German Business Confidence Drops, UK GDP Shrinks

German business confidence dropped more than analyst anticipation in July to the lowest in two years and four months as the deepening sovereign debt crisis junked the outlook for economic growth and hurt company earnings. The IFO institute in Munich said based on a survey of 7,000 executives, its business climate index dropped to 103.3 from 105.2 in June. That’s the third straight decline and the lowest reading since March 2010.

Though economists predicted a decline, however, they are surprised that the actual number came in more than their expectation. One analyst commented, German business confidence declined not because of the bail-outs it guarantees, not because of a potential ratings downgrade and its impact on borrowing costs, but because the economy is growing much more slowly than it otherwise would. It could stagnate or even fall into recession.

Moreover, IFO’s gauge of the current situation declined to 111.6 from 113.9 and a measure of executives’ expectations fell to 95.6, the lowest since June 2009, from 97.2. In relation with corporate earnings, Germany’s Puma, Europe’s second largest sporting goods maker cut its 2012 sales and profit forecast which leads to shutting down some stores reducing jobs as an aftermath of slowed business in the first half of this year. The 17-nation currency negatively reacted after the data came out before resuming its surge to trade at $1.2121, 11 a.m. in Frankfurt.
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GBP/USD
The U.K’s GDP shrank in the second quarter of this year more than economists have predicted and the most since 2009, boosting pressure on Prime Minister David Cameron to leave Britain’s biggest budget squeeze since World War II. The UK economy fell 0.7 percent from the first quarter, the Office for National Statistics said in London as the second-quarter data were hurt by record rainfall and an extra public holiday perhaps overshadowed underlying better performance, the ONS said.

Expressing some worries from IMF which urges British government for further monetary stimulus and considers easing on fiscal squeeze if and only if efforts to kick-start the economy fail to perform well. Yesterday’s GDP report only showed that UK’s economy is still fragile, sensitive, and proactive policy measures will continue to be needed to put in place. The pound weakened versus 13 of its 16 major peers and erased its gain against the dollar after the data were published. It was little changed percent at $1.5497 as of 12:01 p.m. in London, having earlier risen as much as 0.3 percent.
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USD/JPY
Japanese stocks fell with the Topix Index posting its biggest four-day drop since August as the yen traded near an 11-year high against the euro amid concern Europe’s debt crisis is worsening. Makita Corp., a toolmaker that gets 40 percent of its sales in Europe, lost 3.1 percent. Murata Manufacturing Co., a supplier of smart phone parts for Apple Inc. (AAPL)’s iPhone, tumbled 4.2 percent after profit and sales at Apple missed analysts’ estimates. Sony Corp., Japan’s No. 1 exporter of consumer electronics, dropped 5.2 percent to the lowest since 1980 as the yen rose against its major counterparts after a report showed the country had an unexpected trade surplus in June.

The Nikkei 225 Stock Average dropped 1.4 percent to 8,365.90 at the close of trading in Tokyo. The broader Topix Index slipped 1.6 percent to 706.46, losing 5.4 percent in the last four days. The broadest measure of Japanese stocks fell for the 13th time in 14 days and has slumped 19 percent from this year’s highest level in March amid concern Greece won’t meet its debt-reduction targets and as growth slowed in China and the U.S.
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USD/CAD
Canada’s dollar rose from the lowest level in two weeks and posted the biggest one-day gain this month on speculation central banks will consider increasing monetary stimulus to spur growth, boosting higher-risk assets. The currency fell earlier to the lowest since 12th of July on concern Europe’s debt crisis is worsening. European Central Bank council member Ewald Nowotny said there were arguments favoring giving the region’s rescue fund a banking license. Stocks and crude oil, traditional drivers for the currency, gained. People are hoping for more stimulus, said John Curran, a senior vice president at Canadian Forex Ltd., an online foreign-exchange dealer, by phone from Toronto.

“I don’t see it coming this year. There would have to be some drastic downturns in employment and growth scenarios for them to come out and act. People are going to be disappointed. Buy U.S. dollars.” The loonie climbed 0.7 percent, the most since 29th of June, to C$1.0155 per U.S. dollar at 5 p.m. in Toronto. The currency is up 0.1 percent this month versus the greenback. One Canadian dollar buys 98.48 U.S. cents.
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