We want to flash this chart of Italy’s Industrial Orders for we think it is representative of a marked inflection (see chart below). On a year-over-year compare we’d expect July orders to be up more than a mere +0.7%, especially off bombed-out levels a year ago. Clearly the demand picture for Italy’s industrial goods is not good. As a point of comparison, we’ve also graphed industrial production in Italy and Germany. While production has slowed for both countries over recent months, the delta between the two is notable at 9.2%.
We’ve called for European fundamentals to slow into year-end as austerity picks up, which we believe should pinch the consumer (higher VAT, government job and wage cuts) and with it tame economic growth out on the curve.
While German data has also backed off over recent months, we continue to like Germany from a quantitative set-up and are long the etf EWG in the Hedgeye Virtual Portfolio. Currently the German DAX is up +4.2% YTD, outperforming many of its Western European peers such as Italy (-11.7%), Spain (-11.3%), Ireland (-9.0%), and France (-5.4%).
Matthew Hedrick
Analyst
