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European confidence dropped considerably in December to 67.1 from 74.9 in November, according to an index of executive and consumer sentiment. This 11.6% decline is the lowest level since the index started in 1985 and indicative of broadly bleak economic data in Europe.

Euro-area unemployment rose to a two-year high of 7.8% in November from 7.7% in October; you can bet that December numbers will look even worse as the Euro continues to rise against the dollar, which will drag down export-oriented countries like Germany. Germany reported a -10.6% decline in exports in November, the biggest drop since German reunification in 1990, according to the Federal Statistics Office. Volkswagen, Europe’s biggest carmaker, said its US sales fell 14% in December.

The graph below shows that European consumer confidence across numerous sectors has fallen to double digit lows. We sold our German position via the etf EWG on 12/17 to book a modest gain, paired against a short on the UK (EWU) that is still active.

The numbers reflect the reality. Today the BOE cut interest rates to 1.5% and you can expect the ECB to take similar action when it next meets on January 15th. Both the BOA and ECB (at 2.5%) have room to cut, yet both will be heading down the US’s “road to zero” as they attempt to counter the bleak European economic outlook.


Matthew Hedrick
Analyst