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Wise Investors Should Stay Away From Europe for Now

Wise Investors Should Stay Away From Europe for Now
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By    |   Monday, 08 June 2020 09:20 AM

The Bureau for Labor Statistics (BLS) delivered on Friday its usual monthly employment situation report that informed total nonfarm payroll employment rose by 2.5 million in May, and the unemployment rate declined to 13.3 percent and added “improvements in the labor market reflected a limited resumption of economic activity”.

Literally, nobody expected that kind of extremely positive numbers that, of course, supported the risk markets in a big way.

In its official message, the BLS informed there was a problem with the data and added a note explaining the Coronavirus (COVID-19) Impact on May 2020 Establishment and Household Survey Data.

In short, the unemployment rate is probably about 3 percent higher than reported data because of “misclassification” while there is also a question about the accuracy of the survey based approach.

Anyway, the U.S. labor market should be stabilizing as lockdowns are lifted.

The question for the strength of the economic bounce back is the extent to which accumulated savings are now spent. Many people had unchanged or increased income during the lockdowns because the U.S. unemployment benefits were more than most people earn. As spending was lower than normal by between 20 and 30 percent, that gives an increase in savings. As long as “fear” is contained, that money can now be spent which of course should be a positive for everybody.

In the meantime, OPEC, Russia and allies agreed on Saturday to extend record oil production cuts by one month until the end of July. OPEC+, as the group is called, also demanded countries such as Nigeria and Iraq, which overproduced in May and June, to compensate with extra cuts in July to September, Reuters reported.

On the demand side, gradual reopening of the economies in the United States and Europe should improve oil demand as traffic levels and trade start to recover.

That said, President Donald Trump has given instructions on Friday to remove 9,500 American troops from Germany by September, which would cap the number of American troops in Germany at any one time at 25,000, the Military Times said. It’s certainly not an overstatement to say that tensions between the United States, Germany and the North Atlantic Treaty Organization or NATO itself are on their way up, which is of course not a positive development for anybody. Russia didn’t give any comment so far.

Also on Friday, Trump has threatened to impose tariffs on European Union cars if the bloc does not drop its tariff on American lobsters and named White House trade adviser Peter Navarro, who is assistant to the president, the “lobster king” in charge of talks. No comment was immediately available from the U.S. Trade Representative’s office or the EU’s delegation in Washington, Reuters reported.

Finally, Germany, which is the most important economic member state of the European Union (EU), just published its latest industrial production data that were the worst on record. Month-on-month industrial production contracted 17.9 percent and year-on-year industrial production contracted 25.30 percent. The German Federal Statistical Office informed today that capital goods production fell 35 percent and the automotive production dropped 74.6 percent.

For investors who have or consider having euro related investments, these data are important to take into account when making decisions for investments over the median to longer term.

When the strongest economy of the Euro Area, which is Germany that is also the fourth economy in the world after the U.S., China and Japan, has serious problems, I think it could be wiser to wait and see for what finally will come out especially now there is so much optimism around that so-called “Next Generation EU” plan that should deliver the long-awaited EU debt mutualization.

In my opinion and as things are still today, the EU is still a fully incomplete transfer union in which the human, physical and financial resources from each country are still way too far away from each other, which is of course an enormous problem.

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

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I think it could be wiser to wait and see for what finally will come out especially now there is so much optimism around that so-called “Next Generation EU” plan that should deliver the long-awaited EU debt mutualization.
europe, investors, eu, union
Monday, 08 June 2020 09:20 AM
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