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Thursday, July 24, 2008

The Other Bigger Shoe: The Rest of the World

The following headlines from around the world should make it clear that strength in equities is still to be sold…

French, German and Italian consumer and business confidence is collapsing. UK retails sales dropped the most since 1986 and Spanish unemployment is rising rapidly as their uber bubble in real estate implodes. Most importantly, Japanese exports fell for the first time in four years, absolutely destroying the ridiculous theory that the rest of the world would pick up the slack of a slowing US economy.

The other BIGGER shoe is finally dropping: The REST of the world is weakening rapidly.

French Business Confidence Falls to Lowest Since 2005 (Update1): “French business confidence fell to the lowest in more than three years in July as record oil prices and a stronger euro dimmed the outlook for economic growth.

An index of sentiment among 4,000 manufacturers dropped to 98 from 101 in June, according to Insee, the Paris-based national statistics office. That was the weakest since May 2005. Economists expected a reading of 100, according to the median of 22 estimates in a Bloomberg News survey.

Growth in the French economy is deteriorating as inflation and oil above $120 a barrel squeeze purchasing power and push up production costs just as the stronger euro hurts exports. The jump in consumer prices prompted the European Central Bank to raise interest rates earlier this month and President Jean-Claude Trichet is refusing to abandon his inflation-fighting rhetoric.”

German Confidence Declines as Europe Recession Risks Increase: “German business confidence plunged the most since the Sept. 11 terrorist attacks and European manufacturing and services shrank, increasing the risk of a recession across the euro region.

The Ifo institute's German business confidence index dropped 3.7 points from a month earlier to 97.5 in July. That was more than three times the decline forecast by economists in a Bloomberg News survey and the overall reading was the lowest in three years. Manufacturing and services across the euro area contracted for a second month and in the U.K., retail sales dropped by the most since at least 1986.”

Italian Business Confidence Fell in July to Lowest in 7 Years: “Italian business confidence fell to its lowest in seven years in July as rising oil costs and a stronger euro hurt prospects for economic growth.

The Isae Institute's business confidence index dropped to 83.5 from a revised 86.7 in June the Rome-based research center said today. That's the lowest since October 2001 and less than the median forecast of 86.5 in a Bloomberg survey of 17 economists.

Manufacturers' costs are rising as companies struggle with the euro's 13 percent appreciation against the dollar in the past year and near-record oil prices. Prime Minister Silvio Berlusconi, who took office less than three months ago, has lowered taxes on overtime pay to try to help businesses cope with slowing growth.”

U.K. June Retail Sales Drop Most Since at Least 1986 (Update2): “U.K. retail sales dropped in June by the most since at least 1986 as accelerating inflation and the slowdown in economic growth prompted consumers to cut spending.

Sales fell 3.9 percent after rising 3.6 percent in May, which was the biggest increase since the data series began more than two decades ago, the Office for National Statistics said today in London. Economists forecast a 2.6 percent drop, the median of 30 estimates in a Bloomberg News survey showed.

Bank of England policy makers cited weaker retail sales surveys as a signal of slowing economic growth at their decision this month, minutes released yesterday show. Falling house prices and a jump in credit costs have squeezed consumers just as the fastest inflation in at least a decade prevents the central bank from cutting the main interest rate from the current 5 percent.”

Spanish Unemployment Rose in 2nd Quarter on Building (Update1): “Unemployment in Spain, the source of half the euro region's new jobs between 2001 and 2006, rose to the highest rate in 3 1/2 years in the second quarter as home- building collapsed.

The unemployment rate advanced to 10.4 percent from 9.6 percent in the first quarter, the Madrid-based National Statistics Office said on its Web site. That compared with the 10 percent median estimate in a Bloomberg News survey of eight economists. The number of jobs increased 0.1 percent to 20.4 million, compared with a 0.4 percent decline in the first three months.”

Japan's Exports Fall for First Time in Four Years (Update3): “Japan's exports fell for the first time in more than four years as demand for cars and electronics cooled, signaling the U.S. slowdown is spreading to the emerging markets that helped sustain growth.

Exports decreased 1.7 percent in June from a year earlier, the Finance Ministry said today in Tokyo. The median estimate of 20 economists surveyed by Bloomberg News was for a 3.3 percent gain. The drop was the first since November 2003.

Today's report adds to evidence the world's second-largest economy shrank in the three months ended June 30 as record oil prices took a toll on sales abroad as well as spending by companies and consumers at home. Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., Japan's three largest automakers, are expected to say profit fell last quarter on cooling U.S. demand.”

French business confidence drops. The CAC 40 (CAC) is now at resistance. Some follow through past the 50 day EMA (red line) can't be ruled out. The oversold condition (Slow STO) has been worked off and some sideways drift is needed before the next leg down.

German consumer confidence is in free fall. The DAX Composite (DAX) has bounced into resistance around the 50 day EMA (red line) and has gone from deeply oversold (Slow STO) to overbought. Expect some consolidation before the next round of selling...

Spanish unemployment is rising as the construction industry grinds to a halt after what was probably the largest of all the real estate bubbles. A bounce to resistance around 12250 and the declining 50 day EMA is possible, but the oversold condition (Slow STO) already looks to have been remedied. Expect Spanish equities to lead the way lower amongst European equities...

Japanese exports dropped for the first time in four years. That includes exports to Asia... that invincible part of the world that was supposed to put in continued super hyper growth. While the Nikkei (NIKK) could still bounce a bit into resistance around 14000, it is unlikely that prices will be able to clear the 200 day EMA (green line) anytime in the next few months.

I last had these global indices up in the post Fibonnacci Heaven: Equities Party On (Update1).

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Anonymous said...

We all on the downside now! Hey Ben, have we had any more of those loverly Hindenburg Omens since the last cluster?

Anonymous said...

Another very prescient call on the financials (SKF), Ben. You're truly in a groove here. When you're worth upwards of $1B, will you still share your thoughts with us mortals?

Ben Bittrolff said...


SKF = 282 companies. The 10 largest holdings of which are:

JPMorgan Chase & Co. 6.10%
Bank of America Corp. 5.60%
Citigroup Inc. 4.70%
Wells Fargo & Co. 3.81%
Goldman Sachs Group Inc. 3.24%American International Group Inc.3.19%U.S. Bancorp 2.48%
Bank of New York Mellon Corp. 2.22%
American Express Co. 1.99%
Morgan Stanley 1.87%

Ben Bittrolff said...

The powers that be can't fuck with all of them...

Anonymous said...

oh come now ben...
Ben and Paulson can keep throwing lifelines to these banks. :^) Making the very $ they are trying to save from death and destruction worth less and less.

Nature (i.e. Economics 101) has to run its course.

Who do you think are 1st and 2nd in line willing to gobble up the good bits of the US financial system?

Anonymous said...

The National Bank of Australia is writing off 90% of its US conduit loans.

Anonymous said...

It's actually not so bad and all: "The rest of the world" just need to be weaned off using USD for trade - Bernanke & Co is doing so well on pavlovian reinforcement learning that eventually even the most stupid and inbred Asian banker will get it.

The boom in commodities could be a sign that people *are* actually getting it, quietly spending their increasingly worthless USD reserves on stuff of value. If so commodities could go a loong way since the FED will not stop printing, ever.

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