Global Slowdown Continues
The data last night out of Japan was not pretty. Japanese exports, especially those to the EU, fell dramatically as July represented its biggest monthly trade deficit ever. Part of this is the high value of the Yen but the reality is that Europe, and indeed the world, continues to slow. We continue to see Japan as a critical market given its precarious state of fiscal imbalance and it’s important in global economic affairs.
Looking at the other side of the ledger, Europe recorded its biggest trade surplus ever in June. This despite the fact that the European economy actually shrank in Q2, with Italy, Spain and other countries officially in recession. So, as Bloomberg Briefs noted today, the imbalances in Europe just continue to get worse – with the German and Dutch showing terrific export growth while the countries that need to benefit from a lower euro cannot generate anything resembling growth.
As Bloomberg notes,“trade balances of countries facing or receiving bailouts are recovering mainly because of declining imports rather than rising exports. That increases the risk of future imbalances.”* Lowering European rates and the value of the euro arguably help European growth but unfortunately not those countries that need it most.
Everyone knows that markets and economic activity are not highly correlated but is amazing how equity markets this summer have rallied on a mountain of worries based on more “easing”.