Euro Lifted Mildly By French And German GDP

Euro is lifted mildly by better than expected GDP data from France and Germany today. French GDP was flat qoq in Q2, comparing to expectation of -0.1% qoq contraction. Meanwhile, German GDP grew 0.3% qoq comparing to consensus of 0.1% qoq. Eurozone GDP will be released later in the session and could probably show -0.2% qoq contraction. Although the 17-nation avoided a technical recession after a flat GDP reading in the previous quarter, the economic developments have been dismal. Several peripheral countries have indeed slipped into recession and the situation will only be worse as the government implement fiscal consolidation plans.

As we await the Eurozone GDP report, it's unveiled that the Greek GDP contracted -6.2% yoy in Q2, suggesting the recession continued and implementation of fiscal austerity measures would be more difficult. Meanwhile, as the ECB decided to stop accepting Greek sovereign bonds as collateral in its monetary policy operations, emergency funding from Greece's central bank to Greek banks increased to 106B euro in July from 62B euro in June, compared with the drop of the ECB's assistance from 74B euro to 24B euro during the period.

Minutes of the July 11-12 meeting of BoJ unveiled that a few members warned that Japan's economy "could be adversely affected through various channels if, for example, a substantial risk materialized, stemming from the European debt problem". And, these members urged to bank to "stand ready to take appropriate actions without ruling out any options in advance". Nonetheless, the bank's view is that "growth prospects will likely remain broadly unchanged". Regarding inflation, CPI is expected to be "broadly inline with the April forecasts". At that meeting, BoJ voted unanimously to keep rates unchanged at 0-0.1% and maintained the scale of stimulus program at JPY 70T.

Other data to be watched in European session include UK CPI, which is expected to slow further to 2.3% yoy in July. Swiss combined PPI is expected to improve to -1.7% yoy in July. Meanwhile, German ZEW economic sentiment is expected to be unchanged at -19.6 in August while Eurozone ZEW economic sentiment is expected to improve to -19.1. From US, PPI is expected to slow to 0.5% yoy in July while retail sales is expected to rise 0.3%, with ex-auto sales up 0.3% too.