While documenting the latest China stimulus headlines (out Wednesday just hours after Beijing turned in blockbuster activity data that ostensibly bolsters the nascent reflation narrative), we noted that European autos are having (another) good day.
We’ve been down this road before over the past few months (no driving pun intended). The SXAP entered a bull market this month, something we described as perhaps a bit premature considering the still gale-force winds facing the German economy and the lingering threat of auto tariffs from the Trump administration.
No matter, though. This sucker is a-runnin’.
Well, in a true testament to what is either cognitive dissonance run amok, or else a rational effort to separate “things we already knew and priced in” from a forthcoming Chinese stimulus impulse that promises to change the game, it’s worth noting that car registrations in Europe dropped for the seventh consecutive month in March.
The breakdown shows registrations plunged a harrowing 9.6% in Italy, but as the ACEA notes, “demand decreased in all major EU markets.”
Meanwhile, the German government slashed its growth forecast for 2019 to just 0.5%. This wasn’t a surprise. As documented here on April 4 (when the latest factory orders data showed orders fell 4.2% MoM versus estimates of a 0.3% gain), IWH, DIW, Ifo, IfW and RWI slashed their forecast for German economic growth to 0.8%. That was down sharply from the 1.9% the institutes projected in September.
Late last week, Reuters said the official assessment would show an even deeper cut to the outlook, and as of Wednesday, that’s official. The German economic ministry’s 0.5% growth forecast for 2019 looks particularly horrendous when compared to the 2.1% expansion Berlin was looking for as of a year ago.
If this comes to pass, and estimates for the rest of the bloc as derived from the EU’s 2019 outlook hold up, Germany would be the second-worst performer in Europe.
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The Slowdown Cometh: Global Growth Outlook Suffers Another Body Blow In Deep EC Cuts
The German economy, you’re reminded, barely skirted a technical recession in Q4 and the manufacturing sector is still stuck in a rut.
But, again, investors are looking through all of this – and not just on Wednesday. The DAX is having a great year, just like virtually all other global benchmarks, and continued to climb in March even as bund yields plunged below zero for the first time since 2016 amid what, just three weeks ago, was a rapidly deteriorating outlook for the global economy.
Here’s an amusing passage from former trader and fund manager Richard Breslow who sums all of this up (from his daily note for Bloomberg):
This morning, the German government cut its growth forecasts. Old news was the response. The IMF already let the cat out of the bag. The official response, as far as I can tell, was, we are vigilantly watching developments, but don’t need a new growth package because we are doing all the right things and everything will get back on track. Hope springs eternal. European car registrations fell for the seventh month in a row. Italy alone was down 10 percent. The Stoxx 600 auto sector index has been up all day. After all, China is back.
That’s the story – and for right now, folks are sticking to it.
