Cold comfort as France, Germany eke out growth

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LONDON (Nov 14): European stocks were flat on Friday after gross domestic product numbers showed both France and Germany grew marginally in the third quarter, while the dollar rose further against the yen on expectations of a snap election in Japan.

The European data confirmed that the outlook for much of the world economy still looks much shakier than for the United States, although France beat expectations. Asian stocks fell following the latest signs that growth in China is slowing.

Energy stocks were depressed as crude oil hovered near a four-year low in an oversupplied market and the Russian rouble, hammered in recent weeks as world oil prices fell, was again testing record lows around 48 roubles per dollar.

Germany's economy eked out growth of 0.1 percent on the quarter, while France - generally seen as in deeper trouble than its neighbour - grew by 0.3 percent. Overall euro zone data was due later.

"The German number is slightly positive in line with expectations but it's still soft," said Patrick Jacq, a rate strategist at BNP Paribas in Paris.

"The (French) growth in Q3 is only driven by inventories. It's just a one-off positive figure in a very weak environment and therefore this is not something which could lead the market to think that the economic situation is improving in France."

European shares were broadly flat on opening, with London down 0.1 percent and German and French markets a quarter of a point higher. MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.3 percent, countered by a half-point rise in Tokyo.

A Reuters poll showed Japanese companies overwhelmingly want Prime Minister Shinzo Abe to delay or scrap a planned tax increase, a move expected to come along with a decision, expected by many, to call a new election.

The yen, down more than 3 percent against a stronger dollar this month, fell another half percent to a seven-year low of 116.385 yen per dollar.

"The argument is that delaying the sales tax hike means the impulse to CPI inflation will start to drop," said Alvin Tan, a currency strategist at French bank Societe Generale in London.

"If there's no additional sales tax hike, the impulse to higher inflation starts to fade away quite rapidly. So in order to push inflation higher, which is what everybody wants, you need the currency to weaken a lot more."

CHINESE BURN

The perception that the U.S. economy is faring better than either Europe's or Japan's, and expectations that monetary policy there will tighten next year as a result, has been helping to push the dollar higher against both the euro and yen.

The euro was down 0.2 percent at $1.2429, inching back towards a two-year low of $1.2358 struck last Friday.

U.S. crude oil was down 0.1 percent at $74.17 a barrel after tumbling 3.9 percent on Thursday, when it hit a four-year low of $74.07.

Oil has been hit this week by factors including a stockpile surge at a delivery point for U.S. crude and Saudi Arabia's seeming reluctance to cut output when the Organization of the Petroleum Exporting Countries meets on Nov. 27.

Crude prices have slumped more than 30 percent since June.

"We've got a period of very heightened volatility in the lead-up to the Nov. 27 OPEC meeting," said Mark Keenan, head of commodities research in Asia at Societe Generale in Singapore.