Drop in German Factory Orders Points to Possible Economic Contraction
THE TAKEAWAY: German factory orders drop 1.9% during April -> Multiple indicators point to possible contraction -> Euro reverses earlier session gains
Hinting at a possible reversal towards an economic contraction, German factory orders slid -1.9% during the month of April, much lower than the analysts’ expectations for a -1.1% drop. Compared to April of 2011, factory orders were down -3.8%, and March’s reported orders were revised higher for a 3.2% increase, according to the Economy Ministry in Berlin.
Factory orders from other countries in the Eurozone dropped 1.8% during April, while orders to non-EC countries dropped 4.7%. Meanwhile, domestic orders were up 0.4%.
Earlier today, the German composite Purchasing Managers’ Index result for May was the lowest in 34 months, and indicated a contraction in German output. The drop in production suggests that the worry over the European debt crisis is now pressuring the German economy, and Q2 GDP could come in lower.
G7 leaders are rumored to be meeting today to discuss ways to improve the European economy and help Greece avoid an exit from the single currency. German Prime Minister Angela Merkel has thus far said that she won’t support joint euro-denominated government bonds.
The EUR/USD seemed to ignore the worse than expected drop in factory orders, as the pair corrected slightly higher following a giant fall below 1.2450 earlier in the session. Risk sentiments are down after the Spanish Budget Minister’s negative comments about a bailout and rumors that the G7 leaders will be participating in a conference call.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.