Those of you worried about the global growth outlook (and the pessimists are multiplying like Gremlins these days) are probably feeling vindicated on Tuesday after data showed German industrial output logged its largest annual drop in nearly a decade in November.
Obviously, the following chart does not inspire much in the way of confidence around Europe’s largest economy and would appear to raise the odds of a recession.
Officially, a variety of mitigating factors were cited, but that’s par for the course. Today’s news comes hot on the heels of Monday’s lackluster factory orders data, which betrayed an 11.6% drop in orders from the rest of the eurozone. The writing is on the wall – and it’s big.
Meanwhile, Samsung delivered preliminary Q4 results that missed everything as profits and revenue came in well below consensus in what some analysts described as “a shock.” For the macro-minded, the news is just the latest in a string of evidence to support the contention that the trade war and a worsening outlook for global growth are beginning to take their toll on some of the world’s largest tech companies.
As we’re fond of reminding you, all of this is inextricably bound up with itself. Samsung obviously ships its products to the U.S. and China, where economic growth is decelerating in part due to the trade war. Apple’s recent trials and tribulations are proof that trade frictions are finally boomeranging back stateside and falling demand for Apple products affects Samsung both directly (fewer orders) and indirectly (what an Apple guidance cut means in terms of a read-through for the industry).
Shares oscillated on the day as investors struggled to determine how much of this is “priced in” after 2018, when the stock plunged 24% in the worst year since the dot-com crash.
In any case, the (simple) point here is that the industrial output data from Germany and Samsung’s underwhelming pre-announcement are not disparate data points that only an incorrigible pessimist desperately seeking confirmation bias would dare try to connect.
Rather, these are just two more signs that the global economy is decelerating and what we would note (again) is that it’s going to be left to fiscal policy to ride to the rescue. Because while the Fed may have some room to cut rates, the ECB and the BoJ do not, and expanding CB balance sheets at this juncture would require some real creativity in Europe and Japan and is a non-starter in the U.S. (at least in the context of the current discussion, which finds the Fed reluctant to admit that even a slower pace of balance sheet runoff is possible).