Last week was marked by old problems out of the ‘Old World’. Europe managed to continue to be a distraction and introduced uncertainty into an otherwise positive week.
Brexit
Ah, Brexit, the topic that never goes away… The latest development is that there is no development. So little so that Prime Minister May is looking for a 3-month extension to the March 29th deadline. Uncertainty is the real killer here. Corporations are left with little certainty of how this will end up. As a result, corporate spending in the region is way down.
Manufacturing Data
The manufacturing PMI, a leading indicator for economic activity, slipped into contractionary territory last week. It came in at 49.2 for February. This marks the first time it slipped below 50 (marking the line between expansion/contraction) since 2013.
Germany
Two weeks ago, Germany narrowly escaped a recession. 3rd quarter GDP for Germany came in at -0.2%, while the 4th quarter came in at 0.0%. Manufacturing has contracted so much, this may just be a precursor of things to come…
US/EU Trade
Before NAFTA renegotiations were complete, President Trump made it very well known that his next target was China. Now that a trade deal with China is closer, it would appear President Trump is laying that same ground work. This time the target of trade attention is the EU. Much has been made of potential auto tariffs. In response, the EU has targeted a reduction in US agricultural purchases. Initially this is starting much like China, however, their GDP was 6.7% unlike the 1.2% for the EU who likely would not be able to withstand the hit of a trade war.
Conclusion
Uncertainty is the key to all of this. German GDP could rally should trade not become a larger issue. They would be the most impacted by an auto tariff. Additionally, this is Angela Merkel’s last year in office which adds to uncertainty in EU leadership. Brexit continues to grind the EU economy lower as uncertainty around the border keeps corporate spending sidelined.
If you want to see success from the EU, we would need to see politicians compromise. This would mean moving the Union forward, not languishing in uncertainty.
Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:
Facebook | Twitter | LinkedIn | Google+
FOR MORE INFORMATION:
If you would like to receive this weekly article and other timely information follow us, here.
Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment. Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.