Euro Area Loan Growth Slows as ECB Monetary Policy Bites

It was a busy day on the European economic calendar. Early in the European session, French consumer confidence and Spanish GDP numbers for Q4 delivered mixed signals ahead of euro area loan growth numbers.

In January, the French Consumer Confidence Index slipped from 81 to 80 versus a forecasted rise to 83. The decline bucked the general trend of improving sentiment on hopes of a short-lived and shallow economic recession and strong labor market conditions.

Q4 GDP numbers from Spain beat expectations, however. The Spanish economy grew by 0.2% versus a forecasted 0.1%. In Q3, the economy also expanded by 0.2%. However, year-over-year, growth slowed from 4.8% to 2.7%. Economists forecast growth of 2.2%.

While the numbers drew interest, ECB non-financial corporation and private sector loans tested buyer appetite. In December, loans to non-financial corporations rose by 6.3% versus a forecasted 8.6%, while private sector loans increased by 3.8% year-over-year. In November, loans to non-financial corporations and the private sector rose by 8.4% and 4.1%, respectively.

According to the December report,

• Consumer credit growth slowed in Q4 to 3.0% year-over-year after holding steady at 3.3% in Q3.
• Loans for house purchases weighed on total loans to households, growing by 4.4% year-over-year in Q4 compared with a 5.1% increase in Q3.
• Non-financial corporations saw loan growth slow across the reported loan durations.
• Loan growth for loans of up to one year was the main drag, growing by 9.1% year-over-year in Q4 versus 19.6% in Q3.

The latest figures reflected the impact of ECB monetary policy on corporate and household credit appetite.

EUR/USD Price Action on Euro Area Loan Growth

Ahead of today’s stats, the EUR/USD rose to a high of $1.09004 before falling to a pre-stat low of $1.08659.

In response to the Spanish GDP numbers, the EUR/USD fell to a session low of $1.08658 before rising to a high of $1.08917. The EUR/USD also showed sensitivity to the latest loan figures falling to $1.08838 before steadying.

At the time of writing, the EUR was down 0.01% to $1.08902.

Next Up

While the economic calendar delivered a choppy start to the session, investors need to consider ECB member speeches. ECB President Lagarde will speak later today. Hawkish Lagarde chatter would support the current move toward $1.10. However, the EUR/USD may have a delayed reaction to any hawkish commentary ahead of today’s US economic indicators.

US Core PCE Price Index and personal spending and income numbers for December will draw plenty of interest. An unexpected pickup in inflationary pressure and a sharp rise in personal income could question the market bets of a Fed pivot.

Later in the US session, finalized consumer sentiment figures will also provide direction. Revisions to prelim figures would move the dial.

While it is a busier day on the economic calendar, no FOMC members are speaking today. The Fed entered the blackout period on Saturday, January 21.