Position: Long Germany (EWG); Short Euro (FXE)
With Keith buying Germany (via the etf EWG) in our model portfolio today, we thought it worth following up that despite today’s moonshot number in German Factory Orders (+24.5% in February Y/Y), the comparison is off the trough in orders of -38.0% in February last year (see chart below). Last month also saw a sizable annual improvement (+20.6%) versus -36.8% in Feb. ‘09. Month-over-month manufacturing orders were flat (0.0%).
The improvement on an annual comparison is in line with our bullish thesis on the German economy, namely that its exports continue to benefit from increased global demand (and in the near term a weaker EUR), in a favorable inflation environment with CPI at +1.1% in Mar. Y/Y and PPI at -2.9% in Feb. Y/Y. Additionally, the most recent PMI Manufacturing and Services figures show a continued improvement in trend.
Germany fits one of our investment themes of owning High Grade Versus High Yield. We’re also currently short the EUR versus the USD via the etf FXE, a position that continues to work as the fears associated with Greece and the other PIIGS remain at large.
Matthew Hedrick
Analyst
