We had some interesting economic numbers released this past week. Perhaps overlooked was the European M3 money supply report. This is the broadest measurement of the money supply, and the quarterly and yearly growth numbers were both smaller than expected. The largest deviation from the pundits' guesses was the yearly number, up only 2.7% -- less than the expected 3%.
An article by Ambrose Evans-Pritchard made some interesting observations:
Eurozone nears Japan-style trap as money and credit contract again
The broad M3 gauge -- watched by experts as an early warning signal for the economy a year or so ahead -- shrank by €30bn and is now down by €143bn since April. This is highly unusual.
The narrow M1 gauge watched for signals of activity six months head has held up better but also contracted in September, falling by €16bn.
"The message is clear," said Lars Christensen from Danske Bank. "The ECB needs to stop obsessing about fiscal issues and do real quantitative easing (QE) if it wants to stop the eurozone going the way of Japan."
Could it be the Germans, obsessed with inflation paranoia, will result in deflation for all of Europe? The demand for austerity and the consequent economic contractions make it much more difficult to balance a budget. Eventually, the bad loans need to be written off.
In the U.S. today, the quarterly GDP (Annualized) came out at 2.0% This number is better than the 1.8% increase expected. But good economic numbers might be part of the October surprise prior to the November 6th election.
Yesterday, the UK quarterly GDP numbers were released. The Summer Olympics provided a boost, and the third quarter growth at 1% brought the yearly growth rate back to even. This ends the Brits' recession, but can we look forward to positive growth going forward?
Next week, we get unemployment numbers, and the always-exciting Non-Farm Payroll report. First, the German unemployment. They are forecasting it will move up to 6.9% from 6.8%. Unemployment for the eurozone, currently 11.4%, is projected to increase to 11.5%. In the U.S., the current 7.8% rate is expected to go up a tick to 7.9%. The U.S. NFP number is expected to show a 120K increase. Personally, I would not be surprised if it came in over 200K.
As we suggested yesterday, there is a wall of worry surrounding both the euro (EURUSD), (FXE), (UUP) and the USD. Both seem to be currencies with flaws. Yes, there is volatility, but we think the trade will be in a wide trading range.
An alternative to the EURUSD might be a trade in the EURGBP (FXB), (GBB). The weak euro, combined with the better than expected British GDP, resulted in a sell-off of the euro versus the pound from .8160 to .8015. On the break, we crashed through the 200 day SMA and had a MACD sell signal. We would like to sell the EURGBP if we get a bounce back to .8070 vicinity. The initial target is .7930, but the longer target is .75.
(click images to enlarge)