Eurozone Economy Contracts as Expected, Stocks Decline

Is Europe past its low point?

The Eurozone economy has faced serious headwinds, and today's fourth-quarter GDP numbers matched economists' expectations: the economy declined 0.3 percent QoQ, confirming advance estimates released in February. So nothing new actually. The decline was driven by the weakest investment since 2009 and declines in consumer spending.

Despite the latest stabilisation and better-than-expected survey figures, we still see a high probability that the Eurozone economy will decline further in the first quarter, although we expect it to be a small decline. As our Macro Strategist Mads Koefoed wrote earlier today both soft data (surveys) and hard data suggest that the Eurozone economy is not contracting at an accelerating rate. His analysis also points to the fact that it is the hard data and not surveys that have been bullish, thus supporting our view that first quarter GDP will be weak despite the better-than-expected surveys in Europe.

Stocks are extending their decline from yesterday, when China lowered its official target for growth to 7.5 percent. The DAX Index is down 1.5 percent. The next potential catalyst for global stocks will be on Friday, with US Nonfarm Payrolls figures.  

In the US pre-market, S&P 500 Index futures are currently down 0.8 percent, and with no economic data scheduled to be released, we expect a trading session in the red.

Peugeot Citroen is killing dividend, shares tumble 5%

Europe's second largest automaker, PSA Peugeot Citroen, is struggling to be profitable in a way that is sustainable. The company has suspended dividends for 2011 and entered a partnership with GM to revitalise its European business. This new partnership requires funding from Peugeot, which is out today with a EUR 1 billion rights offering that is already 32 percent pre-subscribed by the GM and the Peugeot family. Reflecting the conditions at the automaker, the rights offering has been brought to market with a 42 percent discount, and the shares are currently down 5 percent.