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Euro Suffers From Bad Data

Euro zone consumer confidence showed a slight improvement in August, figures from the European Commission showed on yesterday, although longer term prospects for the region’s growth remain uncertain coupled with loose monetary policy the Euro is still on the back foot.

The European commission’s estimate of consumer optimism in Euro-zone area rose to 11.7 this month from a revised 14.0 in July. The figure puts the index at a 27-month high.

Consumer confidence is among a slew of recent economic indicators that have tentatively indicated a steady recovery by the euro zone economy, although expectations are that growth will slow in the second Q3 after a strong showing in the second quarter.

Exports have been strong, fueled by the weak Euro but the rebound has not filtered through to consumer demand, which will be the driver of any long-term and sustained return to growth for the region. “Becoming more confident about the economy is one thing. Opening your purse and increasing spending is another,” said ING’s Martin van Vliet, “any strengthening in overall euro zone consumer spending over the coming quarters will likely be modest and insufficient to offset the slowdown in exports resulting from the weakening in global demand.”

The euro zone recorded growth of 1.0 percent in the second quarter from the first — exceeding U.S. growth in the same period — but with the U.S. and Chinese economies both showing signs of slowing down, the prospects for European exports are dimming.

Most euro zone countries are committed to cutting spending and reining in their budget deficits in order to bring finances back into check and avoid a Greek-style debt crisis.

Germany remains the driving force behind the recovery with the other member states lagging behind. Countries like Greece, Italy, Ireland and Spain although displaying less signs of collapse still remain fragile and open to sovereign debt downgrade risks.

“We suspect that the overall euro zone figure once again masks considerable divergence between member states,” said Van Vliet.

In the global economy as a whole World stocks rebounded from a one-month low yesterday as corporate takeover activity supported investor sentiment and boosted the price of oil back up to $74 resistance.

The dollar was stable against a basket of major currencies yesterday and the pound even managed to regain some value towards 1.5600 GBP/USD before dropping back in the afternoon under low volume volatility.

Investors sold some U.S. Treasury debt, which is a good sign that risk appetite might not be entirely banished, with $109 billion slate of bond auctions this week alone, the debt market is still very buoyant.

The Australian election still hangs in the balance but the Australian Dollar has shown signs of support, it closed marginally weaker on the day with sterling managing to rise to 1.7400 GBP/AUD and AUD/USD up slightly to 0.8980 AUD/USD falling back to 0.8940 AUD/USD by the end of the day.

Euro-zone data will dominate this mornings wires with German GDP estimates coupled with lower tier import data and Industrial orders later in the morning. Estimates are for the figures to be relatively positive for the Euro but any positive spikes might well be short lived.

Canada will provide the only top-tier announcement tomorrow with their retail sales figure for June predicted at -0.2%. A solid comeback in retail sales after two consecutive monthly declines will give investors some hope that the Bank of Canada’s estimate of 3.5 per cent gross domestic product growth in 2010 can indeed be met.

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