European Macro: ESI Sept 2017
In order to review the EU economy at a glance, the easiest thing is to use the European Sentiment I. published by the EU. This is because it gathers all the important information of an economy into an index and then it splits the most relevant sectors and country-level data, so you can also have that level of data. So let’s get started by checking a graph that aggregates the data of every sector and country, the EU ESI:
As you can see something interesting has been going on during the last year, a huge increase in the EU ESI. Moving up to very high levels now. This has been followed by most European stock markets that have gone up during the last 12 months. If we dive a little bit into sector data we can see how it all looks quite positive!
These three charts represent Building sector, Industrials, and Consumer Confidence. And it’s easy to appreciate all of them are showing higher and higher reads. This is VERY positive as it shows that all the economy is expanding in sync and we should expect it to stay like that in the mid-term.
Obviously, there is some doubts long-term. The end of European QE is now stalking the EU economy. High levels of debt are still there. Demographics don’t look great. Brexit talks are still going on, we are getting closer to the date and it seems like nothing has really happened yet, that could create some volatility. But for now, the economy looks strong and therefore we should expect European companies to increase their profits. Now the question would be: ¿Are there any European countries that are especially strong or weak?
Stronger countries: Austria, Germany, France, Finland, Italy, Netherlands, Portugal and Sweden.
Weaker countries: Belgium, Denmark, Greece, Spain, and the UK.
Political turmoil seems to be affecting Spain that is now lagging compared to the rest of the EU. Same could be said about the UK. However, its quite surprising that Denmark and Belgium are now showing some weakness. Germany looks as strong as always. And finally it looks like Italy and Portugal are finally taking off, there could be some interesting opportunities in these countries.
In conclusion, the European economy is looking quite strong in the coming months, and its been doing quite well for the last months, so I personally expect a good earnings season and end of the year. With USA’s really starting to give dizziness, it might be interesting to roll some positions out of the USA into the EU.
Nuño Pérez del Barrio