We have a busy economic calendar on the home front today, but
initial trading action will likely reflect optimism on the European
situation following favorable comments from China about its plans
to invest in Europe. We also have fourth quarter GDP numbers for
the Euro-zone region, which shows that the French and German
economies did modestly better than expected. But the overall
outlook for the region's economy is fairly grim. The domestic
economic reports on deck for release today include Industrial
Production numbers for January and minutes of the last FOMC
meeting.
The consensus view for the Euro-zone region is that its economy
will experience a recession in 2012. It appears that the downturn
got underway from the fourth quarter of 2011. With 9 of the group's
17 countries experiencing economic contraction in the quarter, the
group's fourth quarter GDP dropped 0.3%, the first negative growth
since the second quarter of 2009. The U.S. economy accelerated to a
2.8% growth rate in the same time period, though its growth pace is
expected to decelerate in the first quarter of 2012.
The technical definition of a recession is two back-to-back
quarters of negative economic growth. Italy, Greece, Portugal,
Belgium, and the Netherlands already meet that condition, while
Spain is almost there as well. The French and German growth numbers
came in better than expected. The German economy contracted in the
fourth quarter, but is expected to post positive growth in the
current quarter. But modest German growth wouldn't be enough to
offset the impact of spending cuts in the southern European
nations, ensuring negative group-wide GDP readings at least through
the first half of the year.
Greece, the ground zero of Europe's troubles, is in a
particularly terrible situation. Its economy has contracted a
cumulative 17% in the four years through the end of 2011. The
country has just agreed to go through a substantially tougher
austerity plan to ensure a fresh bailout. The latest austerity
measure will see 15000 public sector job cuts and a 22% cut in
minimum wages.
The thinking behind the tough fiscal medicine for Greece and
other Euro-zone countries is that these measures will help restore
confidence in the region's finances, which will eventually result
in economic growth. Left leaning political forces are contesting
the utility of this thinking, with the French presidential election
in April providing a critical platform for the debate. French
president, Nicolas Sarkozy, is trailing his socialist opponent in
the polls at present. His defeat in the April election will be a
major setback for the prevailing policy prescription, as he and the
German chancellor, Angela Merkel, has been its strongest
proponents.
On the earnings front, we have better than expected results this
morning from
Comcast
(
CMCSK
) and
Deere
(
DE
).
Zynga
(
ZNGA
) posted better than expected results, but provided a weak outlook.
In other news,
Kellogg
(
K
) is acquiring
Proctor & Gamble's
(
PG
) Pringles business for $2.7 billion. Proctor & Gamble was
initially planning to sell this business to
Diamond Foods
(
DMND
), but the deal couldn't go through because of Diamond's
problems.
Crude Inventories
are scheduled to be released today at 10:30 AM EST. For the week
ending February 3, crude inventories increased by 0.3 million
barrels from the previous week to 339.2 million barrels.
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