US GDP contraction shocks wise money markets

The US economy shrank 0.1% in the fourth quarter of 2012 for the first time since the end of the recession in 2009.US GDP contraction shocks wise money marketsIf you contrast the contraction of 0.1% against the 3.1% growth in the third quarter then you can get some grasp of the sharpness of the fall and the surprise in the data.

The fall in GDP is being attributed to steep cuts in defence spending and weather related hits to consumer activity.

The FOMC in their monthly interest rate meeting were fairly upbeat about the US economy and suggested that the stall in growth was temporary as they left their $85 billion bond buying stimulus plan in place.

The US Dollar has continued to lose ground in the forex markets and the euro has now hit a 14 month high against the USD.

Interestingly the weak data which would normally lead to USD strength as a safe haven instead led to Euro gains.

Elsewhere we have actually had some good news for a change from the UK economy with GfK January consumer confidence coming in at an improved -26 against an expected -28, not quite a surge in optimism but at least ahead of expectations.

The euro has held good levels after mixed economic data with weak German retail sales and lower French Producer Prices countered by a fall in German unemployment.

In other news, the credit ratings agency S&P have noted that China amongst others may be spending too much after they ranked economies on their vulnerability to an investment led collapse.

China is accompanied by Brazil, Australia and South Africa who have invested heavily in recent years to supply China with natural resources.

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