European Data Download: Inflation Pushing Higher

Position: Long Germany (EWG); Short Italy (EWI) and Euro (FXE)


European equity markets are trading down today across the board after two days of strong performance. FTSE -0.7%; DAX -0.3%; CAC -0.1%. The PIIGS are currently trading higher than their morning open of ~ -100bps, however Portugal’s equity market is flashing a negative divergence at -1.1%.



The Key Story is the Inflection in Inflation Expectations:


Today European Central Bank council member Axel Weber said the "economic outlook in the euro area has improved markedly and inflation risks could increase." This comes on the heels of ECB President Jean-Claude Trichet saying yesterday that he’s willing to raise rates to fight inflation.


CPI Data out today confirms these inflationary pressures: Spain saw a significant gain and inflation pushing higher in the UK will put further pressure on the BOE to act (see chart below). 


Germany CPI: 1.9% in Dec. Y/Y (Final Reading)   vs. 1.6% in November (the fastest acceleration in more than two years)


Spain CPI: 2.9% Dec. Y/Y (Final Reading)   vs. 2.2%


Eurozone CPI : 2.2% in Dec Y/Y (Final Reading)    vs. 1.9%


UK PPI Input: 3.4% in Dec. M/M     vs 0.9%

                                12.5% in Dec. Y/Y    vs 9.2%


UK PPI Output: 0.5% in Dec. M/M    vs 0.4%

                                4.2% in Dec. Y/Y   vs 4.1%


European Data Download: Inflation Pushing Higher - UKPPI



EU Car Demand Low:


In contrast to Weber’s economic outlook, a report on EU (25 countries) New Car Registrations out today fell -3.2% in December versus -7.1% in November and largely reflected difficult comps due to strong demand last year associated with country-specific “cash (subsidy) for clunkers” programs throughout Europe, according to the European Automobile Manufacturers’ Association.


The highlights of the report include:

  • Ford Motor Co., Fiat SpA and Toyota Motor Corp. led a ninth consecutive monthly drop in European auto sales
  • Ford’s registrations plunged -26% in December Y/Y; Fiat’s -19%; and Toyota’s -7.6%
  • Demand in the region fell 2.7% percent to 1.05 million, however December registrations rose 6.9% in Germany, Europe’s biggest market

We continue to remain bullish on Germany, and are currently long the country via the etf EWG in the Hedgeye Virtual Portfolio.



Euro Strengthening:


The euro got a further lift today against major currencies, including the USD, currently trading at $1.3386, after comments today from French Finance Minister Christine Lagarde that Europe is "looking at raising the EFSF (the bailout fund) and is considering broadening the scope of the fund’s powers."


From a catalyst perspective we continue to believe that European markets and the euro will be supported over the near-term by discussion next week in Brussels by European finance ministers on initial details of a more "comprehensive (bailout) package". Further, German Finance Minister Wolfgang Schaeuble said yesterday that the EU member states will assemble this package by March when EU leaders are schedule to meet for a summit. 


We’ll continue to keep you ahead of Europe’s sovereign debt issue. As soon as next week we could learn considerably more about funding for future country bailouts.  


Have a nice long weekend,


Matthew Hedrick


Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more