This week, especially at the end, the financial markets have returned to some optimism. Accomplice data on US GDP, investors abandoned safe heaven assets and they went back to buy risky assets, especially stocks. This may greatly affect the Eurozone performance and may show significant effect on Brexit.
The second estimate of US GDP in the fourth quarter has surprised the market expectations. The second estimate of the Gross Domestic Product of the United States in the 4th quarter showed a growth of 1% on a quarterly basis, against analysts who expected a growth unchanged at 0.8%.
In annualized calculation, the GDP of the United States shows a growth of 1%, against the previous estimate at 0.7% and analysts’ expectations for a 0.4% drop.
US GDP is due to a revaluation upward of the unsold value of enterprises (valued now higher than the initial estimate). Plus, also the consumer spending, a key market mover for economic growth, has been revised downwards.
In the second estimate of GDP, in addition, the trade gap weighs less on growth than previously estimated, thus allowing the data on gross domestic product to reach levels above expectations.
The US dollar strengthened and drove down the euro-dollar exchange rate immediately after the publication. The euro-dollar exchange rate fell sharply to 1.0978 and it struggles to fall further.
What traders call ‘risk on’, however, it is penalizing the Japanese yen, which between January and mid-February has realized exceptional gains by acting as a real safe haven asset.
Meanwhile the ‘Brexit’ issue weighs on Eurozone heads. The term refers to the possible exit of the United Kingdom (Britain) from the Eurozone. The decision will be taken by referendum that will see the British to vote in June, the 23rd.
This threat has become more and more alive when, in recent days, the president of the European Council Donald Tusk has been engaged in a series of meeting seeking support for the deal with David Cameron, British Prime Minister, on the renegotiation of the accession of Britain to the European Union.
On Friday the 26th, G20 has started in Shanghai closing the following day, February the 27th.
The start was not the best as the markets appeared to be convinced that the world economy was destined to collapse if the G20 would not end with a coordinated plan to support growth.
However, China has decided to inaugurate the meeting reassuring the markets: no devaluation of the yuan is coming. The Asian markets react positively, but remain strong concerns about the future of the world economy.
At the end of the meeting it appeared that the only possible solution is to find a new source of demand. If Central banks keep cutting interest rates and weakening their currencies, a lot of capital will be wasted.
‘Monetary policies are inadequate and other instruments are needed – from fiscal stimulus to structural reforms’.
We do not have to forget oil prices! After a sharp rise in the US session on Thursday, the price of oil continues its recovery during the last trading day of the week.
The price of oil is at the end of the first positive weekly close in a month. Brent increased by 4.2% to $ 36.76 per barrel, while WTI oil marks a rise of 4% to $ 34.40 per barrel.