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German IFO Business Climate Indicator Rises, Sends European Shares and Euro Higher

German IFO Business Climate Indicator Rises, Sends European Shares and Euro Higher

The German IFO Business Climate Indicator, a broad leading indicator of the health of Europe's largest economy, rose in January and beat expectations of economists. European shares rose, led by those in Germany and the euro climbed on the news.

In January, the German IFO Business Climate Index rose to 104.2 from 102.4 in December, better than economist estimates of a reading of 103. Further, the Expectations Index, a key forward-looking indicator of the German and European economy, rose to 100.5, a strong gain from December's reading of 98 and above economist forecasts of a reading of 99.

Following the release of the data, IFO Chief Economist Klaus Wohlrabe spoke about the survey and painted a much better picture of the German economy in 2013 than the one experienced in 2012. German exports slowed in 2012 as weakness in China and the rest of the Eurozone weighed on demand.

However, Wohlrabe sees the German economy growing 0.2 percent in the first quarter from the fourth quarter of 2012 and sees the chances of a recession in 2013 declining rapidly. Also, Wohlrabe sees positive signs in the economy in increasing capacity utilization but noted that exporters are worried over looming currency wars.

Should Germany's export engine improve in the first quarter, it could drag the rest of the European economy along with it, even if other nations are still seeing fiscal consolidation as solutions to the continent's debt crisis.

At the World Economic Forum in Davos, Switzerland, politicians and economists alike are concerned over the recent strong move in global equities; they have cautioned that financial markets have improved much more markedly than the real economy and wonder if a bubble is forming in financial markets globally.

German shares rallied on the news and the euro climbed against the dollar. The German DAX Index rose rose 1.13 percent led by cyclical stocks such as chemicals, positive signs for the health of the market. German stocks are up 2.62 percent over the past month and are up a whopping 22.02 percent from this time a year ago.

The biggest gainer in the index was Bayer AG, the chemical and pharmaceutical giant rising 4.74 percent in Germany. Thyssenkrup, the manufacturing conglomerate, was the worst performing stock, declining 0.92 percent in Friday's session.

The EUR/USD gapped higher on the news, rising initially from 1.3360 to 1.3420 and rising as high as 1.3450 before retreating slightly. The euro was broadly strong, rising most against the yen but also seeing strength against the pound, the the Australian dollar, and the Norwegian krone.


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