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Germany Is Global Manufacturing's Lone Weak Spot

Germany Is Global Manufacturing's Lone Weak Spot
(Getty)

By    |   Tuesday, 19 March 2019 10:48 AM

The U.S. Census Bureau announced today factory orders in January increased $0.9 billion or 0.4 percent to $255.3 billion and was up for three consecutive months, following a 1.3 percent increase in December.

Excluding transportation, new orders decreased 0.1 percent. Excluding defense, new orders increased 0.7 percent. Transportation equipment was up five of the last six months.

Shipments of manufactured durable goods in January decreased $1.3 billion or 0.5 percent and followed a 0.7 percent December increase, the Census data reported.

These data are worth looking at. Generally speaking, the U.S. manufacturing sector has not been doing too badly overall. The overwhelming majority of developed market manufacturing weakness is down to Germany alone.

The prospects for a U.S.-China trade deal coming through at the earliest in late April, the New York Times reported, may lead to some delayed orders. Why would the Chinese buy U.S. goods today if they think that trade tariffs may be lifted in the near future? It’s the reverse of frontloading demand in advance of trade tariffs being imposed.

In the realm of the U.S.-China trade negotiations, U.S. Agriculture Secretary Sonny Perdue claimed yesterday in an exclusive interview on Bloomberg TV that China might triple its agricultural imports from the United States.

Over in Germany we got the release of the well-reputed ZEW sentiment survey on economic sentiment that showed that the current conditions index declined by a further 3.9 points to 11.1, its sixth consecutive fall and its weakest outturn since December 2014. By contrast, expectations rose for a fifth straight month.

That said, the latest survey also remained well short of its 22.2 long-run average.

Now, a delay in the Brexit process as well as hopes for a US-China trade deal seem to have provided some boost to German confidence.

All by all, no, things are still not looking good in Germany and that is a negative for the euro until the situation gets better.

The euro is currently at $1.1350 against the dollar.

For investors it might be good to keep in mind that the German ZEW sentiment survey, as a sentiment survey still needs to be treated with caution. However, given that global weakness has been quite focused on Germany in recent months, the survey is worth a cursory glance.

In the interminably tedious EU-UK divorce process, the social media star and sometimes Speaker of House of Commons John Bercow has gone back to the year 1604 as reference date of a similar precedent: “You can’t keep asking the House of Commons the same question again and again in the course of the same Parliament”.

This means that the UK government cannot ask for yet another meaningful vote on Prime Minster Theresa May’s deal to exit the European Union without changing the question.

Of course there are some ways around this. The question could be asked in a radically different way without necessarily changing the deal itself. Her Majesty the Queen could also come in and close Parliament and reopen it again, but these things seem unlikely to happen.

So, now the question is “What happens on Thursday March 21 at the European heads of governments’ get-together?”

In the absence of a vote in the UK Parliament, the next option is a “lengthy” delay to the exit, which should support equity markets as well as the British pound that for the moment remains against the dollar practically unchanged in the $1.3250 - $1.3300 zone.

The dollar index DXY remains also practically unchanged in the 96 – 97 zone, which is understandable as tomorrow it’s Fed decision day.

Investors could do well keeping in mind that the majority of the British people does not care about all that Brexit nonsense.

This was confirmed by the just released UK Labor Market report that shows that unemployment was estimated at 3.9 percent; it has not been lower since November 1974 to January 1975 while the UK employment rate was estimated at 76.1 percent, higher than a year earlier (75.3 percent) and the highest figure on record.

Average weekly earnings for employees in Great Britain were estimated to have increased by 3.4 percent, before adjusting for inflation, and by 1.4 percent, after adjusting for inflation, compared with a year earlier.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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The U.S. manufacturing sector has not been doing too badly overall. The overwhelming majority of developed market manufacturing weakness is down to Germany alone.
germany, global, manufacturing
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2019-48-19
Tuesday, 19 March 2019 10:48 AM
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