Things Aren’t Going Well In Germany…

On Wednesday, in at least two separate posts, we gently suggested that some parts of the market were looking a bit overextended in light of the still-tenuous economic backdrop for Europe.

Specifically, we flagged the rally in German equities and, relatedly, the fact that the Stoxx 600 Autos & Parts index has surged into a bull market as perhaps being signs of a “too far, too fast” dynamic taking hold.

“There’s a sense in which a bull market in the SXAP seems premature at best and patently absurd at worst in light of still-simmering trade tensions between Washington and Brussels and considering the highly precarious state of the German economy, which is still teetering on the brink of recession”, we wrote, in one post.

Well, on Thursday, we got the latest factory orders data out of Germany and it’s not great. Specifically, orders fell 4.2% MoM versus estimates of a 0.3% gain. The range was -1.2% to 2%, which means -4.2% is far more dour than even the most pessimistic observer could fathom ahead of time.

GFactoryOrdersMoM

On a YoY basis, factory orders plunged 8.4% in February, the most since 2009. “In the coming months, a subdued industrial economy is to be expected, especially because of a lack of foreign demand”, the Economic Ministry said Thursday, underscoring the idea that the decelerating global economy is weighing heavily on Germany’s industrial complex.

“The February weakness was broad-based across regions and sectors [with] foreign orders declining the most”, Goldman lamented, adding that “today’s release pushes our German current activity indicator for February down by three-tenths to +1.0%.”

Meanwhile, IWH, DIW, Ifo, IfW and RWI slashed their forecast for German economic growth in 2019 to 0.8% on Thursday. This was leaked to Reuters on Wednesday afternoon, but now it’s official. As expected, the new forecast is down markedly from the 1.9% the institutes previously projected in September.

GermanyGDP

As a reminder, the report from the five institutes mentioned above factors into the government’s official assessment which will be updated later this month.

And so, here we are, staring down a recession in Germany, with one of the main culprits being a highly uncertain global outlook clouded by Brexit and, of course, the slowdown in China. The economy barely skirted a technical recession in Q4 and suffice to say the data hasn’t been what one might call “inspiring” over the last couple of months.

GermEurGDP

Yet Germany equities are up more than 13% in 2019, well on their way to erasing the worst year since the crisis.

Germany

You can draw your own conclusions, but I suppose the overarching message is that if you’re optimistic about where things go from here, you must be subscribing to the old “it’s always darkest before the dawn” adage, because it’s pretty damn dark right now.


 

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