Germany manufacturing PMI
23-Jun-2023. Today's manufacturing PMI in Germany is 41,0 points (only) - and DAX is +25% yoy. Apart from the forced decline in 2020 during Covid, we had PMI levels like today in September 2019 (PMI 41.7 points; DAX +1.5% YoY), July 2012 (PMI 43.0 points; DAX -5,4% YoY), and in October 2008 (PMI 42.9 points; DAX -37.8% YoY).
Germany leading indicators
26-Jun-2023. In Germany, it's not just the manufacturing PMI that has fallen sharply lately. Similarly, today's IFO or ZEW, as well as the European Commission Economic Sentiment Indicator (ESI, latest data for May). Similarly, the OECD CLI (latest data for May) slowed its rebound in May and will probably (after future revisions) turn down as well. The average of the above indicators (z-score) marked a top in April this year - so June would be the second month of decline …
Eurpean Magnificent 4
10-Feb-2024. What about European Mag4? Subjective market review (10-Feb-2024). Large companies are successful not only in the USA. The European version does much better in 2024. We are talking about the 4 largest European companies (see Figure 1), rates of return since the beginning of 2024 (YTD): ASML +28.5% SAP +20.7% Novo Nordisk +17.2% LVMH +10.1% In Europe we have several main stock indices: Euro Stoxx 50 (3 largest positions and their share in the index: ASML HOLDING NV 10.27%; LVMH 6.20%; SAP 5.11%) STOXX Europe 600 (4 largest positions and their share in the index: NOVO NORDISK 3.42%; ASML HOLDING NV 3.33%; Nestle SA 2.69%; LVMH 2.0%). SAP is in 8th position with a share of 1.66% MSCI Europe (4 largest positions and their share in the index: NOVO NORDISK 3.64%; ASML HOLDING NV 3.42%; Nestle SA 2.93%; LVMH 2.21%). SAP is in 9th position with a share of 1.76% The US version of Mag7 is also doing well in 2024 - see Figure 2. Figure 3 shows European Mag4 and US Mag7 compared to other major equity indices. Why large companies are so successful. Of course, financial results do their part plus dominant positions in their markets/products whose demand is exploding. However there is also the argument that large companies are preferred by institutional investors as relatively safer from their perspective. Historically, such large "nifty-fifty" companies benefited from the preferences of institutional investors.
France Snap Elections 2024
15-Jun-2024. Mag7 vs European Turmoil. Last week, Mag7 stocks increased by 4.8% with five consecutive ATHs (all-time-high at closing prices)! In other words, we could celebrate another ATH every day. The three largest companies performed best: Microsoft +4.42%; Apple +7.92% and Nvidia +9.09%. The S&P500 increased by only 1.58% during the week. Small US companies (Russell 2000) fell by 1.00% and are in negative territory since the beginning of the year. At the other end of the spectrum we have European shares, where CAC40 fell 6.23% last week and Euro Stoxx 50 fell 4.20%. See Figure 1 and Table 1. Snap elections in France are taking their toll on capital markets. The voting will be made in two rounds: the first round on June 30 and the second one on July 7. Interestingly, on July 5 (Friday), we will also get the US labor market report for June - which may potentially have a strong impact on the markets. See Figure 2. Higher risk in Europe is also visible in other asset classes. Figure 3 shows 10-year Treasury yields for the US, Germany, France and Italy. Spreads between the yields of German and French and Italian bonds increased sharply last week - see Figure 4. Unfortunately, we have 3 weeks of increased investment risk ahead of us, which will probably have the least impact on US assets.
Euro Santa Claus Rally
27-Dec-2024. Stronger Euro at the end of the year? If the Santa rally is about (global) stocks, then one would expect a stronger EURUSD at the end of the year as well… usually that’s true, but not this time… Figure 1 shows the seasonality of the EURUSD (counting from 31-Oct to 31-Jan each year). We are already -4.2% down this year. Figure 2 shows today’s situation relative to the 2014-2023 average. The current year can only be compared to 2016/2017 (Trump’s first win), and 2014/2015 – see Figure 3. For a more complete picture, let’s have a look at the seasonality of the S&P500 – see Figure 4. And indeed, you can expect a stronger euro with rising stock prices, unless we are in an election year and Trump wins… see Figure 5 – then stocks rise, euro falls!
This time is different!
19-Apr-2025. (So far) this time is different! Historically, European stocks (being more cyclical) have usually outperformed US when the global economic recovery started and the dollar fell against the euro, usually after previous risk-off episodes during which we had a strengthening of the dollar against the euro (while stocks dropped). We had a couple of such episodes: -in April 2015 (+8% percentage points of relative outperformance of European stocks based on a 100-day rolling period), -in June 2017 (+12%), -in June 2020 (+8.3%), -in January 2023 (+22%) - see Figure 1. This time, however, the current outperformance of +20% is completely different. And it started with the Fed's 50 bps interest rate cut in September 2024 - to which the market reacted completely unusually - with a strengthening of the dollar and a jump in Treasury yields. Then Trump added tariffs (which can be interpreted as tax increases) and at the same time wanted to reduce fiscal spending (i.e. drastic fiscal tightening). As a result, US stocks fell significantly, with rising bond yields and a falling dollar! – see Figure 2. From a historical perspective, it is difficult to expect further outperformance of European stocks, but nevertheless one can claim that the ball is in Trump's court… In addition, further outperformance of Europe would have to mean underperformance of the American big-techs, which account for as much as 28% of MSCI USA. And Europe does not have such tech companies, in practice we are talking only about two European of them: ASML and SAP (together 4.2% in MSCI Europe) – see Figures 3 and 4.
