Mixed evidence from Germany

June 7, 2013

German trade data, already out, showed both exports and imports rose more than expected in April – up a sharp 2.3 and 1.9 percent respectively. That suggests that its fabled industrial base is in reasonable shape but also that domestic demand is holding up, possibly helped by some above-inflation pay deals. The figures represent a significant bounce from the first quarter when Europe’s largest economy just managed to eke out some growth.

Let’s not get carried away, though. Germany’s PMI survey earlier this week showed a slight decline in export orders in May and the Bundesbank has just released its latest set of economic forecasts, cutting its 2013 growth forecast to 0.3 percent, adding that risks are largely skewed to the downside. It expects a healthy bounce in growth in the second quarter then a marked throttling back.

Trade figures from France, Britain and Portugal give an opportunity to see if there is any “rebalancing” going on within Europe – the argument being that the euro zone in particular can only thrive if Germany’s massive surpluses shrink a little just as the high debt countries try to pare their deficits. That requires Europe’s largest economy to buy a little more from its currency area peers. The German data showed imports from states in the single currency bloc up 5.4 percent year-on-year in April so maybe there are glimmers of movement.

German industrial output, due later this morning, will be another important snapshot after industry orders dropped sharply in April. Elsewhere, Spanish industry output data, which showed the slowest fall in 19 months in March, will indicate whether a deep recession is close to hitting bottom. Spain has enacted painful cuts and reforms but the resultant easing of its labour laws has helped its export base, and inward investment, pick up.

In summary, we clearly need a German trunk pulling together all the various strands and it may well be we could take a look at euro zone imbalances via the trade data too, maybe centred on Paris.

For the markets, the only economic data in town is the monthly U.S. jobs report. With investors and traders so fixated on the money created by central banks, which has fuelled much of this year’s stock market rally, we’re in a “good news is bad news” situation, since strong economic evidence, particularly from the United States, suggests the Federal Reserve will begin slowing its bond-buying stimulus sooner rather than later. The reverse also applies of course, so look for equity investors praying for a week non-farm payrolls figure, bondies seeking the reverse.

We’re certainly in a bit of a vortex at the moment, with the dollar dropping like a stone on Thursday and the Nikkei share index entering bear territory, having plunged 20 percent in two weeks. That has put a question over Tokyo’s extraordinary stimulus drive. German Bund futures have opened half a point higher, presumably positioning for a weaker U.S. jobs figure and after the European Central Bank gave no sign on Thursday that further policy easing was imminent. European stocks are poised to open higher.

In Europe, Portugal’s parliament debates the government’s amended budget, which was amended after the EU gave more time to meet its deficit targets, easing this year’s goal to 5.5 percent of GDP. That is still a stiff goal and the opposition will press on the deep recession due to its austerity policies, but the government has a solid majority to pass the amended bill.

Enda Kenny, leader of fellow bailed-out country Ireland is in Helsinki to talk with Finland’s fiscal hardliner, Prime Ministers Jyrki Katainen. The pair will join EU commissioners Rehn and Barnier to talk at a conference on a roadmap for Europe. Ireland is in better shape than Portugal to exit its bailout programme this year but has also paid a high economic and social price.

Germany’s September elections may be some way off but EU policymakers are already resigned to the fact that any major policy advances to shore up the euro zone are on hold as the German political class turns inwards. Campaigning is already unofficially underway. Chancellor Angela Merkel and her SPD opponent Peer Steinbrueck have already been out and about this week and today speak separately at a business event in Berlin organised by the Family Businesses lobby.

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