Daily Market Report - 01/06/2015

USD
The US economy contracted in the first quarter as it buckled under the weight of unusually heavy snowfalls, a resurgent dollar and disruptions at West Coast ports, but activity has rebounded modestly. The government on Friday slashed its gross domestic product estimate to show GDP shrinking at a 0.7 percent annual rate instead of the 0.2 percent growth pace it estimated last month.
 
A larger trade deficit and a smaller business inventories than previously thought accounted for much of the downward revision. There was also a modest downward revision to consumer spending. With growth estimates so far for the second quarter around 2 percent, the economy appears poised for its worst first-half performance since 2011.
 
Economists, however, caution against reading too much into the slump in output. They argue the GDP figure for the first quarter was held down by temporary factors. Economists estimate unusually heavy snowfalls in February chopped at least one percentage point from growth. Trade was hit both by the strong dollar and the ports labour dispute, which weighed on exports through the quarter and then unleashed a flood of imports in March after it was resolved.
 
A measure of domestic demand growth was revised up slightly and business spending on equipment was much stronger than previously estimated, taking some edge off the slump in output. While consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised down by one-tenth of a percentage point to a 1.8 percent rate, it could finally get a lift from the considerable savings households amassed because of cheaper gasoline.

EUR
International Monetary Fund (IMF) chief Christine Lagarde said on Friday that a comprehensive deal with Greece to avoid it defaulting on loan repayments is "very unlikely... in the next few days". In an interview, Largarde hinted that Greece is closer than ever before to a so-called Grexit. "No one wishes the Europeans a Grexit," she said, adding that she could not rule out a potential Greek exit from the Eurozone. Greece's next repayment deadline will come on 5 June, when it will be tasked with stumping up the cash to repay €300m to the IMF. Lagarde's comments will quash rumours the two sides had been close to agreeing a comprehensive deal which would unlock €7.2bn in emergency funding for Greece.
 
The news came as new figures from Greece showed bank deposits fell sharply in April to €139.4bn, a drop of €5.6bn from March and its lowest level in 10 years. The figures will raise the possibility of capital controls being imposed on the country. Although it has so far shied away from putting limits on how much depositors can withdraw, these are looking increasingly likely.

GBP
The German Chambers of Commerce and Industry has said it is “astonished” that the UK is considering leaving the EU, and that an exit would be “disastrous” for both countries. Volker Treier, deputy chief executive of the group, said scores of German firms could easily end up taking back investment from the UK. The 400,000 people employed by German companies in Britain are among those who would be negatively affected by such a change. "We are really astonished about this referendum," he told the BBC. He added that German chancellor Angela Merkel should not offer any concessions. However,  German Chancellor Angela Merkel said on Friday that she would work constructively with British Prime Minister David Cameron on reforming the European Union, reaffirming her desire to keep Britain within the bloc. "Where there's a will, there's a way," Merkel said at a news conference with Cameron in Berlin. "I will go into these discussions constructively. I want to find a solution," she added.Both leaders dodged questions about whether changes to the EU treaty were achievable before Britain holds a referendum on its membership in the EU, with Cameron saying the "substance" of reforms was the most important factor.

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