Overnight Sentiment: First Leg Of German Recession Now Official, As Yen Collapse Ends

Tyler Durden's picture

And so the consequences for Europe of accommodating the US, and the rest of the world, in having the EUR soar following ECB intervention while everyone else's currency is diluted to death, comes to the fore, following today's announcement of German 2012 GDP which came below expectations of 0.8%, printing at 0.7%, with government adding a substantial 1.0% to this number, while plant and machinery investment tumbled by a whopping -4.4%. And while the specific Q4 data was not actually broken out, a subsequent report by the German stat office indicated that Q4 GDP likely shrank by 0.5% in Q4. All that is needed is one more quarter of sub zero GDP, which will almost certainly happen in Q1 absent a massive surge in government spending which however will not happen in tapped out Germany, whose resources are focused on keeping the periphery afloat, and thus the EURUSD high, and Germany's exports weak. Confirming this was a Bild report which stated that the government now sees 2013 GDP growth of a paltry 0.4%, which assumes growth in H2. One wonders just how much longer Germany will opt for a currency regime that punishes its primary GDP-driver: net exports, at the expense of nothing beneficial but making tourist trips to Greece far more expensive than under the Drachma.

There was however, much cheering in depression riddled Spain (unemployment in the mid 20%s and rising): earlier the country sold €5.75 billion of 12 and 18 month bills, at rates that tumbled compared to the like auction in December. Just more draining of Social Security Funds, or yet another ECB backdoor bailout? Does anyone even care any more: it is not like the bond market in the periphery reflects anything besides the intentions of German taxpayers to keep funding the endless PIIGS bailout.

The other big overnight news was the reported end of the JPY collapse, with the USDJPY now trading at 88.30, some 130 pips lower than last night's highs, following various comments from various Japanese officials, some of which may have been misinterpreted, but all of which served to remind the market that the period of promises by the BOJ and Abe is over. Now is the time for action, and sadly as has been the case in Japan in over 30 years, it is the "action" part that is sorely lacking. Either way, the global non-US based risk rally came to a screeching end with the end of the JPY collapse, and hopes that Japan just may succeed in clawing its way out of a deflationary hole on the back of currency debasement without actually seeing a comparable surge in bond yields that would crush its banking sector.

And perhaps most ominously for the US, Fitch once again woke up the headline scanning giant, with comments by its Global Analytical Head Ian Linnell who warned that both UK and US ratings are now under threat. Time for the US downgrade rumor?

More on the overnight trading and event recap from Deutsche

Despite a +3% rally in Chinese equities yesterday, the S&P500 (-0.09%) remained largely in consolidation mode after hitting a post-financial crisis high of 1472.12 last Thursday. I suppose 2012 should be a lesson in the fact that Chinese equities can go in a completely different direction to the main developed market equivalents. The US seemed to be held back by Apple (-3.6%) with technology (- 0.8%) and telecoms (-1.06%) leading declines after reports surfaced in the Nikkei on Monday that the company’s 1Q13 component orders have been in cut in half due to lower than expected demand for the iPhone 5. To be fair I haven't bought a new Apple product for about 10 months now. A lifetime in Apple time!

Technology stocks would have ended the day even lower were it not for reports that Dell was in talks to go private (Bloomberg). The stock bounced 13% following the report and its 5yr CDS widened by 110bp to 315bp, which drove some of the underperformance in the CDX IG credit index (+2bp) yesterday.

In the US, leaders from both parties ratcheted up the rhetoric over the debt ceiling debate. Risk generally traded with a weaker tone leading into Obama’s final press conference of his first term. Obama told reporters that Republicans were threatening to hold a “gun at the head of the American people” and that he wasn’t willing to negotiate around spending cuts in return for an increase in the debt ceiling. Nonetheless, it appears that we’ll need to dig in for another round of protracted negotiations after John Boehner and Mitch McConnell responded that the upcoming debt ceiling debate is indeed “the perfect time” to “get serious  about spending”. Outgoing Treasury Secretary Tim Geithner sent a letter to Boehner reiterating that the US treasury would exhaust its extraordinary measures between mid-February and early March and urged Congress to lift the debt ceiling well in advance of that point.

It was a relatively active day in the world of Fedspeak with Williams, Evans and Lockhart all speaking yesterday ahead of Bernanke’s Q&A session after the US market closed. The usually dovish Williams said that the Fed will continue to purchase MBS and treasuries well into the second half of 2013 while the more hawkish Lockhart warned that QE could have “longer-term consequences that are worrisome”. Bernanke himself offered very little new information, saying that he remains concerned about the state of the labor market and defended the impact of QE saying the “significant inflation” will not result from asset purchases. He dismissed the idea of the Government minting a trillion-dollar platinum coin to pay off debt, saying that he was “not going to give that (idea) any oxygen”.

Turning to overnight markets, most major markets are trading higher with the highlight being another positive day for the Shanghai Composite (+0.38%) following yesterday’s +3% gain. Elsewhere in Asia, continued concerns over Apple’s component orders are leading equities lower in Korea (KOSPI -0.95%) and Taiwan (TAIEX -0.75%), while a number of technology stocks on the Nikkei are also underperforming. Meanwhile, the broader Nikkei index (+0.57%) has pared earlier gains and USDJPY is down 0.55% after Japan’s economy minister Akira Amari said that the country faces risks from any excessive decline in the value of its currency. Amari added that the yen is correcting in line with economic fundamentals. Ahead of next week’s BoJ meeting, governor Shirakawa noted the downside risks to Japan’s economy particularly in terms of export markets, and said that the central bank will continue to pursue “powerful easing”.

Japanese 10yr JGB yields are below 0.8% for the first time in more than a week. In the credit space, both the Australian and Asian IG indices are trading 1-2bp wider on the day. Recapping the European headlines, S&P affirmed Finland and Luxembourg's AAA ratings and revised their outlooks to stable from negative. S&P added that "the Finnish government appears committed to pursuing strong fiscal and structural policies that should enable the economy to grow above 1% in the medium term". Luxembourg's ratings "reflect our view of its wealthy economy with a strong government balance sheet and sizable external surpluses," S&P said in a statement. Moody's rates both sovereign's at Aaa with negative outlooks. On the data front, EU Industrial production for November was weaker than expected at - 0.3%mom (vs +0.2% expected), falling for the third straight month, partly driven by a - 1.0%mom reading in Italy (vs -0.2% expected).

Turning to the day ahead, the highlight during the European session is likely to be Germany’s 2012 GDP and inflation data in the UK, Italy, Spain and Germany. Germany will auction EUR5bn in 2023 bonds. In the US, the focus will be on retail sales, PPI and the Empire manufacturing survey for January.

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The Axe's picture

Yet  the market  yawns?????

GetZeeGold's picture



Just another morning in Europe and Hawaii. Germany and Japan in trouble again. What possibly could go wrong this time?

Vlad Tepid's picture

Maybe Germany should invade Mali...

YuropeanImbecille's picture

They should raise taxes on the wealthy! raising taxes is what you do when in doubt. I have heard it is a very effective way to give some fairness to lazy scum that refuse to work, by stealing from honest people who just want to live their own lives.

Fairness, is what the government tells you it is! and right now, fairness is to let other people relieve you from your hard earned money.


Long live the marxist ideologies! yeeeehhhaaaaaaw

firstdivision's picture

SPA10 and ITA10 are hot this morning. Buy! Buy! Buy!

malikai's picture

It's hard to say that the Yen collapse is complete. Although there appears to be some closures, it's far from certain. At this point, it may have a life of its own.


Josephine29's picture

Don't forget UK inflation which after the attempt to fiddle the figures is doing this.

The inflation outlook for the UK economy continues to disappoint and it has now been over its official target for 37 months in a row. We do not have an official growth target but if we did sadly it would have been below target for a lot more than 37 months. Perhaps such a reality is behind the flurry of forecasts of a fall and in some cases collapse in the value of the pound sterling. Although the 2007/08 depreciation gave us yes you’ve guessed it higher inflation and disappointing economic growth! So a solution to our economic morass is unlikely to be found in that direction.



So as the author points out the UK looks mired in stagflation right now.


youngman's picture

and grains are getting expensive again....adding inflation to the mix...I see the world separating....your good friend of last year is no longer....we are all trying to compete in a sport we know nothing about....

Just Ice's picture

But they're lining up early for the inauguration!!   http://imageshack.us/a/img844/2059/sheepz.jpg

schatzi's picture

German media responding to the 4th quarter recession with a picture of green shoots. Apparently 2013 will be slow, but fear not! 2014 will be great!! Because...ummm... the government says so?


Fucking morons.

Danno Anderson's picture

Not quite the way it was.  In fact the news from was out early yesterday in the Japan Times, and before the opening of US markets yesterday.


Overly weak yen would hit import prices: Amari

Economic policy minister Akira Amari warns that an excessively weak yen will jack up the cost of imports and calls the ¥89 range "a fairly good level" against the dollar.  ""

US Yen futures reacted a bit to the news and then faded late in the day,meanwhile the FXY on NTSE did not react.  I'm following the Yen closely as I'm short. 

IMO the markets reaction to Amari's remarks will be fully in the market today and tomorrow the Yen will continue to fall in value.


supermaxedout's picture

I dont see recession in Germany. Economy is going sideways at least if not going up.

Plenty of indicators show this. The population is growing since a few years ( 250.000 plus in 2012) because immigrants fill the slots which can not be filled by Germans. Skilled and unskelled workers are in short supply. Open the news papers in Germany there are plenty of jobs. The industry is desperatley looking for engineers all over Europe. Housing and commercial construction is running at full capacity since years now. Business with China, Russia, East Europe is booming. South America is also a very good market for the Germans till now.  Unions annonced already that they are going to demands this year a pay hike of 5% at least.  Appartments are in short supply still in may areas of Germany.

You know what: Recession looks different! But maybe 2014 or 2015, one day for sure the party is going to end for the Germans but till now there is no end in sight.  The last three years were in economocal terms excellent years for the Germany and its population.

Venerability's picture


Can't you see the obvious positive in this?

Germany now fears Japan's aggressive currency intervention, just like everybody else in the world - carrot of bond purchases or no.

Crazy Yen devaluation needs to slow down markedly - already! - for the good of the World Economy.

And that is, of course, Emperor Dollah negative and Risk Asset positive.


StoleYourMoney's picture

Germany in recession as well as France, Japan, the PIIGS. But the US decoupled. Even though US PMIs have contracted, retail sales fell 3 months in a row, Philly Fed, Empire state index all contracting... Earnings missed in Q3, Fed Ex, UPS warned. Have no fear, Bob Pisani wall street cheerleader is here!