Some interesting charts from Credit Suisse this morning are testing the idea that eurozone unemployment looks particularly awful.
Adjust for the rising number of people participating in the workforce in the eurozone, and the falling number willing to work in the US, and unemployment is just about the same in both. Read more
Old stock market wisdom has it that as goes January, so goes the year. As with “sell in May”, “run your winners” and so many others, there is some truth in the saying: in 62 of the last 85 years the US market has moved the same direction in January as in the full year ahead.
On the other hand, the first day of trade is irrelevant, as Howard Silverblatt at S&P Dow Jones Indices points out. Read more
When the European Central Bank governing council meets on Thursday in Frankfurt, sushi is unlikely to be on the menu. But officials should have a concern: is the eurozone turning Japanese?
This chart shows headline inflation (in Japan the measure excludes fresh food) for Japan since its bubble turned to bust in 1990, heralding a slide into deflation. Radical action by its central bank is just beginning to return price rises, as the far right hand side shows. Read more
Everyone from the US Treasury to the European Commission to our very own Martin Wolf is upset about Germany’s export-driven growth model – as I said on Saturday, it’s acting as a parasite on the rest of the world.
The blame can be laid on Germany’s savers – they just refuse to go on the sort of debt-fuelled spending binges Brits and Americans love so much – as well as on the German government for not encouraging them to spend more, or stepping in to spend in their stead.
But the blame should also be put on the euro. If Germany still had the Deutschmark, the country’s current account surplus would have led to some natural rebalancing, with the currency strengthening to make BMWs and other German exports more expensive, and so less competitive. The euro has risen a bit, but not nearly enough.
This chart shows exactly how competitive Germany has become, thanks to the Hartz reforms of the labour market of 2003-2005, and self-imposed austerity.
Money has been piling into European shares as fears of the euro imploding recede, the economy shows signs of life and investors look for the next trade after Japan.
But the “eurozone shares are cheap” theme might have run its course. This chart shows the discount of eurozone forward price-to-earnings compared to the US, as a percentage (using MSCI indices). Read more
Can CAPE guide us around the world? One reasonable complaint during the last week’s debate on cyclically adjusted price/earnings multiples is that the discussion is too US-centric. There are reasons for this. The US is still by far the world’s biggest stock market, the data are more reliable and go back further, and most of the academic players in the debate are based in the US. But it is still a reasonable complaint.
Here then are the results of the exercise in using multiples of 10-year rolling average earnings to value a range of world markets, as carried out by Mebane Faber of Cambria Investment Management, who kindly gave me his data. One huge caveat is that the data do not go as far back as for the US (although this at least means that we do not need to have arguments about whether it is possible to make comparisons with earnings from the late 19th century). The Faber data for the UK go back to 1927; none of the others go back further than 1969; and for some of the emerging markets the data only go back to the 1990s. The full details can be found on this post, and Mr Faber provided me with updated results to the end of July this year. Read more
The fun part of the eurozone crisis, if there is one, is that you never know where to look. After the Cyprus crisis three months ago, the hunt was on for the next small peripheral country that would create a headache. Slovenia was a popular bet. So, among some hedge fund managers, was the Netherlands, where house prices are dropping alarmingly. There was a frisson of concern about Croatia’s accession to the EU. But it turns out that the next country to administer a shock, two years on from its bail-out, is Portugal.
You do not need to be an expert in Portuguese politics to see that the country is in a crisis, or that local markets were shocked by developments. When the foreign minister hands in a resignation hours after the finance minister has done the same thing, over an issue of core economic policy, and the existence of a fragile coalition is called into question, then it is natural that prices will be revised. Read more
Ooh la la! French consumer confidence figures just came in, and they aren’t pretty. The index just matched its lows from late 2008, itself the lowest ever.
So far, so eurozone. It isn’t exactly new news that the French economy is in terrible shape. But this chart shows how consumer confidence has broken away from share prices, something it usually tracks closely. Read more
There’s been quite a bit of excitement about the Dax hitting a record high this week, with the Wall Street Journal even splashing its European edition on it. The chart looks impressive:
Markets aren’t known for their patriotic fervour. Populated by cynics and motivated by money, there is little reason to expect local markets to support their national governments – particularly in the eurozone, where the response by the wealthy in crisis-hit countries has been to ship their cash to Germany or the UK.
But hang on! Perhaps brokers are more patriotic than popularly thought: it turns out that analysts tend to recommend shares in companies from their countries.
A nice piece of work by Charles de Boissezon at Société Générale‘s global equity engineering and advisory unit looked at broker recommendations on German and Spanish blue-chips, the two markets tending to be reasonably domestically-exposed.
Not surprisingly there are more buy recommendations on German than Spanish shares, and more sells on Spanish.
But the breakdown is revealing: analysts at German brokers are much more positive about German companies than analysts working for Spanish brokers, and vice-versa: