An international drama is beginning to unfold. Germany is struggling to hold on to a united European Union and Greece could be the beginning of the end…
International Data
Greece has come back on the scene. Which means they will be referenced every week through June in this article… Lucky me…
Concerns have begun to arise that reforms in Greece have been too mild to keep up with the debt burden they are amassing. With each passing period of negotiation, we come closer to the inevitable outcome… a Greek default. The European Union (EU) will kick the can as far down the road as they are able to, but the International Monetary Fund (IMF) is becoming less and less willing to entertain funding the failing state.
France appears to be following suit with the UK and the US as they gear up for an election. The populist candidate, Marine Le Pen is gaining steam in her election bid. She has called for the reinstatement of the Franc (₣), an indictment on the €.
German factory orders were up 5.2% in December[1]. Germany has been the beneficiary of a weak Euro, allowing them to increase their economic standing globally.
The European Central Bank (ECB) came out aggressively in defense of the regulations put in place by the US following the financial crisis. This could be seen in one of two ways; 1, a plea to prevent the loose financial environment that led to the financial crisis, or 2, a defensive move to help keep European banks competitive. Regardless of the view, they made one thing clear, they intend to be accommodative going forward.
US Data
In a recent meeting with airline executives, President Trump made indication that major changes will be announced in the next few weeks, which involve tax cuts. Markets have been waiting for this news as it would be a major catalyst for economic growth. The details of which, will hopefully promote corporate spending and repatriation of internationally held assets.
Job openings barely moved in December, the JOLT’s report reflected 5.501M job openings. Initial jobless claims were down last week to 234K[2]. The strength of the job market makes Federal Reserve Board (FRB) Chair, Janet Yellen, more inclined to increase rates in March.
Consumer sentiment fell 2.8 down to 95.7 in February[3]. Weaker consumption is expected for the 1st Quarter. The milder than expected winter should actually prove to be a boon to 1st quarter GDP as standard consumer hibernation will be more muted.
Conclusion
Recently Germany was accused of manipulating the € for their benefit. It has been to their benefit, but as expected they have asserted that it is too low for their economic position. It would stand to reason that their commitment to Greece plays into German economic strength. They have stood steady on the issue of Greece being a member of the EU. As the Greek economy drags down the economic prospects of the EU as a whole, Germany, the strongest economy in the EU, benefits from the weaker single currency and mild inflation. If Greece were to join the UK, via a Grexit, there could be massive defaults of Greek debt and a mass exodus from the EU would likely ensue. France and Italy have already eluded to it and if Greece were to move forward with an exit it would all unravel. The dominos feared after Brexit could actually be falling…
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[1] www.investing.com – economic calendar
[2] www.investing.com – economic calendar
[3] www.mfs.com – week in review