The Week In Hindsight 14 February 2014

Europe took another step along the road to recovery this week when GDP figures for France, Germany, Italy and the Euro-zone as a whole all outperformed against expectations. The numbers certainly seemed to improve sentiment toward European stocks which were all higher on the day while the euro also staged a robust recovery against the US dollar which lead the pair to peak at 1.3715.

On another positive note for European stocks, the robust performance from output figures appears unlikely to prevent the ECB from cutting interest rates further in H1 this year. This is as inflation expectations remain at levels which will see the benchmark significantly underperform against the ECB target.

January CPI figures are expected to place inflation below 1% for the fourth month running, a move which will likely add to pressures upon the ECB to do more to stimulate the European economy. Commerzbank Corporates and Markets, Societe Generali and Barclay’s Capital each stated on Friday that the potential for a rate cut at the March ECB meeting is high.

Despite concerns over inflation in the near term, the outlook for Europe is largely unchanged on the new year period. Should emerging markets remain intact while the UK, and North American economies continue to improve sentiment surrounding Europe is likely to remain positive. The ECB easing further by slashing rates once again should help to translate positivity into further production and as a result, compliment the current recovery.

The next major announcements for the European economies are the releases of individual CPI numbers along with industrial figures covering manufacturing and services across France and Germany. These are due on Thursday next week while those looking for an early read on continental consumer and investor sentiment can check the German ZEW Economic Sentiment survey on Tuesday at 1000 am.

EUROPEAN INDICES RECOVER / DAX (BLACK), CAC 40 (BLUE), IBEX 35 ( RED)

EUR/USD – FEBRUARY