Italian politics were kicked back into the limelight yesterday as Prime Minister Enrico Letta announced his decision to resign following a vote of no confidence in his administration from his own party, led by the Mayor of Florence, Matteo Renzi. Letta took over from Bersani who was unable to form a government following last year’s election. Before him was Mario Draghi, a technocrat who was never really in favour. The decision to boot Letta out has had little effect on Italian debt so far, Renzi is probably the best shot at a unifying force Italian politics has at the moment. We expect further machinations over the weekend but little reaction in markets; Italian politics has long been a national embarrassment.
Italian GDP for Q4 is due at 09.00 GMT and is expected to show an economy 0.8% smaller than it was a year before. The forecast 0.1% increase for Q4 would be the best performance of the Italian economy however since Q2 2011.
French and German GDP figures have already been released with both beating estimates. France’s economy expanded by 0.3% on the quarter and 0.8% compared to a year earlier. The key will be maintaining this through Q1 and whether the deflationary pressures that the wider Eurozone is experiencing start to hammer consumption and raise debt burdens. German GDP grew by 0.4% on the quarter, and 1.3% on the year as a demand for exports trumped weak domestic demand. Unfortunately for those of us who are looking for a reaction from the European Central Bank in order to get a real recovery going in the Eurozone, these releases are only likely to stay their hand.
Eurozone GDP is due at 10.00 GMT alongside December’s trade balance data.
US retail sales fell by the most since June 2012 in January, we heard yesterday, following a mixture of terrible weather and consumer fears over the resilience of the US jobs market. Federal benefits for those who have been unemployed longer-term expired on Dec 28th as well with little help coming from Congress in the meantime. The drop in consumer spending has seen a fair few analysts revise their GDP estimates substantially lower for Q1 – pressure will be increasing for the Fed to rein in its tapering program should this continue. USD was slightly off as a result.
US jobless claims rose unexpectedly in the week ending February 8th. As Yellen said in testimony on Tuesday “recovery in the jobs market is far from complete”; it just got a little less complete.
The week finishes quietly today with US industrial production for January at 14.15 GMT and a preliminary look at US consumer confidence for February at 14.55. We are looking for both to fall back from previous readings and the USD to remain on the back foot into the two day break.
