EYE ON EUROPE: STILL SEARCHING FOR A BOTTOM

PMI survey data gathered by NTC Research focused on manufacturing and service industries within the Eurozone as a whole as well as in France and Germany, and was released today. As seen in the table below, manger sentiment in the region deteriorated significantly during the first month of 2009 (Keep in mind that a reading below 50 indicates a decline).

This data points help confirm that European economies - which we are tracking individually, have yet to reach anything approaching a bottom.

This week the SP500 has been hammered, approaching and briefly touching its Nov. 20th low today. We’re getting bullish on US equities and moving out of cash, yet as always managing our portfolio at a price and level. As we move further out on Obama’s socialist stimulus package we believe were going to see the USD break, which will be bullish for US equities. Additionally today we saw a bullish inflection point in the consumer price index, turning from -0.8% in December to +0.3% in January.

We’ve not seen similar confirmation from European indices. The math still signals that more pain may be ahead: production levels continue to tank, unemployment continues to rise sequentially, and politically there is rising tension between EU leadership over the possibility that weaker nations of the Union may seek a bailout from their larger neighbors.

We’ll be watching ECB President Trichet’s next move when policy makers meet next month. With the benchmark rate at 2%, Trichet is running out of room to cut, and due to European Union rules, the ECB is not allowed to purchase bonds from member countries in a “soft” bailout . We’ll be monitoring the impact of the €200 Billion stimulus package and continue to look for signs of political and economic divergence among the European economies.

Matthew Hedrick
Analyst

Andrew Barber
Director

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