Quote of the Day
Leadership is a combination of strategy and character. If you must be without one, be without strategy.
Gen. H. Normal Schwarzkopf
The main economic news item of the day (so far) is the EU is now officially out of recession. The data showed that the EU exited recession in Q2 led by Germany and France. Q2 GDP in the 17 nation euro area expanded by 0.3% after contracting by 0.3% the previous quarter. The latest GDP came in better than the 0.2% market consensus. Compared to a year earlier the economy contracted by 0.7%.
The risk asset markets are not reacting very strongly to the latest GDP data out of the EU as market participants view today’s data as only the early stages of growth and one that could easily return to contraction as the ongoing debt issues of some of the EU member countries are still a factor. In addition one quarter of growth does not immediately translate to growth in commodity consumption like oil. In fact with refinery economics on the defensive in Europe refinery utilization rates are still below normal for this time of year with crude oil demand for the region also on the low end of normal.
Europe has a long way to go before it is on a sustainable growth pattern. Much like the U.S. economy, which has been in a growth pattern the rate of growth of the U.S. has continued to be below normal for this stage of the recovery so far. A similar pattern is likely to emerge in Europe when the growth rate is consistent.
The oil complex is currently in negative territory as oil traders focus more attention on the weekly inventory data and less on the fact that the EU economy showed a modest level of growth. Last night’s API data showed larger than expected builds in refined products and a smaller than expected decline in crude oil stocks with refinery run rates declining. In addition there is a sign that additional oil terminals in Libya may restart today after a few resumed operation already.
On the tropical front a new weather pattern has now materialized and has been picked up by the NOAA models. At the moment it is a weak trough of low pressure extending from the southwestern Caribbean Sea northeastward to near Jamaica. It is expected to move north-northwest toward the Yucatan Peninsula over the next several days. At the moment it is still a low probability event having only a 20% chance of becoming a tropical cyclone over the next forty eight hours but a medium or 30% chance of strengthening over the next five days as the environmental conditions are expected to be marginally favorable for additional organization. This weather pattern remains on our radar.