Economic data from the Euro-zone
Rather bad data from the Euro-zone were
published on Thursday and Friday. Retail sales fell by 0.8 per cent in November
and economic (consumer) sentiment fell half a per cent in December while
business sentiment has been picking up. Unemployment rose by 45,000 in
November. Even if the numbers are the most recent, they are not up to date, and
that is important for understanding them. Inflation continued to fall.
I do not think that those numbers are
harbingers of harder times ahead. But they are a confirmation that the Euro-zone
stalled sharply in Q4, fully in line with our claim that the maximum downward
pressure is just behind us. We will still see bad numbers in Q1 but they will
not fall as sharply as in Q4 and a stabilisation will be visible around the
turn of Q1-Q2.
It means that I am not in line with those
who only now begin to forecast a European recession. They are too late. The
recession is a fact. The next game in town is to figure out when the recovery
will begin, however anaemic.
While we think of that one, it is worthwhile
remembering that the financial markets react to perceived changes in trends and
growth. For those who still remember their high school math, it is not the
first derivative (growth rates, inflation) that are interesting, it is the
second derivative.
Economic data from the US
The US entered the “soft patch” at the end
of Q1 2010. In August, when the stock market found out, the economy was about
to move on. It stabilised in Q4 and is now in recovery. Even that most
unreliable of American indicators, unemployment, is falling (just in time to
improve Obama’s possibilities of being re-elected?). It is in line with our
forecast from August and so far we see no signs of that recovery faltering.
A new kind of risk
What a joy to work in a profession that is
so flexible as to invent new terms when the old ones are not any longer
adequate. After having complied with European standards when writing the
prospectus for out new fund (Origo Total
Return Fund), I thought I knew every kind of risk relevant to the
financial markets. But no. Now there is a new one that has established itself
over the past months. It is called “Headline Risk”.
Don’t try to find it on Wikipedia - it is not there (even if Investopedia has an entry). It
simply covers the situation that occurs when market participants show up in the
office and a headline carries news about a story that the said market
participants did not even know existed. How did we manage before we invented
Headline Risk?
Euro is falling
Personally I am happy about the “Headline
Risk” undermining the Euro. I see that some strategists now predict a collapse
to the region of 1.25 against dollar. Wow. Let us get that euro weakened so the
Euro-zone can regain some of that growth that went to other regions as the Euro
strengthened because the ECB was slower out of the starting blocks than other
central banks. 1.00 against USD would be a huge advantage for our exports.
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