With German Factory Orders getting a fair share of mention this morning I thought it worth noting what most aren’t pointing out: the latest +29.6% annual number is versus last April’s abysmal -37.1% reading! Also, month-over-month orders slowed to +2.8% versus +5.1% in March.
While positive, taken in context, the orders were less fabulous. As the chart below points out, Factory Orders have “easier” comps for the next four months off depressed (negative) levels before bumping up against tougher compares in September (+12.8%).
We continue to believe that Germany has some of the best fundamentals in Europe, yet remain wary of contagion threats in the region. Below is a review of recent German data points.
Positives:
- An improvement in the unemployment rate, ticking down to 7.7% (Eurozone Ave. = 10.1%)
- Managed fiscal balance sheet: German Deficit-to-GDP = 5.0% (versus double digits for Spain, Greece, and Ireland) and bullish comments today from Chancellor Merkel on additional government spending cuts.
Negatives:
- Manufacturing PMI was flat and Services PMI improved only marginally in the latest reading; the coming months look to roll over.
- Consumer Confidence (GfK) turned down. 3.5 in June versus 3.7 in May.
- ZEW economic sentiment index plunged to 45.8 in May from 53.0 in April.
- Retail Sales fell -3.1% in April Y/Y versus +3.7% in March.
Our risk/reward profile for Germany weighs to the downside. While a weaker Euro will favor the export-heavy economy, sovereign debt concerns across the region continue to enhance market volatility in the capital markets across Europe, and we think that the DAX is setting up to give back some of its YTD outperformance.
We currently do not have an investment position in Europe, but are looking to trade countries like Spain, France, or Italy on the short side on a bounce.
Beware of scheduled strikes in Spain tomorrow!
Matthew Hedrick
Analyst
