Germany, UK - An Update

We cautioned that German results this week would disappoint. Instead, Monday’s IFo survey (business climate, current assessment and expectations) came just a hair through consensus for modest improvement; modest perhaps, but world markets went bonkers.

The market crowd is in the process of cherry picking that which fits their bias. Not however IFo president Hans-Werner Sinn, who said just after the release of his survey that the data are a sign that the German economy is “losing some of its momentum.” He went on, “The improvement in expectations was smaller and the business situation did not show any further improvement.”

Doesn’t sound like a drum roll to us.  Of course how would Sinn know?  He only runs the thing!

We also noted that it is best to be relatively constructive on the UK; nothing strong naturally, just something more than economists on the whole expect. We knew that last week’s poor Feb Retail Sales print delivered a mind set to analysts, a rush to revise. That is why in our Week Ahead we noted that any “surprises” this week for the UK would be to the side of strength. Today’s Mar CBI retail survey was a fit, at 0.0 vs -6.0, consensus. That’s simply the way it works with this crowd.

Of course well-know retardants remain – gov’t, bank and household deleveraging. But all three were long ago priced in. And, all three are getting their acts together. And we have an enlightened, pro-business administration. Economists have been looking for an end to the world as the UK knows it for two years.  As we predicted earlier – it won’t happen.

Naturally, the E-Z remains a potential threat for the UK.  Fine.  We all have our pianos just overhead.

Robert Craven