It is often the case that there is so much news it becomes even more confusing to figure out what is really going on. I will continue to provide the information so we can all separate the news from the noise.
German Exports Fall by 3.2%, Industrial Production down 1%... The German economy sent fewer goods to other countries and the production rate slowed as well.
What it means - Exports are the lifeblood of Germany. The precision-engineering based society clearly depends on foreigners to buy their stuff, which is why a drop in exports gets everyone's attention. Inside of that number, it's worth noting that export rates to euro zone members fell by 9.6% over the year. I guess there aren't many Greeks and Spaniards stepping up for a new Mercedes right now.
Greece Gets Yet Another Bucket of Bailout Money... Greece has not met it's austerity goals and is running short of cash. The troika (European Commission, ECB, and IMF) decided to give Greece more money anyway.
What it means - At first it looks foolish. The troika agreed to allow Greece to receive more bailout aid even though the country has not met the conditions laid out. In return, Greece must meet certain thresholds, like firing or reassigning 25,000 government workers by year end. The likelihood of that is zero, as indicated by the country's failure so far. Given this, why would the troika give them money? Because, oddly, the troika needs to be paid back so that things look good to constituents. If Greece does not receive money in July, then it may miss a bond payment in August. The bond payment will go to bondholders, like the ECB. If the ECB suffered a loss because of non-payment by Greece, then the members of the ECB - of which Germany is the largest - would have to eat the loss. This would make Germans very, very unhappy. To avoid this, the troika provides Greece even more money, over half of which may be used to make the bond payments, thereby keeping everyone satisfied...for the moment. Keep in mind the payments to Greece end this year.
Japan Switches From Core Inflation to Core-Core Inflation ... The Japanese government has switched from using inflation minus fresh food costs (core) to inflation minus fresh food costs and energy costs (core-core) when measuring the change in prices for the economy.
What it means - When Japan began printing yen with abandon we told readers to be on the lookout for a drop in the standard of living. The island nation imports food and fuel, so those two essential commodities were bound to move up in price. They have. But while this is inflationary, it's not the inflation the government wants. Instead of seeing imported products go up in price due to a falling currency, the government wants to see domestic items go up in price because of increased buying demand as people spend all their yen before it falls even further in value. Since this type of inflation is not happening, or at least not at the rate the government wants, the government took a modest, thoughtful approach to the situation. It quit counting what it doesn't like. Instead of Abenomics, perhaps it should be called five-year-old-nomics.
Chinese Exports Fall 3.1% on Expectations of 3.7% Gain... The leading exporting nation reported falling exports, which parallels slowing economies around the world.
What it means - This is simply the latest indicator of a global slowdown, from what was already a low level of activity. With Europe still broken and the U.S. posting sluggish numbers, falling exports from China were expected. Unfortunately this is coupled with slowing internal demand as the Chinese government takes steps to curb runaway lending. If China posts weak GDP numbers, those companies and countries that are suppliers to China may be negatively affect.
Greek Unemployment Up to 26.9%, Non-Performing Loans Reach 29%... The Greek economy continues its downward slide, as unemployment edged up again in April while bad loans continue to mount.
What it means - The Greek unemployment issue has been around a long time. While near 30% unemployment is horrific, we're unfortunately used to hearing this from the Mediterranean state. It is the level of bad loans that is rising to unbelievable levels. When almost 1 in 3 of loans outstanding is no longer being paid, then your financial system is essentially shut down. Without repayment, there is no renewal of capital necessary either to make new loans or to simply pay off depositors. Given that the troika has adopted the Cypriot bail-in model (where depositors have to pay for failed banks) for any bank failures in the future, Greek depositors should be very, very concerned.
U.S. Producer Prices Rose 2.5% Year-over-Year... The cost of producing goods and services rose 2.5% from June 2012, well above estimates of 1.8%.
What it means - This is a negative as the costs were largely due to increased energy expenses. Because there is no efficiency with higher energy costs, and it does not translate into more consumption (meaning it is not due to higher wages, which could be seen as a positive), then it simply means lower margins for producers.
Crude Inventories Drop, Prices Rise... U.S. inventory of crude oil dropped for the second week, falling to just over 370 million barrels. This led to a spike in prices.
What it means - OK, let's review, because this doesn't make sense. U.S. oil inventories have been sitting at all-time highs for months, just under 400 million barrels. We've got the black gold coming out of our ears at this point. The drop in inventory of roughly 25 million barrels in the last couple of months doesn't even come close to putting inventory back to the long run average. And yet we are told that the drop in inventory led to a spike in prices. If that's true, then why didn't the spike in inventory over the last year lead to a dramatic fall in prices? Hmmm.
This Week - The week of July 15 brings with it a few more economic releases. The Philly Fed as well as the Empire State Manufacturing numbers will come out, and so will Housing Starts and CPI. While no surprises are expected from these statistics, the real market movers could come from the earnings releases of U.S. companies as earnings season kicks into high gear.
President, Investor’s Advantage Corp.
Registered Principal, National Planning Corp.
Master Certified & Charter Member, HS Dent Advisor’s Network
P.S. “Managing money is never left to chance. Win by losing less.” - John Grace
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