Member Article

US fourth quarter growth disappoints

Increasing optimism that a deal would be forged between Greece and its private sector creditors
was sufficient to improve confidence around midday. It was thought that the two parties were
coming closer to a deal, which is hoped to be completed either imminently or over the weekend
according to Olli Rehn, the EU Commissioner for Economic and Financial Affairs who was speaking
in Davos. Others were however sceptical, noting such an imminent deal was expected last week
and markets already appear to have shifted their attention to Portugal. With Portugal’s sovereign
yields at all time highs, the 5 year at 20.48% and 10 year at 15.36%, it was evident that the bond
markets believed that it would be next in line for a second bailout, and hence jitters were evident
irrespective of a Greek deal.

The diverging performance within Europe’s periphery was however worth noting, with Spanish
and Italian yields significantly lower by midday. The latter traded comfortably under 6% following
a successful short dated debt auction and it appeared that the liquidity pumped into the system
following Decembers first Long-Term Refinancing Operation was proving effective.

News out around lunch time did however indicate that the US had grown less than forecast in
the fourth quarter of 2011, with an annualised GDP rate of 2.8% against forecasts of 3%. This
disappointed markets globally, despite a clear decoupling from negative or negligible European
growth rates and representing the US’s fastest rate in more than a year and a half. Having opened
lower and made a slight recovery on Greek debt hopes, the markets suffered considerable declines
following the US data, trading around 1% lower throughout the afternoon. The FTSE100 finished
the day down 62 points, a 1.1% fall to 5733, in line with losses in France although underperforming
Germany. The FTSE still managed to post a slight gain for the week.

This was posted in Bdaily's Members' News section by John Dance .