Tokyo inflation at a 40-year high, German economic growth beat expectations

The European stock market is expected to open mixed on Friday due to thin trading conditions, as investors are analyzing German data on growth and consumer confidence.

It does appear, however, that perhaps Europe will be able to make it through the winter without experiencing a complete energy crisis. There has been no doubt that high prices have meant that gas storage facilities have been flooded but early indications suggest that consumers across the continent are turning the thermostats down, with a decline in heating demand - even on a weather-adjusted basis, according to Bloomberg New Energy Finance. While it may be early to predict the future, if we make an educated guess from the current trend, there is a chance that tanks may rest just below half in March. The result of this will likely be a noticeable drop in energy prices next spring, as well as lower inflation, smaller interest rate hikes, and a faster rate of growth across the continent than is currently expected. Also, it is possible that this could just mean that European stocks are finally going to start outperforming.

German data showed that the economy expanded slightly more than preliminary estimates indicated in the third quarter due to higher consumer spending, according to the latest figures released on Friday. According to the Federal Statistics Office, Europe's largest economy grew by 0.4% quarter-on-quarter and 1.3% on an annual basis, adjusted for the effects of prices and calendars. It is expected that the economy will grow by 0.3% in the third quarter compared to the second quarter. In addition, it is expected to expand by 1.2% compared to the first quarter. Due to the lifting of nearly all pandemic restrictions, many consumers have been able to travel and go out more since the end of the pandemic. This is the main reason for the increase in the quarter-on-quarter figure. The German economy grew by 0.1% in the previous quarter. According to the latest government forecast, the economy will grow by 1.4% this year and shrink by 0.4% next year. Furthermore, according to research firm GfK, the German consumer confidence level showed a second straight improvement, although it remains near an all-time low at -40.2.

EUR/USD

EUR/USD is trading sideways in a familiar range near 1.0400 in early European trading. Treasury yields and the US Dollar are lower on prospects of a slower pace of Fed policy tightening. On Black Friday, trading conditions remained thin. Even after resurfacing from the critical support of 1.0382, EUR/USD is showing a subdued performance in the Tokyo session. A round-level support of 1.0400 is currently being tested by the Euro pair, but it is oscillating above it. In light of Thanksgiving Day in the United States, the market mood is extremely quiet.

US dollar

The weakening dollar is another factor that favours euro buyers. The dollar index fell 0.1% to 105.840, down more than 1% for the week and close to its three-month low of 105.30 again. It has been a difficult week for the dollar as expectations that the US monetary tightening pace will be reduced as soon as next month have seen US Treasury yields sink to seven-week lows earlier Friday. There was a surprise shift on the dovish side of the vote, with the minutes signalling strong support for slowing rate hikes in the future and weaker support for Powell's rhetoric of raising rates longer.

USD/JPY

In terms of the Japanese yen, the headline Consumer Price Index (CPI) in Tokyo has surged to 3.8% vs. the consensus expectation of 3.6%. In addition, core CPI has increased to 2.5% versus the 2.1% that had been predicted. After months of yen weakness and rising energy costs, inflation in Tokyo has outpaced forecasts by hitting its fastest clip since 1982, indicating a nationwide price surge in November.

The USD/JPY pair witnessed heavy selling for the third successive day on Thursday and dropped to over a one-week low amid a weaker US dollar. In fact, the yield on the benchmark 10-year US government bond dropped to its lowest level since early October. This resulted in the narrowing of the US-Japan rate differential, which, in turn, benefitted the Japanese Yen and exerted additional downward pressure on the USD/JPY pair. Since the early European session, the USD/JPY pair has been building a support zone of around 138.50. After that, the pair is expected to find support around the monthly low, around 137.65. Further negative momentum could cause the price to accelerate its decline towards 137.00.