European markets have certainly lived up to the predicted slow and fragile recovery after more economic feedback overnight showing a lull of confidence in the economic outlook. The ZEW Indicator of Economic Sentiment for the Euro-Zone failed to meet expectations with the index recording a level of 48 in the month of December against a previous 51.8. The ZEW Indicator for Germany also declined in December to a level of 50.4 reflecting a decline of 0.7 from November. This comes a day after less than convincing employment and Industrial production data which adds credence to the European Central Bank's stance on interest rates to remain at current levels for the near term.

Across the channel we saw more positive signs the recovery is gathering pace with UK Consumer Price Index growing 0.3 per cent in the month of November, against a previous 0.2 per cent gain representing an annual growth rate of 1.9 per cent.

Key economic data in the US overnight reignited speculation of a near term rate rise as inflation creeps in. US Producer Price Index for the month of November rose 1.8 per cent, surpassing expectation of a 0.8 per cent rise. US Industrial Production also weighed in higher at 0.8 per cent growth for November against the predicated rise of 0.6 per cent. This drove the greenback higher against major counterparts with the US dollar index which measures the dollar's value relative to six major foreign currencies rising to highs of 77.09 up 0.72 pts.

Following on from yesterday's losses on the back of the RBA minutes, the Aussie dollar has remained under pressure overnight, currently trading near intra-day lows of 90.5 US cents. We expect the local unit to be highly reactive to Gross domestic product released at 11:30 AEDT, which is expected to edge down 0.4 per cent in November representing an annual growth rate of 0.7 per cent.

The RBA minutes released yesterday provided a seemingly dovish stance on near term interest rate movements. Although the bulk of RBA minutes resembled the positive undertone of previous communiqué, the finer points indicated an attempt to pre-empt the curve, in effect providing some breathing space for the near term. Arguably, the conclusion of the minutes could be seen as precursor to the RBA stance on monetary policy when the bank reconvenes in February with the final paragraph stating as materially shifting the stance of policy to a less accommodative setting and, therefore, as increasing the flexibility available to the Board at future meetings.