German IFO Numbers Weak Despite Maintaining Predicted Range
THE TAKEAWAY: IFO numbers mixed as expected -> data comes after negative releases spawn instability, Euro future uncertain
German IFO survey data for October released today were generally in line with consensus, with both the headline business climate benchmark and the current conditions indicator slightly beating predictions, coming in at 106.4 and 116.7 versus the expected 106.3 and 116.8, respectively. The previous numbers were 107.4 (revised from 107.5) and 117.9, and this month’s business confidence number represented a 16-month low.
Also, the IFO expectations ballot measured flat with expectations at 97.0, slipping from 97.9 (revised from 98.0) last month. A breakdown shows that the services sector actually improved to 17.4 from 16.5 and that the retailing optimism/pessimism index eased to 2.0 from 2.9.
Although providing the market with some welcome stability after recent data’s propensity to fall far outside expectations, the survey results (although slightly better than expectations) should be taken with a grain of salt coming off a string of poor economic data from the Eurozone. The German ZEW survey released two days ago forecasted a mild European recession in the near future, and reported a 3-year low in German investor confidence. Europe is still foreshadowed by the possibility of a Greek loan default which could trigger an unprecedented credit crisis, and S&P today warned of widespread credit rating cuts in the near future should the EMU not work out its problems.
The Euro hit a slight upward bump following the IFO data release, but then collapsed to a daily low. The week is expected to close on a sour note for the Euro, as EU leaders Merkel and Sarkozy have promised a summit next week to deal with the crisis but have prompted uncertainty by giving no deals on what the solution will be.
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