Don't believe the narrative that "European Growth is Back." While this is currently being passed around by central market planners and parroted by Wall Street, investors will soon learn it was all a mirage.
In a meeting before European Parliament on Monday, ECB President Mario Draghi had this to say in his prepared remarks:
"The economic expansion is now firm and broad-based across euro area countries and sectors... The euro area economy has enjoyed 17 consecutive quarters of growth, and the latest information indicates continued momentum in the period ahead.
The ongoing recovery is, crucially, driven by domestic forces, and the labour market has notably improved. The unemployment rate has fallen to its lowest level in eight years. The number of people employed in the euro area has increased by almost 7 million since mid-2013. These employment gains, together with increasing household wealth, are supporting the private consumption outlook. Moreover, investment is improving, buoyed by very favourable financing conditions.
All of this economic buoyancy could change suddenly...
Contrast Draghi's optimism with our call: Euro-area consumption appears to be peaking. That's important. In the U.S., consumption makes up approximately 70% of GDP. Across the European Union, that figure is about 56%. The setup in the U.S. and European equities could not be more different.
As Hedgeye CEO Keith McCullough pointed out in a recent article on Investopedia:
"When you consider how important consumption is to both the U.S. and Europe, the following recent data is disconcerting:
In other words, Eurozone consumption may be peaking.
In contrast, US Retail Sales accelerated in July to +4.2% year-over-year growth. Meanwhile, our US GDP tracker continues to tick higher on both a sequential and year-over-year basis as a result of the aggregate data that has been reported."