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.
It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Insanity, Oddities and Dark Clouds in Credit-Land
Insanity Rules Bond markets are certainly displaying a lot of enthusiasm at the moment – and it doesn't matter which bonds one looks at, as the famous “hunt for yield” continues to obliterate interest returns across the board like a steamroller. Corporate and government debt have been soaring for years, but investor appetite for such debt has evidently grown even more. The perfect investment for modern times: interest-free risk! Illuustration by Howard...
- A Date Which Will Live in Infamy
President Nixon’s Decision to Abandon the Gold Standard Franklin Delano Roosevelt called the Japanese “surprise” attack on the U.S. occupied territory of Hawaii and its naval base Pearl Harbor, “A Date Which Will Live in Infamy.” Similar words should be used for President Nixon’s draconian decision 45 years ago this month that removed America from the last vestiges of the gold standard. Nixon points out where numerous evil speculators were suspected to be...
- US Economy – Something is not Right
Another Strong Payrolls Report – is it Meaningful? This morning the punters in the casino were cheered up by yet another strong payrolls report, the second in a row. Leaving aside the fact that it will be revised out of all recognition when all is said and done, does it actually mean the economy is strong? Quo vadis, economy? Image credit: Paul Raphaelson As we usually point out at this juncture: apart from the problem that US labor force participation has...
- Investing in Gold in 2016: Global Paradigm Shifts in Politics and Markets
Crumbling Stability In the past few months, we have witnessed a series of defining events in modern political history, with Britain’s vote to exit the EU, (several) terror attacks in France and Germany, as well as the recent attempted military coup in Europe’s backyard, Turkey. Global stability continues to be undermined Uncertainty over Europe’s political stability and the future of the EU keeps growing. These worries are quite valid, as geopolitical...
- Trump's Tax Plan, Clinton Corruption and Mainstream Media Propaganda
Fake Money, Fake Capital OUZILLY, France – Little change in the markets on Monday. We are in the middle of vacation season. Who wants to think too much about the stock market? Not us! Yesterday, Republican presidential candidate Donald Trump promised to reform the U.S. tax system. This should actually even appeal to supporters of Bernie Sanders: the lowest income groups will be completely exempt from income and capital gains taxes under Trump's plan. We expect to hear...
- The Great Stock Market Swindle
Short Circuited Feedback Loops Finding and filling gaps in the market is one avenue for entrepreneurial success. Obviously, the first to tap into an unmet consumer demand can unlock massive profits. But unless there’s some comparative advantage, competition will quickly commoditize the market and profit margins will decline to just above breakeven. Example of a “commoditized” market – hard-drive storage costs per GB. This is actually the essence of economic...
- Bank of England QE and the Imaginary “Brexit Shock”
Mark Carney, Wrecking Ball For reasons we cannot even begin to fathom, Mark Carney is considered a “superstar” among central bankers. Presumably this was one of the reasons why the British government helped him to execute a well-timed exit from the Bank of Canada by hiring him to head the Bank of England (well-timed because he disappeared from Canada with its bubble economy seemingly still intact, leaving his successor to take the blame). This is how Mark Carney is seen by...
- An Old Friend Returns
A Rare Apparition An old friend suddenly showed up out of the blue yesterday and I’m not talking about a contributor who had washed out and, after years of ‘working for the man’, decided to return for another whack at beating the market. Instead I am delighted to report that I am looking at a bona fide confirmed VIX sell signal which we haven’t seen for ages here. Hello, old friend. Professor X and Magneto staring each other down in the plastic...
- The Fabian Society and the Gradual Rise of Statist Socialism
The “Third Way” “Stealth, intrigue, subversion, and the deception of never calling socialism by its right name” – George Bernard Shaw An emblem of the Fabian Society: a wolf in sheep's clothing The Brexit referendum has revealed the existence of a deep polarization in British politics. Apart from the public faces of the opposing campaigns, there were however also undisclosed parties with a vested interest which few people have heard about. And...
- Retail Snails
Second Half Recovery Dented by “Resurgent Consumer” We normally don't comment in real time on individual economic data releases. Generally we believe it makes more sense to occasionally look at a bigger picture overview, once at least some of the inevitable revisions have been made. The update we posted last week (“US Economy, Something is Not Right”) is an example. Eager consumers storming a store Photo credit: Daniel Acker / Bloomberg We'll make an...
- The Fed’s “Waterloo” Moment
Corrupt and Unsustainable James has been a big help. Trying to get him to sleep at night, we have been telling him fantastic and unbelievable bedtime stories – full of grotesque monsters... evil maniacs... and events that couldn’t possibly be true (catch up here and here). He turned his head until his gaze came to rest on the barred windows of the main building. Finally, he spoke; as far as I was aware these were the first words he had uttered in more than five years....
- Good Money and Bad Money
Confidence Gets a Boost OUZILLY, France – Last week’s U.S. jobs report came in better than expected. Stocks rose to new records. As we laid out recently, a better jobs picture should lead the Fed to raise rates. This should cause canny investors to dump stocks. Canny investors at work (an old, but good one...) Cartoon via Pension Pulse But the stock market paid no attention. It follows logic of its own. Headlines told us that last Friday’s report “boosted...