UBS House View Daily

Thought of the day

08.08 - Trouble in the engine room?

German export data released 8 August revealed a surprise 2.8% fall in June compared with May. It's a slightly ominous sign for the Eurozone’s largest economy, which also accounts for 29% of EMU MSCI market capitalization. The weak data follows an unexpected 1.1% decline in German industrial production in June relative to May, the first decline in six months.

But, despite some loss of momentum, German data remains strong, while the recovery in the Eurozone is also broadening out.

  • Monthly industrial production and export data is volatile. If it is smoothed, the three-month moving-average year-on-year increase in German industrial production comes to 3.3%, which remains the highest rate since March 2014.
  • Germany is not the Eurozone's sole engine of growth. Purchasing managers' index (PMI) readings in France, Italy and Spain have surpassed those in Germany for the first time in 12 years. And the German manufacturing PMI, while slightly off its June peak, has registered 51 consecutive months of growing output and still indicates robust expansion.
  • Survey readings are being backed by hard data. Eurozone growth prospects are improving, with second-quarter GDP accelerating to an annualized 2.1% pace, its best showing in five years.

So we are not unduly concerned by one month’s slightly softer figure and remain optimistic about the Eurozone economy’s prospects. We remain overweight Eurozone versus UK equities.

Chart of the day

German industrial production

A longer view offers reassurance after June dip in monthly data

Trouble in the engine room

Source: UBS, Bloomberg, as of 8 August 2017

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