CME Group – EMU GDP – 3-7-19

CME Group –


March 7, 2019 05:00 EST

Consensus Actual Previous Revised
Quarter over Quarter 0.2% 0.2% 0.2% 0.1%
Year over Year 1.2% 1.1% 1.6%
Quarterly eurozone economic growth was unrevised in the third look at the fourth quarter. A 0.2 percent increase in total output matched the flash estimate and was up a tick versus a downwardly revised 0.1 percent third quarter rate. As a result, annual growth was trimmed from the previously reported 1.2 percent to 1.1 percent, its weakest mark since the fourth quarter of 2013.

Today’s report is most significant for providing the first look at the GDP expenditure components. These showed household consumption accelerating but only from a minimal 0.1 percent quarterly rate in the third quarter to just 0.2 percent. However, gross fixed capital formation was again firm, increasing a second consecutive 0.6 percent. With government consumption up a sizeable 0.7 percent, final domestic demand added 0.4 percentage points to the change in GDP. Elsewhere, inventories subtracted 0.4 percentage points after adding 0.3 percentage points in the third quarter, so that the risk of any meaningful stock overhang should be slight.

Meantime, net foreign trade had a positive impact, adding 0.2 percentage points following a 0.4 percentage point hit last time. This reflected a 0.9 percent rise in exports that comfortably outpaced a 0.5 percent increase in imports.

Today’s update is cautiously reassuring inasmuch as investment seems to be holding up well. However, the ongoing sluggishness of the consumer sector is a worry, particularly against a background of slowing world trade. Without a pick-up here soon, investment plans could well be tempered. The ECB should not be too discouraged by the data but neither should it feel really confident that the economy is expanding at a fast enough pace to accommodate the attainment of its price stability goals.
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy and is usually released early in the third month after the reference period. Following two provisional (flash) estimates containing only limited information, this report provides the first full look at the national accounts for the region.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data, which follow the international classification system (SNA93), are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy’s undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.

Currency traders prefer healthy growth and higher interest rates. Both typically lead to increased demand for a local currency. However, inflationary pressures can put downside pressure on a currency regardless of growth. For example, if inflation remains above the ECB’s near-2 percent target for long enough, worries about the impact of lost competitiveness on the merchandise trade balance could prompt investors to switch to an alternative currency.

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