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With Germany’s Chancellor Angela Merkel leading the debate on Greece’s debt bailout via the IMF rather than a European-led endeavor (a stance counter to her French counterpart Nicolas Sarkozy), she recently earned the title of Frau “Nein” by the European media.  While Merkel’s stance is fiscally rooted, politically she also wants to avoid tapping into German coffers, an important point as confidence in her party’s management toward the return of economic growth has waned in recent months.

As we get more vocal on owning quality on the long side (own High Grade Versus High Yield) in the face of domestic and global PIIGS, Germany’s fiscal conservatism continues to be a factor we’re bullish on. And recent German fundamentals suggest a favorable environment of low inflation, with CPI registering +0.5% in February Y/Y [versus +3.0% in the UK and +2.1% in the US] and lower input prices benefiting Producers, with PPI at -2.9% in Feb. Y/Y [versus +4.1% in the UK and +4.4% in the US].

While exports took a dive of -6.3% in January sequentially, we’d expect the weakness in the EUR versus the USD (EUR is down 6.8% versus the USD YTD) to benefit exports in the months ahead. As an aside, consensus is clearly now short the Euro; we’d guide to TRADE the range in a narrow band – buy/cover at $1.33 and sell/short at $1.36.

Additionally, over the last two days we received German business and consumer sentiment surveys. Although we don’t put our chips on surveys alone, the charts below show (consensus) trends. IFO’s business survey is making higher highs since early 2009, confirming margin improvement and global demand acceleration. On the consumer front, the fear of unemployment remains a dominating force, underlining the sideways trend, despite unemployment holding stable at ~8.2% over the last months. 

In terms of German stocks, our intermediate term TREND line of support on the DAX is now 5791. The DAX is building another bullish long term base.

Matthew Hedrick


Frau "Nein" - G1

Frau "Nein" - G2