“Imagine the Unimaginables” for 2017 is an annual attempt to identify what the capital markets are expecting in the months to come and therefore have efficiently discounted. It is an act of trying to identify consensus. This was originally published on December 1, 2016 and speculates what might happen in 2017 and is not yet discounted. Update: Imagine the Unimaginables 2017 (Link)
1. V-shaped recovery finally in Europe AND USA
When you look at the charts below, it looks like we have already had our V-shaped, but now we will feel it and Europe will surprise everyone (!) and factors like Industrial Production should return to pre-crisis levels. Germany’s ifo Business Confidence Index reached an all time high again in July, but fell back a bit in August (see below). In June, Merkel declared the Euro too weak–see no. 2 below! The Euro is now on a tear and this may make global tax reform a greater priority. Ironically, as US exports get more competitive, American manufacturers complain about higher input costs from abroad. It’s September 1 and US ISM for August came out much stronger than expected and there are charts below showing lots of confidence in both the US and Europe. How can the FED not raise rates, perhaps relieving the ECB a bit from the very strong Euro…
The Eurozone: Bloomberg’s GDP tracker shows the euro area growing at 3% (faster than the US).
Source: Bloomberg, WSJ The Daily Shot (July 11, 2017)
NECK n’ NECK
Is this boom in US factory activity predicting stronger GDP growth of 4%+?!?
Source: Capital Economics/WSJ-The Daily Shot
Global gross domestic product is projected to increase by 3.4 percent in 2017 and 3.5 percent in 2018, according to the median forecast of economists surveyed by Bloomberg.
Source: Bloomberg, (August 17, 2017)
From Tradingeconomics.com: The Eurozone economy advanced 2.2 percent on quarter in the three months to June of 2017, above the preliminary estimate of 2.1 percent and following a 1.9 percent growth in the previous period. Among Eurozone’s largest economies, GDP growth picked up in Germany, France, Italy and Spain. GDP Annual Growth Rate in the Euro Area averaged 1.64 percent from 1995 until 2017, reaching an all time high of 5 percent in the first quarter of 1995 and a record low of -5.50 percent in the first quarter of 2009.
The Eurozone GDP is up 2.1% from the previous year.
Source: WSJ The Daily Shot 17Aug2017 @jsblokland
Also from TradingEconomics.com: The US GDP Growth Expanded Sharply Higher in Q2! Will Europe meet the challenge?
Euro Area Business Confidence indicates the potential to also surpass 3pct GDP Growth!
From TradingEconomics.com: The Business Climate Indicator for the Euro Area rose to 1.09 in August 2017 from a downwardly revised 1.04 in July and above market expectations of 1.06. Managers’ production expectations increased markedly, and their appraisals of the stocks of finished products and past production improved. By contrast, managers’ views on overall order books and, in particular, export order books deteriorated. Business Confidence in the Euro Area averaged 0 from 1985 until 2017, reaching an all time high of 1.53 in April of 2007 and a record low of -3.87 in March of 2009. Source: Trading Economics (August 2017)
The US economy expanded an annualized 3 percent in the second quarter of 2017, well above a preliminary reading of 2.6 percent and beating market expectations of 2.7 percent. It is the strongest growth rate since the first three months of 2015, the second estimate from the BEA showed. Increases in consumer spending and in nonresidential fixed investment were larger than previously estimated, offsetting a drag from government expenditure and investment.
Source: Trading Economics (August 2017)
As a result of weaker loan growth, the US money supply expansion is now also below that of the Eurozone. Another sign of Europe starting to outpace the USA…
Source: WSJ-The Daily Shot 17 July 2017
The IHS Markit Eurozone Manufacturing PMI rose to 57.4 in August 2017 from 56.6 in the previous month and above market expectations of 56.3, the flash estimate showed. The pace of expansion in the manufacturing sector was the strongest in two months, as both output and new orders grew at sharper rates, with the latter being boosted by the fastest rise in exports for six-and-a-half years. Also, manufacturing backlogs increased the most in 11 years, while employment rose at softer pace. Manufacturing PMI in the Euro Area is reported by Markit Economics. (23.August 2017, Trading Economics). Results from Italy were particularly strong, with survey respondents reporting their best month in six-and-a-half years, with the index rising from 55.1 to 56.3. Economists had expected only a marginal increase to 55.3, the FT reports.
Eurozone Manufacturing PMI also indicates greater European GDP Growth
Some were wondering if the Eurozone PMI indicator was peaking and perhaps predicting a peak in GDP Growth for now, but the Eurozone remains robust despite the rising Euro and political uncertainty. Chart below is from July! the PMI picked up again in August!
Source: IHS Market/WSJ The Daily Shot 25.July2017
From TradingEconomics: The Ifo Business Climate Index for Germany edged down to 115.9 in August 2017 from an all-time high of 116 in the previous month, but above market expectations of 115.5. The index of current conditions dropped to 124.6 from 125.5 in July, while the gauge of future expectations rose further to 107.9 from 107.3. Sentiment worsened among retailers (5.1 from 11 in July) and wholesalers (23.6 from 24.2), but improved among manufacturers (29.9 from 29.5) and constructors (17.3 from 14.4). Business Confidence in Germany averaged 102.10 from 1991 until 2017, reaching an all time high of 116 in July of 2017 and a record low of 83.60 in March of 2009.
Germany’s ifo Business Climate Index
Manufacturing and construction show gains. The retail sector, on the other hand, seems to be struggling.
Germany’s Ifo Index broken out by sector
Source: Tradingeconomics.com / WSJ The Daily Shot 28AUG2017
After the US statistics appeared to show slower growth momentum at the end of H1 2017 and still the FED raised rates in June, they were justified as industrial production and other leading indicators in the US strengthen again. Still the real growth debate remains ever more scrutinizing due to the discrepancy between “Hard” and “Soft” data. Europe was in ‘catch-up’ mode and is wants to move into the passing lane indicating greater GDP growth than the USA and offering more promise, also for stocks, BUT the US economic statistics are not standing still. The strong Euro can act as a headwind for European growth, but maybe it spurs it further! Unimaginable no. 2 calls for the end of currency wars and rather sees tax cut competition. So the Euro surprises and continues to strengthen! The charts below comparing Eurozone (one month behind) and US Industrial Production combined with the German ifo report show the strength of the European ‘catch up’!
From Trading Economics: Industrial production in the Euro Area increased by 2.6 percent year-on-year in June 2017, following a downwardly revised 3.9 percent gain in May and missing market expectations of 2.8 percent. Output rose at a slower pace for consumer, capital and intermediate goods. Among Eurozone’s largest economies, output grew in Germany (2.1 percent), France (2.5 percent), Spain (3.2 percent) and Italy (5.3 percent). On a monthly basis, industrial production fell 0.6 percent, worse than market consensus of a 0.5 percent drop. Industrial Production in the Euro Area averaged 0.86 percent from 1991 until 2017, reaching an all time high of 9.20 percent in December of 2010 and a record low of -21.50 percent in April of 2009.
From Trading Economics: Industrial production in the United States increased 2.2 percent year-on-year in July of 2017, following an upwardly revised 2.1 percent rise in June. It is the highest annual gain since January of 2015, due to a 1.2 percent rise in manufacturing and a 10.21 percent jump in mining. On the other hand, utilities output fell 0.6 percent. Industrial Production in the United States averaged 3.74 percent from 1920 until 2017, reaching an all time high of 62 percent in July of 1933 and a record low of –33.70 percent in February of 1946.
Finally some new V-shaped Indicators coming out of the US on the Job Front. The jobs market strength is the key driver of this booming consumer confidence. This is despite today’s (1.SEPT.2017) lower than expected jobs statistics.
Upside down ‘V’ – Americans feel confident in finding jobs /
Source: WSJ The Daily Shot 30Aug2017
Confident that Jobs are Plentiful