Monday, April 23, 2012
As the bad news continues to pour out of nearly every corner of the world, I believe we may be seeing a ray of light. China is finally stabilizing.
This morning we received the latest Germany PMI numbers, coming in at a shockingly low 46.3, the lowest since July 2009. The print didn't give us much to grasp at, with output, new orders, and employment, all coming in lower. Could this be a sign that the disease from the European periphery is finally spreading to the heart and soul of Europe?
I think it is a very problematic number indeed. If Greece was a car feature with little use, like the rear spoilers on a Corolla S, and Italy was the door, then Germany is literally the engine. Without Germany, Europe will fall. There is no question about it.
Part of me does not feel bad for the Germans though. After all, arguably, they have benefited the most from the Eurozone integration. As a net exporter, a common currency has helped keep their products cheap to their biggest customers, the other Eurozone countries. Without a common currency, the Deutsche mark (Germany's currency from before) would undoubtedly appreciated against most other currencies in the region and decrease their relative competitiveness.
We already know the United States economy is doing fairly well. While it is not growing at the clip we'd like, at least it is growing. The only remaining question is, can this strength in the United States and what appears to be a bottoming and stabilizing process in China turn Europe around.
Chinese PMI this weekend came in at 49.1, slightly above last month's 48.3, but still below 50. I think China could be raising RRR soon, and potentially even cutting rates. I've been locking in my Chinese GICs in longer maturities, hoping to hedge some of the risk of a rate cut. So far, no rate cut has been announced, but with China, you never know. They love to surprise people
Posted by Alex at 10:56 PM