Euro zone manufacturing output plunged more than expected in December ending a weak quarter for the single currency area. Industrial production fell 2.1% month-on-month in the 19-countries sharing the euro, the EU statistics agency Eurostat said. Year-on-year, output fell 4.1%, well beyond forecasts. The negative monthly reading followed a 0.9% drop in October and a stalled production in November as euro zone manufacturers were battered by global trade tensions. Production in December fell significantly in all major economies in the bloc, pointing to a possible downward revision of gross domestic product growth for the last quarter. The December fall was driven by a 4.0% drop in the output of capital goods, which implies lower investment appetite among industry managers.
There is serious concern about the health of the European economy as the euro fell under 1.089$, its weakest level against the dollar since 2017. The common currency seems now poised to reach 1.20 against Sterling although this will depend heavily on the direction of the EU-UK trade talks set to start next month. European Central Bank President Christine Lagarde defended the central bank’s stimulus programme suggesting the ECB will not change its policy after its strategic review this year. Meanwhile, other export-oriented currencies like the NOK, AUD, NZD and CAD have enjoyed a rebound. Jitters are growing that Germany is headed for recession due to the lingering impact the coronavirus looks set to have on the health of global economy. A slump in the euro area industrial output, a lingering succession battle at the top of Germany's government, political friction in Romania, Bulgaria, Poland and Ireland as well as fears on the health of Italy’s economy are unlikely to brighten that picture. Pan-European EUSTX50 fell from its steady climb which it has been enjoying since the beginning of the month, now trading at 3832.85, a similar trend to the German DAX which is now quoting at 13686.
The EU decided to impose trade sanctions against Cambodia as a result of alleged human-rights violations, making good on a year-long threat with tariffs on around 1 billion euros of imports. The move is an attempt to prod changes in the behaviour of Cambodian Prime Minister Hun Sen, while being wary of damaging the country’s economy. On the other hand, the European Parliament approved a free-trade agreement with Vietnam after winning concessions from Hanoi that may show the way for a bigger commercial deal between Europe and South America. The accord with the Asian country will gradually eliminate 99% of tariffs and other barriers on about 50 billion euros worth of goods.
Oil prices continue to be volatile as concerns about falling demand caused by travel restrictions tied to the coronavirus outbreak in China, the world’s biggest oil importer, outweighed expectations of supply cuts from major producers leading investors to be very news-sensitive. OPEC has slashed its demand forecast in its monthly report by 200.000 barrels per day, primarily due to the shutdowns caused by the virus outbreak hitting demand for fuel in China. The market is still awaiting a full response from its main producers, though Russia’s biggest oil companies voiced support for the idea of an output cut to prop up crude prices, so the prospect of OPEC and its partners reaching a deal seems to have been boosted. Brent fell 48 cents, to $55.31 per barrel and U.S. West Texas Intermediate is on a downtrend quoting around $51 a barrel. Brent rose 3.2% yesterday while WTI gained 2.5% as a slowdown in new Chinese coronavirus cases boosted expectations of a demand recovery. Brent and WTI have fallen more than 20% from their 2020-peak in January because of the disease outbreak.