Macro Europe: German steamroller powers on

Germany steps into the spotlight for a second consecutive day with the release of its February industrial production report, which is expected to be quite good. Germany is joined today by the U.K., which releases its monthly trade data. Analysts look for another large deficit.

German steamroller powers on
As we argued in yesterday’s post the German growth machine continues at an unabated pace with factory orders rising 2.9 percent month-on-month in January (16 percent year-on-year) against consensus expectations for growth of 2.5 percent. In particular, intermediate goods and durable consumer goods were on fire suggesting that capital expenditure continues to aid economic activity (GDP).

Today we take one step further down that track- from orders to output – as Germany releases its report on industrial production. Unsurprisingly, consensus is expecting output to more or less follow orders forecasting a montlhy change of 1.7 percent; 11.1 percent year-on-year. The two are understandably quite correlated, and with other manufacturing reports – including PMI Manufacturing – also pointing to continued strength industrial production should remain high in the coming months.

U.K. trade balance still firmly in the red
The surprise decline in U.K. economic activity in the fourth quarter of 2010 was partly driven by a negative contribution from net exports, as exports grew 2.3 percent quarter-on-quarter while imports rose 3 percent; and this happened despite a decline of 2 percent in the GBP trade-weighted index.

The U.K. has been running a trade deficit for more than a decade (the last nominal trade surplus was in January 1998), which has widened as the economy improved from an average deficit of GBP 2.47 billion in 2009 to 3.85 billion last year. The markets are looking for the U.K. to add to the long line of deficits with today’s report for January expected to show a trade balance of GBP -4 billion. The anticipated improvement over the last five months of 2010 (all of which had deficits larger than GBP 4 billion) is partly attributable to the austerity measures, which pulled demand for foreign products forward into 4Q2010 from the current quarter causing a 3.5 percent surge in imports while exports only grew 1.5 percent.

Stay tuned for our Macro US ahead of the U.S. opening.

source from: tradingfloor