Europe Starting to Stabilize

Alan Penny

7 January 2020

2 min read

  • EU CPI Flash Estimate and Core CPI Flash Estimate year-on-year as expected
  • Italian Preliminary CPI month-over-month came out as anticipated
  • EU Retail Sales month-over-month greatly exceeded expectations
  • Swiss CPI month-over-month figures better than anticipated

Europe released a handful of announcements at the beginning of Tuesday, showing signs of stability, which is something the European Union desperately needs at this point.

All one has to do is look at the euro or European stocks to see just how bad things have been for the European Union over the last year or so. Slowing growth is a major problem, but we also have seen Brexit cause absolute chaos as well. With that in mind, it’s likely that the economic figures coming out of the EU stabilizing could be thought of as the beginning of the end of hard economic times.

Relatively benign announcements

The handful of announcements were relatively benign, which is good news for the EU. Over the last couple of years, the European Union has disappointed on a regular basis, so traders have scrutinized these numbers a bit harder over the last few months. The initial figure to come out during the trading session was the EU CPI Flash Estimate year-over-year, which was 1.3% as expected.

Over the last couple of years, the European Union has disappointed on a regular basis

Next was the Court CPI Flash Estimate year-over-year figure at 1.3%, which also came out as expected. The Italian Preliminary CPI number month-over-month was 0.2%, meeting expectations. Finally, the European Union Retail Sales month-over-month came out at 1.0%, much better than the anticipated 0.6%, with a revised figure of -0.3% from the previous month, up from the 0.6% initially reported.

Although not in the European Union, Switzerland also released CPI month-over-month figures, coming in flat – which was better than the anticipated -0.1% figure.

The Swiss numbers should be paid attention to, considering that 85% of their exports are tied to the European Union. So, if Swiss purchasing managers are willing to spend a bit more than anticipated, it shows that perhaps the European Union itself is starting to do better as a peripheral indicator.

Investment in 2020

The EU going forward looks as if it is trying to bottom, and that should help European equities as well as the euro itself. Ultimately, this is a market that has been beaten down quite drastically, so it’s very likely that a lot of value hunters will continue to jump into the Union and try to take advantage of value in stocks, currencies, and, in some sense, the ability to possibly short bonds. That’s because we have seen yields rise in places like Germany and France.

The European Union could start to be thought of as the place to put money. Paying attention to these figures over the next several months could give a “heads-up” as to where to invest going into 2020.

Written By
Alan Penny

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