Euro Area Slightly Less Firmly Lodged in Thomas Crapper's Invention, China Has New Broom Bounce
It is that time of the month when Markit and its assorted collaborators grace us with PMI updates. As has been the case for most of this year, the euro area remains a litany of woes, and in the so-called 'core' it is once again France that seems to have performed the worst, as new orders have gone over the cliff.
By contrast, Germany at least boasted fairly robust services data, which follow on the heels of a better than expected ZEW survey. It must be kept in mind here that Germany is one of those places in the world where interest rates have become near extinct, due to the combination of the ECB lowering its administered rates as close to zero as it dared and 'safe haven' flows doing in the yields on German government debt (which, as it were is slightly bizarre considering the debt mountain under which the country groans and its dire demographic outlook; but then again, Germany no doubt has its qualities as well).
When the price of capital is at the pretend level of 'near zero' due to numerous central bank interventions, then economic activity becomes automatically suspect. Entrepreneurs are robbed of the possibility to engage in proper economic calculation; the entire system of prices is revolutionized and disrupted. It is no longer possible to tell which investments truly make sense. In Germany, we see incipient signs of a real estate bubble forming, as for instance the so-called 'Plattenbauten' of the communist era in the country's East have become 'hot items' among investors, seeing their prices rise sharply. As of yet, there is obviously still a lot of caution among businessmen overall. The crisis in the rest of the euro area keeps people on their toes, muting the response to the incentive emanating from artificially lowered rates. However, this is merely a concrete historical circumstance of the moment; it does not alter what was said above regarding the effects of the ECB's policies on the economy, although it may affect leads and lags.
In any event, the better performance seen in Germany's PMI has affected the euro area data as a whole (it will be of little consolation to people in the periphery).
According to Markit's chief economist:
“The eurozone downturn showed further signs of easing in December, adding to hopes that the outlook for next year is brightening. It looks like the downturn reached its fiercest back in October, since when the PMI has turned up steadily by no means spectacularly.
“The survey is still consistent with euro area GDP falling for the third successive quarter and, as the official data lag the PMI, the downturn is likely to have steepened compared with the 0.1% decline seen in the third quarter. However, a return to growth is looking like an increasing possibility in the first half of next year, barring any surprises, if the recent improvements in the survey data can be sustained.
“The turnaround is being led by Germany, for which the PMI has already returned to positive territory. However, the rates of decline in France and the rest of the region remain worryingly severe.”
Here are the the links to the reports (all in pdf format):
the , and to
China Expands Slightly
he came in at a slightly expansionary 50.9, which is actually a 14 month high. It is difficult to tell from afar to what extent various measures by the central government have influenced the data, but given the recent leadership handover, there is at least some reason to suspect that a few steps were taken to boost activity.
We are mainly interested in the possibility of the stock market (inscrutable as it is) to produce a bounce worth playing. We have previously pointed to the growing gap between the FXI ETF and the $SSEC index in Shanghai, which essentially reflects two things: the growing gap between H and A shares (foreign and domestically traded Chinese shares) and the stronger yuan.
It is however a good bet that such gap will close over time; similarly, the growing performance gap between the Hong Kong and Shanghai markets is likely to close.
Shanghai vs. Hong Kong – a growing gap – via Sovereign Society – click for better resolution.
After making a marginal new low in early December, the Shanghai stock market has actually taken off like a scalded cat lately, finally providing a bit of vindication for our slightly early technical call (although FXI actually did rally well ahead of it, so we felt slightly less foolish in November than we might have otherwise).
How far will this rally go? As always,we have no idea, but we note that the market has finally broken through resistance. The next significant resistance level is provided by the April low at 2350 – but that is only 100 points away, a distance the market just covered in a single trading day.
Shanghai takes off – via BigCharts – click for better resolution.
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Alan “Bubbles” Greenspan Returns to Gold
Faking It Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961 He was in it for the power and the glory... Alan Greenspan gets presidential bling...
- End of an Era: The Rise and Fall of the Petrodollar System
The Transition “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
- Writing on the Wall
Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so. It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
- A Fully Automated Stock Market Blow-Off?
Anecdotal Skepticism vs. Actual Data About one month ago we read that risk parity and volatility targeting funds had record exposure to US equities. It seems unlikely that this has changed – what is likely though is that the exposure of CTAs has in the meantime increased as well, as the recent breakout in the SPX and the Dow Jones Industrial Average to new highs should be delivering the required technical signals. The bots keep buying... Illustration via...
- The Central Planning Virus Mutates
Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination. A...
- Destination Mars
Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks. If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical. But, in certain economies, this is now standard operating procedure. The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
- America Has Become a “Parasitocracy”
Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to. Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
- Fat People for Trump!
Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot. The protest vote attractor with the funny hair. Image credit: Liberty Maniacs Trigger warning: In the following ramble, we make fun of...
- Long Term Market Perspectives
Methuselah Tree When looking for a good theme for this post I pondered for a while and then decided to use a picture of a bristlecone pine, which are widely considered to be the oldest living trees in the world. Ye olde bristlecone Photo credit: Kosta Konstantinidis You can find them near the Nevada/California border and if you wind up traveling in the area then I strongly recommend that head over to Bishop and from there head up high up into the White...
- EU Sends Obsolete Industries Mission to China
“Tough Negotiations” The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”) and European Council president Donald Tusk, has made landfall in Beijing. Their mission was to berate prime minister Li Keqiang over alleged “steel dumping” by China and get him to cease and...
- The Real Reason the “Rich Get Richer”
Time the Taskmaster DUBLIN – “Today’s money,” says economist George Gilder, “tries to cheat time. And you can’t do that.” It may not cheat time, but it cheats far easier marks – consumers, investors, and entrepreneurs. Tempus fugit – every action humans undertake has to take time into account. In the economy, interest rates serve as the signal and regulator of the inter-temporal structure of capital. In an unhampered free market economy, they tell...
- Gold is not Going to $10,000
One Cannot Trade Based on the Endgame The prices of the metals were down again this week, -$15 in gold and more substantially -$0.57 in silver. Stories continued to circulate this week, hitting even the mainstream media. Apparently gold is going to be priced at $10,000. Jump on the bandwagon now, while it’s still cheap and a bargain at a mere $1,322! All aboard... or maybe not? It all depends on what one wants to achieve – there's many a slip 'twixt the cup and the...