Woldwide Recession

The Euro-zone 3Q GDP figures revealed that the region’s economy had entered a recession. The decline met economist predictions despite France surprising with growth of 0.1% as Germany’s 0.5% drop dragged down the overall region. The region also saw the final reading for consumer prices remain at 3.2% which was a decline from September’s 3.6% reading.

The financial crisis continues to wreak havoc on the world’s major economies, with official data showing the 15-nation euro zone economy had shrunk by 0.2 percent for the second quarter in a row. The United States is probably already in recession, most economists agree, but official data showing that will not come out until January.

Now that the Euro-zone is clearly in its first recession in 15 years and price pressures are on track to ease below the central bank’s 2% target, there are very little obstacles to prevent the ECB from further easing. Yet, despite the anticipation of several rate cuts by the MPC over the next year the Euro has remained in 1.2500 – 1.300 range which may lead one to think that a short-term bottom may be in place. At the moment the euro is unwavering today, suspended around 1,2735 level with a flat 15 EMA and with Bollinger bands very close. Not a good day to trade.

The U.S. economic calendar will present significant event risk with retail sales and U of M consumer confidence on tap. Consumer consumption is expected to have fallen 2.1% in October following a 1.2% pull back the month prior. It would be the largest decline since November, 2001 as Americans are expected to have retrenched due to the credit crisis and a looming recession. The lack of optimism from consumers will be measured in the sentiment reading which is forecasted to drop to 56.2 which would be the lowest reading in nearly 28 years.

Investors are also digesting comments from Federal Reserve Chairman Ben Bernanke that the markets remain under “severe strain.” Bernanke, speaking at conference in Germany, also left open the possibility of another interest rate cut next month. The combination of the dour fundamental readings will signal that domestic growth in the country may come to a standstill and could lead to equity markets reversing yesterday’s gains. Therefore, we could see some dollar strength as safe-haven flows lend support to the dollar.