Europe: When Boring is Good

There are a number of European Data points out this week worthy of mention. While most of the figures below are decidedly rear-view, they underscore the sequential improvements in the region’s fundamentals. We’re currently not invested in Europe.


Eurozone Data-


Q2 GDP down 0.1% quarter-on-quarter   (after -2.5% in Q1)

Q2 Household expenditure up 0.2% Q/Q   (after -0.5% in previous quarter)

Q2 Exports decreased by 1.1% Q/Q   (from -8.8% in Q1)

Q2 Imports down 2.8% Q/Q   (after -7.8% in the previous quarter)


  • Bullish data, especially with a positive external balance (surplus) of 19 Billion EUR for the Eurozone in Q2.

(source: first estimates from Eurostat)


CPI down 0.2% in August Y/Y (-0.7% in July Y/Y)


  • The new data is in line with our thesis that the strong economies of the Eurozone are importing deflation. This deflationary level is stable in the near term with interest rates low and growth slowly returning; we expect to see annual inflation compares shift towards the positive in Q4 due in part to energy prices a year earlier.  Eurostat issued just its initial CPI estimates for August so we don’t have component stats yet but, as an example, Germany, the Eurozone’s largest economy, saw food prices fall between 0.9%-1.7% in August M/M, a clear benefit for the consumer.

Industrial Producer Prices down by 0.8% in July M/M (or -8.5% Y/Y)


  • Producers are also benefitting from deflationary energy costs sequentially. On an annual basis, prices in industry fell 4%; in the energy sector alone prices fell 20.2%. 

Unemployment rose 10bps to 9.5% in August


  • We expect this number will rise (esp. as cash for clunkers winds down (Germany, today) and stimulus packages fade). As unemployment pushes up look for confidence numbers to erode, ending months of sequential improvement.  Retail sales continue to be a poor gauge of economic health, however as unemployment rises look for the consumer to pull back in spending. 

PMI Manufacturing rose to 48.2 from 46.3. Final PMI Services comes out tomorrow, but initial estimates showed improvement and composite PMI reached the 50.0 mark in August, the line dividing contraction from growth.


Business and consumer confidence improved for the fifth straight month in August


Industrial Orders jumped +3.1% in June M/M


As we prepare to reinvest in Europe if attractive entry points arrive we’ll have our Eye on both country and regional performance. For now, the data above, though rear-view, clearly shows improvement across a number of metrics. As noted, a rising unemployment rate and dwindling stimulus packages may create a stumbling block in market performance on the TREND duration.  Sometimes the best thing an investor can do is do nothing. That’s where we are at, for now. Stay tuned.



Matthew Hedrick


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