Europe, the U.S., China, Japan, India and Brazil all have two things in common, the new interrelated global economy and widespread downgrades to economic activity. Nobody suffers in isolation anymore, especially when the most important consumers in Europe and the United States are hobbled. Thus, GDP activity in each of these regions is being reported lower or forecasts are being reduced today. It's a global meltdown, inescapable because of our intermingled economies.
GDP data from Germany and France is likely to show the euro region is formally in recession this week. The EU only escaped an official contraction by the skin of its teeth in Q1, so it won't take much now to sink it. Considering the tone of the data emanating from the entire region over recent months, it's what's expected at this point. The iShares S&P Europe Index (IEV) increased by 1.4% last week, but that gain should be tested this week.
The GDP news from Greece reported this morning beat morbid economists' expectations, but it's pale and lifeless nonetheless. The first estimate of Greece's second quarter GDP indicated a 6.2% contraction on an annual basis. The fall in Q2 follows a 6.5% drop in Q1 and a 7.5% decline in the fourth quarter of 2011. Greece's new Prime Minister, Antonis Samaras, has set the bar low moving forward (probably wise), with his estimate for the full 2012 seeing contraction of 7% or more. That contrasts against the European Commission's estimate for a 4.7% decline. Greece is in its fifth year of recession, so soothsayers might do well to just take a trip to Athens to get an idea of what things might look like globally before long. That is not an exaggeration in my view, because of obvious issues that are developing but are overlooked by those in denial in Brussels, Washington and Wall Street (I'll write more about those in other articles). The Global X FTSE Greece 20 ETF (GREK) gained 2.5% last week, but will face a headwind again this week or soon enough.
The Greek data should serve as a proper warm up for the bigwigs of Europe, Germany and France, which will each report GDP data on Tuesday. The euro-zone will release its aggregate estimate for GDP on the same day, and the news is at this point expected to show recession. Economists see France contracting, but anticipate a small increase for Germany. If Germany breaks, you can expect the market to better price in global meltdown. Germany managed 0.5% growth in Q1 while France did all it could just to hold steady. The iShares MSCI Germany Index (EWG) rose fractionally last week, while the iShares MSCI France (EWQ) gained 1.6%.
The poor Italians selected this week to issue eight billion euros worth of 12-month bills. Italy has already published its Q2 GDP estimate, which indicated a 0.8% contraction for Q2. Fellow PIIGS compatriot, Spain, noted a 0.4% drop. The weight of economic contraction in the PIIGS nations only adds pressure to their benefactors. In that regard, the ECB's recent declaration to defend the euro might not be something the Germans are willing to take on at any cost, especially if they see blood at home.
Data out of Japan Monday showed Japanese GDP growth of 1.4% fell far short of economists' forecasts for 2.3%. Japan is only growing that well because of reconstruction activity post the horrendous and widespread earthquake damage it suffered last year. The data follows a slew of bad news from China reported last week. Meanwhile, GDP forecasts for India and Brazil, while still positive, are being revised downward today due to global interdependence. Some of the world's markets are in denial this morning, but I think this entire list will show red before long now.
ASIA & BRAZIL
EURO STOXX 50: +0.4%
S&P/ASX 200: +0.1%
FTSE 100: -0.3%
Hang Seng: -0.3%
Nikkei 225: -0.1%
CAC 40: +0.2%
BSE India Sensex 30: +0.4%
Athens ASE: +0.8%
Shanghai Shenzhen CSI 300: -2.0%
Before you know it, we could have way too much bad news to bear as a global meltdown proceeds. There's a lack of U.S. economic data on the schedule for Monday, so the focus at home will be on politics and the developments overseas. Those developments should weigh on stocks, though if Germany's head keeps above water as expected, it could be enough to keep the deniers denying for now.
In the U.S., a key recession ingredient has been added to the economic stew, leading me to pen "Recession's Key Ingredient Added" over the weekend. That ingredient is the American consumer, who has given clear signals that he is stepping back from the checkout counter for now. While I am looking for new innovative product introductions from the likes of Apple (AAPL) to keep the store shelves fresh and appealing this year, I don't think it will be enough for an increasingly stressed consumer. Even the great Apple's shares have succumbed to economic stresses most recently. You can see consumer stress across the spectrum of America's retailers, with spending increasingly shifting to the value peddlers. This is why Wal-Mart (WMT), eBay (EBAY), Dollar Tree (DLTR) and Amazon.com (AMZN) are taking share from traditional options like J.C. Penney (JCP) and Kohl's (KSS).
Stocks have opened the week relatively unchanged on uncertainty and concern, with the SPDR S&P 500 (SPY) down fractionally. However, as the image of global meltdown becomes clear through a constant flow of compiling data from across the globe, investors must eventually recognize it.