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1. Short EWU – UK INFLATION & EMPLOYMENT trends remain ominous

September unemployment benefit claims levels published today in the UK came in at the highest level in two years with 31,800 additional new workers on the dole. We are short EWU -although the absolute unemployment level remains low in contrast to the miserable period stretching from the late 70’s into the 90’s (see charts, historical context is critical here). We expect the chilling impact of increased employment volatility coupled with the recent increase in consumer inflation on growth to be significant.

2. Long EWG – Germany’s INFLATION & EMPLOYMENT trends are much more benign

In contrast Germany, which we are long via EWG, released an inflation number that marked a decrease over the prior month. Germany’s CPI is only +2.9% y/y vs. the UK’s at almost double that (see chart). Unemployment remains low in the largest economy in Europe and thus far German banks have proven to be either better managed or better liars than their British counterparts.

Andrew Barber
Director