Perhaps the best evidence of just how the markets felt about the changes in Europe was found not only in the assorted losses among European equities, but in the gains that the US dollar enjoyed against the euro and on the trade-weighted index (where it rose .075% to 77.33). Such developments coming literally within hours of pivotal changes in certain of the region’s governments underscore the fact that an (un)healthy dose of skepticism continues to lurk among investors and market observers.
The aforementioned remain skittish about to the ability of newly-installed Prime Ministers Papademos and Monti to bring the prolonged debt crisis to its end any sooner or any more efficiently than their predecessors tried to, despite promises from both of them that fresh austerity measures combined with their commitment to remain in the eurozone might do the trick. Markets had initially construed the gentlemen’s “technocrat” backgrounds as a positive factor in the battle to once and for all resolve the European quagmire.
Now that leadership changes have been undertaken in two of the region’s most impacted by fiscal problems nations, the focus is shifting toward an overhaul of the overall union. Ms. Merkel, speaking at her CDU party’s annual congress this morning, outlined broad suggestions that the economic and currency union thus far in place needs the “breakthrough” of a political one as well, lest the euro disintegrate and, along with it, the whole construct of the EU.
In effect, Ms. Merkel would be loath to go down in the history books as the person under whose watch the euro went by the wayside. At this stage however, concrete line items as to how the “NEUropean” system will shape up in coming years are lacking sufficiently for the markets to do that which they are doing: Remain jittery. As mentioned earlier, the markets also remain nervous about “Super Mario Monti” and his ability to jump as high as might be needed to overcome this wall.
Part of such jitters revolves around the fact that not only is Europe visibly slowing (factory output in the EU bloc fell 2% in September, spelling “looming recession”) but that – according to the OECD – the entire global economy’s loss of momentum is continuing as well. The Paris-based think-tank issued an October warning that projected a two-year period of weak(er) growth and high(er) unemployment among the planet’s developed nations.
One of the metrics that the OECD employs in making such unpleasant forecasts is the reading of new business formation and launch in its member countries. The other is of course, the temperature level in various nations’ leading indicators. Declines to under the 100 level have been noted in China, India, Germany, the UK, Brazil, Italy, France and Canada. Japan, Russia, and the US remained above the century pivot point in September. Enough said. Other than, perhaps, the dollar has another reason not to be in the ICU.
Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America