In The Land Of The Blind
The comments below are an edited and abridged synopsis of an article by Tyler Durden
Europe is often accused of being unaware of the shifting tectonic plates on the geopolitical sphere, but German Economy Minister Habek’s eyes have been opened.
The minister has warned that Europe’s external environment is vastly different than it has been over the past decades: Habeck concludes that trade and investment are now drenched in (geo)politics, and that Europe may not be able to continue to deal with both the US and China as it has in the past; it may be forced to choose sides.
Asian countries, meanwhile, are increasingly unhappy with the strength of the world’s reserve currency. The waning US dollar has sent a number of Asian currencies to multi-month lows, prompting interventions.
Van Geffen discusses US and Japanese monetary policy; green shoots and red flags in European inflation data; hawks getting on board with a potentially long hold at current levels; and the odds of a European recession.
Bundesbank President Nagel cautioned against bets that the ECB would return to rate cuts shortly after the central bank is done hiking, suggesting that he sees the dangers of overshooting the mark. ECB economist Ms. Schnabel said that a higher terminal rate doesn’t have the same effect as a longer period of high rates; overdoing the hiking cycle could lead to a bigger economic downturn than necessary and a subsequent undershoot of inflation in the medium term, rather than a durable convergence to 2%.
And odds of a European recession remain high. Factory orders fell by 11.7% m/m in July, confirming the heavy weather that the manufacturing sector has hit.
This sharp decline is the reversal of two months of strong gains, so the three-month trend is not as bad as the headline print. For example, orders from Eurozone countries fell 24.4%, but that follows a 26.6% gain in June. This softens the July data somewhat, but overall Germany’s future seems bleak.