European Union Continues to Look Sloppy

Alan Penny

20 December 2019

2 min read

USD/EUR currency pair

  • German GfK Consumer Climate released
  • French Consumer Spending month over month released
  • Current Account announced

Early on Friday the European Union released a handful of numbers, showing a lumpy economy yet again. At this point, the market is likely to look at the European Union as a mess, but there’s still have a lot of back and forth as far as expectations are concerned. Granted, these numbers are probably considered to be “second-tier”, but it gives more clarity on how this economic zone is performing.

Economic releases

The German GfK Consumer Climate figures were released for the month, coming out at 9.6 as opposed to the 9.8 expected. A minor miss, but another sign of how uneven the growth is and confidence in the European Union is as well. Ultimately, consumer confidence is crucial to economy, and although it is still relatively positive, it may not be as strong as anticipated.

We also got the French Consumer Spending month over month figures coming out at 0.1%, less than 0.2% as expected. This shows that the French consumer also may be soft, and the markets will have to factor in that reality.

This shows that the French consumer also may be soft, and the markets will have to factor in that reality

Finally, the Current Account figures for the European Union came out at €32.4 billion, much better than the anticipated €23.6 billion. This figure is due to a lot of exporting that’s occurring, which makes sense considering that the Euro is so cheap when looked at from a historical point of view.

Currently trading near the $1.11 level, this makes European products more competitive than they have been over the last few years. By having more exports than imports, this only reiterates just how cheap the currency is. With the European Central Bank looking to loosen monetary policy going forward, this will probably continue to be the case, thereby driving money into export driven companies.

The EU is still not stable

The EU isn’t falling out of bed so to speak, but it is starting to show signs of back and forth and a possible bid to form stabilities. The market should continue to see the Euro struggle, but at the same time that should continue to have money flowing into the export companies, especially when it comes to countries that are known for exports such as Germany.

Pay attention to Current Account. It will give you an idea as to whether investing in export companies still makes sense. This is very interesting, considering that there are a lot of headlines out there when it comes to the automobile industry. The US/China trade situation is also causing chaos with exports in the European Union.

The European Union is probably going to remain cheap for longer-term investors going forward. The setup going forward is likely that the stock market in Europe provides value, but the currency markets will struggle.

Written By
Alan Penny

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