Week End Blog – Zero Growth, Zero Yield and Zero Spending

Let’s start this Week End Blog on a positive note. Believe me you are going to need it. Geopolitical tensions eased somewhat compared to last week. The ceasefire in Gaza was extended and, although the situation on the Ukraine remains very uncertain, the conflict did no escalate further. Equities broke their fall and are slightly higher for the week (at the time of writing).

That’s about all the positives I could find. The macro data announced this week are nothing to cheer about. As usually, Europe was the place to be for some good old-fashioned macro misery. GDP numbers disappointed across the board. In Q2 German GDP contracted 0.2% and French GDP was unchanged from Q1.

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Over the last 10 years the quarterly GDP growth for the whole of the Eurozone averaged a meagre 0.17%. You don’t have to be a mathematician to figure out that the average annual GDP growth has been way below 1%.

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Looking at the average quarterly GDP growth in other regions reveals that Eurozone is turning Japanese. In Japan the average GDP growth has been only marginally lower than in the Eurozone. Talking about a lost decade…

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And the future doesn’t look so bright as well. The ZEW-index, which measures German investor sentiment and not necessary business sentiment, is looking more and more like a falling knife.

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All this news resulted in the obvious; lower interest rates. The yield on 10-year German government bonds managed to break the threshold of 1% for the first time, ever. Yes, buying a German 10-year government bond will yield you only 1%. Still higher than inflation, though.

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Lower rates increasingly reflect investor ‘hopes’ that the ECB will launch a big round of QE. If everything stays the way it has been for the last five years this should have a positive impact on European stocks according to the graph below. For more effects of QE read my blog.

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Let’s move to Asia. Japan, also a good country to look for some more negatives, published GDP growth as well. Annualized the economy contracted by almost 7%(!). This translates into a 1.7% contraction compared to Q1. And yet, this number was actually a bit better than expected.

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China? Also pretty bad. In what was a major upset, China’s aggregate financing, the broadest measure of credit growth, fell 85% compared to last month and came in at the lowest level since October 2008. I wonder what that will do to GDP.

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Even the US consumer disappointed. Retail sales barely grew in July and the YoY trend doesn’t look that promising either. Both nominal and real retail sales seem to be on a downward trend.

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For my last attempt to find some positive financial news, I move to crypto currency land. But, unfortunately, even Bitcoin did not manage to escape the misery. A very negative, almost personal, consumer advisory written by the Consumer Financial Protection Bureau sent bitcoin into freefall. Within two days Bitcoin lost over 10%. Most altcoins were hit even harder.

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That is about it for this week. But, wait, I found it, my good news. I am going on holiday!

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