Norway, sitting in the shade over there, with their powerful fiscal position (read surplus)…

So… The euro has lost the 1.36 handle and is looking quite sickly this morning. It’s in need of some vitamin D, for sure! The problem is that when the old blue tick hound gets whacked by the dollar, it drags all the other currencies along for the whacking! Even the commodities see red! Gold, which was up $24 yesterday, is down $10 today! UGH!

And… One more thing to think about with the threat of a double dip for the Eurozone economy… If it happened there, it most likely will happen here…

There’s another black cloud hanging over the non-dollar currencies this morning, and that came from the direction of China… China’s central bank raised the reserve requirement for the second time this year, to 16.5% (a 0.50% move). As usual, the kneejerk market reaction was to sell Aussie dollars (AUD) and buy the so-called safe haven, yen (JPY). Aussie gets sold when it appears that China will slow their economy because of the shipments of raw materials that Australia sends to China. So, the thinking here is that if China does slow down, it will slow the shipments, thus slowing the funds flowing into Australia, and thus slowing down their economy.

I think these guys get too carried away with this stuff, before it even happens… But that’s the markets for you… Always looking at what’s ahead, and trading today on what they see…

It’s rumored that the Swiss National Bank (SNB) was intervening again last night to weaken the franc (CHF) versus the dollar and euro… I don’t know why they bothered on the latter, given the weakness that occurred in the euro later in the day! I think the SNB “knows” something that could really drive the franc higher, and so they are weakening it in preparation of this “thing”. So… Now I’ve got you wondering, eh? Well… You could say that my “spider sense” is tingling. I hope I’m wrong, but for some reason this SNB intervention smells of something… Something like geo-political problems that drives people to the safe haven franc.

Or, maybe the SNB just wants to be stupid and get the franc weak to introduce inflation to their economy… Yeah, that’s probably the ticket! Yes, and my first wife was a young Elizabeth Taylor… Yeah, that’s the ticket! HA!

In New Zealand overnight, December retail sales printed and were disappointingly flat… (They were expected to rise 0.6%) It’s reports like this that will keep the Reserve Bank of New Zealand on the sidelines, folks… And keep the kiwi (NZD) from gaining versus the Aussie dollar…

Speaking of retail sales… Here in the US today, we’ll see the color of the January retail sales figures… Recall that in December, yes December, retail sales were down -0.3%… The experts believe that January will show a reversal of that negative figure from December. The wild card in January the past few years is the affect of the “gift cards”, that are given as presents, and then “cashed in” during January… This “gift card affect” could make this month’s retail sales data all jumbled up. We’ll see later this morning…

We’ll also see the latest reading of the U. of Michigan Consumer Confidence survey… The previous survey showed a drop in confidence, so it will be interesting to see what this survey has in store for us, as I just don’t see how with 20% unemployment, a falling stock market, and so on, that any one would be “confident”… But, somehow these U. of Michigan folks find the “confident people”!

And who dat (in honor of the Super Bowl Champion Saints) that says China’s exports will dry up without the US consumer? Not according to the report overnight that showed China’s exports, measured in US dollars, increased 21% last month compared with January 2009. So put that in your pipe and smoke it, I say to those that don’t believe in China…

To recap… The Eurozone economy stumbled and fumbled in the fourth quarter, thus leading me to believe that it will double dip…

The Daily Reckoning