Q2 growth upgraded for Eurozone and Japan

Daniel Richards - MENA Economist
Published Date: 08 September 2021


  • Germany industrial production data showed a stronger-than-expected performance in July as it grew by 1.0% m/m, compared to projections of 0.8%. The previous month’s contraction was revised to a shallower -1.0%, from -1.3% previously. This followed on from the upside surprise in factory orders in data released the previous day, but once again the headline figure somewhat belies some of the underlying problems still prevalent in the German economy, namely the supply side constraints that are impacting the autos sector in particular. Car production expanded 1.9% m/m but remains nearly 20% lower than it was prior to the pandemic. These supply chain issues are weighing on confidence in Germany, as evidenced by the drop in the ZEW expectations index for September from 40.4 to just 26.5. This was the lowest reading since April last year, and missed projections of 30.3. The current situation index came in at 31.9, compared to 29.3 in August and consensus forecast of 34.0.
  • Despite the ongoing pressures that have weighed on the single currency bloc’s largest economy through the year, the Eurozone’s Q2 real GDP growth was revised up on the second reading, now at 2.2% q/q compared with the initial 2.0%. Household consumption rose by 3.7% as economies reopened, but the third quarter could see a slower expansion as Delta concerns rise.
  • Japan’s Q2 GDP growth was also upgraded, now at 1.9% compared to the initial print of 1.3%. The expectation was that growth would be upgraded to 1.6%. Capital expenditure and factory output managed to offset the deleterious effect of the Covid-19 resurgence on services.
  • UK Prime Minister Boris Johnson announced a GBP 12bn tax hike in parliament yesterday, as his government looks to fund the health service and a new social care plan. The taxes will be raise over higher national insurance payments, taxes on dividends, and through reform to pensions, but Johnson could still face a challenge from his own party given the tax rises go against his ruling Conservative Party’s manifesto.
  • Chinese exports shrugged off some of the persistent worries surrounding resurgent Covid-19 outbreaks to surge by 15.7% y/y in CNY terms in August, far in excess of the projected 8.4%, and nearly double the previous month’s 8.1% growth. Reports suggest that there are early orders for the Christmas season bolstering exports, while coronavirus outbreaks in Southeast Asia may also have resulted in diverted trade to China.
  • Saudi Arabia has lifted travel restrictions on the UAE, South Africa and Argentina, allowing direct flights between the UAE and Saudi Arabia for the first time siince July. The move is positive for the UAE's travel and hospitality sector as Saudi Arabia has historically been the second largest source market of international visitors to Dubai.  

Today’s Economic Data and Events

18:00 Bank of Canada rate decision. Forecast: 0.25%

Fixed Income

  • A large number of corporate bond issuances pulled interest away from the Treasury market at the start of the week with yields climbing across the curve. Yields on the 2yr UST added more than 1bps to settle at 0.2201% while the 10yr yield rose more than 5bps to close the day at 1.3732%. The general steepening trend in the 2s10s curve remains in place, rising to 115bps overnight and its highest level since the start of July.
  • Emerging market bonds sold off for the most part overnight as risk appetite appears weighted toward lower-risk or haven assets. Yields were higher across local currency 10yr bonds in Turkey, South Africa and India while a broad index of EM USD-denominated debt fell.


  • The dollar snapped out of its recent slump overnight as risk sentiment soured somewhat. The DXY index rose 0.5% to 92.512, its first daily gain since August 27th. For EURUSD the focus this week will be the ECB meeting where expectation is growing that hawkish voices may become more vocal. We still expect policy from the ECB to remain highly accommodative and that they will struggle, like the Fed, in outlining a plan to bring asset purchases to an end. EURUSD sank 0.25% overnight to 1.1840.
  • USDJPY extended its gains for a second day, pushing up above the 110 level amid a leadership race in the country. None of the proposed candidates for prime minister have made any overt comment on the direction of monetary policy and most seem oriented around extending even more fiscal stimulus.
  • GBPUSD fell almost 0.4% to 1.3786 as markets spurned a social programme that would see tax rises. Elsewhere, commodity currencies sank in line with dimming prospects of the reflation trade. USDCAD added 0.9% to 1.2647 with political uncertainty in Canada clouding the direction of policy over the coming months while both AUD and NZD fell, down 0.7% and 0.5% respectively. The RBA kept its policy stance generally unchanged although extended its taper timeline.


  • Asian markets remained on the front foot yesterday, bolstered by the surge in Chinese exports. The Shanghai Composite closed up 1.5%, just -0.5% off the multi-year peak hit in February, prior to the recent regulatory concerns. The Nikkei also continued its recent rally and its 0.9% rise yesterday brought it back to levels last seen in April.
  • ADQ has announced plans to list Abu Dhabi Ports on the ADX stock exchange. This is the second major announcement this week, following ADNOC’s announcement that it would list 7.5% of its drilling arm. The ADX closed up 1.2% yesterday, while the DFM and the Tadawul added 0.1%.


  • Oil prices sank overnight with Brent futures down 0.7% to USD 71.69/b and WTI falling 1.4% to USD 68.35/b. There are still few clear fundamental signals in the oil market at present but a general pull away from risk assets and reflation trades will drag on raw materials.
  • The losses weren’t confined to energy with industrial metals declining more or less across the board in the LME complex. Aluminium prices have been supported by political unrest in Guinea, a major source of bauxite, but mining and shipping operations are reportedly being allowed to continue. 

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