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EMU Q2 GDP better than f/c, but underlying demand looks an issue

EMU Q2 GDP marginally surprised to the upside, by 10bp at +0.3% q/q, matching Q1. This better than the ECB's guidance at last week's presser which suggested growth would be slower than in Q1 (for which there was no revision). Annual growth was +0.6% y/y, up 10bp on Q1's revised higher +0.5% y/y.

GERMANY (-0.1% q/q) the laggard, SPAIN (+0.8% q/q) outperformed among the large economies. Latvia did shrink 1.1% q/q and Ireland grew 1.2% q/q.

Details are few and far between. What we have suggests that industrial output was weak (not a new story). Spain and FRANCE were partly driven by weak imports. French exports were heavily supported by a one-off. Therefore, private consumption remains weak, aside perhaps in ITALY, where exports were also weak, though. However, within this the goods/services dynamic is key. Goods consumption has struggled with a switch to services (or 'having fun'). Goods disinflation (outright deflation in some cases) is rife, but services CPI remains more elevated than the ECB would like. Overall, though, underlying demand weakness is evident and that supports further ECB cuts.

Little wonder, perhaps that Dec24 EURIBOR has nudged a 3.5 month high this morning. Here's some TECHNICAL ANALYSIS,

  • Channels up from 96.550 (31 May trough) to post new 3-1/2 month highs over 96.825 (3 May lower high)
  • Strengthening studies (note the 88% bullish rating on this week's Sentiment Matrix) suggest an initial extension to 96.925 (12 April high)
  • Sustained gains would then expose strong resistance at 97.015 (25 March lower high and 38.2% retrace of 97.775/96.550 decline)
  • The 96.695/96.735 zone (50DMA, 23 July higher low and two-month rising channel support) should limit any near-term corrective dips



The GERMAN 10-YEAR BEI also holds below 1.9%, having hit another 2024 low today. EB/MD


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