Riskier Assets Decline On Poor German Data

The dollar rose on Tuesday due to concern about the German economy, which showed slack growth in 2012. Data was mixed, with Advance Retail Sales rising by 0.5% in December versus 0.2% expected and 0.4% previous. Retail Sales Less Autos also rose to 0.3% from -0.1% previously and 0.2% expected.

The Producer Price Index in December fell to 1.3% from 1.5% when only lesser pull-back to 1.4% had been expected; m/m the change was to -0.2% from -0.8% previously when a recovery to -0.1% had been expected. Empire Manufacturing (January) fell unexpectedly by -7.8 versus -7.3 previously. Business Inventories (November) remained at 0.3% in line with expectations. Fed Chariman Ben Bernanke was cautiously positive in commentary indicating current stimulus measures would probably continue till the end of 2013 as they were an “effective a tool” at keeping “long-term rates low.”

EUR
The euro fell on Tuesday after the release of below-par data raised concerns about the German economy. German GDP in 2012 fell to 0.7% from 3.0% in 2011 when 0.8% had been expected. German CPI (December) resulted in a 2.1% y/y rise, the same as the previous print, and in line with expectations; m/m the data showed a 0.9% rise, also in line with forecasts and the same as previously.

EU Harmonised actually saw a lower-than-expected fall of 2.0% from 2.1% previously, and m/m 0.9% vs 1.0% previously and 1.0% forecast. On a positive note, the eurozone Trade Balance rose to 13.7bn from 9.3bn previously and 10.0bn expected. The seasonally adjusted figure showed a rise to 11bn from 7.4bn when 8.0bn had been expected.

GBP
The pound weakened on Tuesday as risk appetite overall seemed to be subdued after poor German data surprised markets with a substantial fall in growth in Europe's leading economy to 0.7% in 2012 from 3.0% in the previous year. There was much inflation data for the U.K including CPI y/y in December, which remained unchanged at 2.7%.

Core Consumer Price Index (December) y/y fell by two basis points to 2.4% from 2.6% previously and the same expected. Month-on-month, CPI rose by 0.5% from 0.2% in line with expectations. The Producer Price Index in December rose to 2.2% from 2.1% versus expectations of a 2.4% print. PPI Core showed a rise of one basis point from 1.4% to 1.5%. RPI actually rose a basis point to 3.1% from 3.0% previously.

JPY
The yen strengthened on Tuesday after the Economy Minister Akira Amari argued against making the currency weaker saying that it would adversely affect import costs and hit households, dampening prospects that the government would enact its ultra aggressive monetary policy agenda to the full. Tonight sees the release of data including Machine Orders (November), which are expected to fall by -7.3% y/y from 1.2%, and m/m to 0.3% from 2.6% previously. The Domestic Corporate Goods Price Index (December) is also scheduled for release, with a rise to 0.2% m/m expected and -0.7% y/y from -0.9% previously.