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Daily Briefing: German economy - a strong 2016 but now what?
January 12, 2017 / 8:46 AM / in 10 months

Daily Briefing: German economy - a strong 2016 but now what?

LONDON (Reuters) - German GDP figures for 2016 out at 0900 GMT are widely expected to show Europe’s largest economy expanding at or around 1.8 percent, the strongest rate in half a decade. But the future outlook is looking less bright, as global political uncertainty starts to weigh on company investments and the absence of major economic reforms since the labour market changes of the early 2000s starts to crimp German competitiveness. As the country goes into an election year with Angela Merkel seeking a fourth term, one major question mark is whether consumers will keep spending -- that was the main driver of growth for the past two years, but a gradual pick-up in inflation may start to restrain it.

Traders react at the stock exchange in Frankfurt, Germany, December 8, 2016. REUTERS/Ralph Orlowski

Foreign ministers of Greece, Turkey and Britain, the guarantor powers of Cyprus’s independence, are due in Geneva today to discuss the security framework of the historic unification deal in the process of being hammered out. That accord is still a long way from being clinched, but progress is being made -- in an unprecedented move this week, leaders of Cyprus’s ethnic Greek and Turkish communities exchanged maps outlining proposals for territorial boundaries.

A poll released this morning shows that French conservative candidate Francois Fillon would convincingly beat far-right leader Marine Le Pen 63-37 if the two meet in head-to-head in a presidential election runoff in May. The rub is that the same POP 2017 survey raises questions over whether Fillon will get to the run-off in the first place. His first-round score was polled at 24 percent, down from as much as 27.5 percent a month ago, suggesting he could get overtaken by another rival. In particular, Emmanuel Macron, a popular former economy minister under Socialist President Francois Hollande who is running as an independent, is creeping up with a first-round score of up to 20 percent of the vote -- a score that could be inflated further if another centrist candidate, Francois Bayrou, ultimately decides not to run. Tonight sees the first in a series of TV debates before primaries later this month to see who will win the Socialist Party ticket for the presidency.


For all the bizarre theatre and controversy, President-elect Trump’s long-awaited press conference did nothing to flesh out his economic stimulus plans. World markets have spent the past two months obsessing about little else have been unnerved by the blank slate. With no detail on either his corporate tax cuts or infrastructure spending pledges, markets were left focusing on his intensifying battle with his own US intelligence services and his relations with Russia. The only market specific issue was another corporate sectoral warning, this time against pharma companies and their pricing – which hit US drug and biotech stocks almost immediately. Given the more measured testimony from his proposed Secretary of State Tillerson that went on in parallel, perhaps markets should wait for the confirmation hearings from incoming Treasury chief Mnuchin and other members of Trump’s planned economic team before making a full judgment. For now, the reaction was to see stock markets stutter again, with the Dow still shy of 20,000. Ten-year Treasury yields fell to their lowest since late November just above 2.30 pct. And after a wild ride higher and then back, the dollar index is retreating  - dollar/yen back to its lowest in a month and euro/dollar up to December highs above $1.06.

With all eyes on Trump, UK markets were arguably more interesting. The FTSE-100’s 12th consecutive higher close marked the longest winning streak since the index was introduced in 1984, while sterling recovered sharply after an initial swoon to its lowest levels against the dollar since last October’s ‘flash crash’. While the pound’s moves owed something to dollar volatility more generally yesterday, the initial drop was seeded by news of rising UK trade deficit. Countering that, however, were more signs of significant manufacturing strength in the UK economy at the end of last year, rising exports and imports and also indications that the UK’s big grocers and even housebuilders also had a bumper yearend. An added wrinkle is concerns that Northern Ireland’s political crisis, that could see new elections there, will delay triggering Brexit talks beyond March if the expected UK Supreme Court ruling this month says all regional parliaments must endorse the use of Article 50 of the Lisbon Treaty that would have to be invoked. Whether that’s good or bad of the pound is a moot point, but it could be seen as a positive if delay in any way softens the Brexit horizon.   

Editing by Larry King

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