Chris Bullock’s comments on today’s news of the German and French growth rates:
“Today’s headline GDP data was mildly positive for Germany (up 0.3% Q/Q) and France (flat Q/Q) but one must bear in mind that this reflects the past not the future, and investors would be wise to look forward to events coming up in September and beyond. We are already half way through Q3, and leading indicators have been weak over the past few months. Manufacturing PMI numbers are firmly in the contraction zone, and even in the case of France andGermany, has fallen to levels not seen since late 2008 / early 2009. Today’s data releases also illustrated a continued deterioration of the German ZEW economic sentiment survey, whilst Eurozone GDP growth was confirmed at a 0.2% Y/Y decline, increasing the chances that a technical recession will be confirmed before the end of the year.
September in particular looks to be a busy month, with highlights including the German constitutional court voting on the legality of the ESM, general elections in the Netherlands, the start of the election campaign in Italy, the 2013 budget in France, the outcome of the independent banking audit in Spain, and the return of the Troika to Athens to determine whether to release further funding to Greece. Mario Draghi’s pledge to do “what it takes” has improved sentiment, but as long as it depends on strict conditionality, we will need to see the likes of Spain formally request financial aid before they can act. It is easy to imagine that the respective governments of Spain and Italy will be reluctant to accept onerous terms, so this looks to be a saga that may have many twists and turns still to come.
We remain in a world of ultra-low rates, but ultra-low growth, as the great deleveraging slowly plays out. In this environment, demand for fixed income looks likely to remain high, setting a favourable scene for corporate debt issuers and investors alike.”
Chris Bullock co-manages the Henderson Horizon Euro Corporate Bond Fund.
Tags: chris bullock | conditionality | contraction | corporate debt | debt issuers | deterioration | economic sentiment | election campaign | elections in the netherlands | fixed income | gdp data | gdp growth | general elections | german constitutional court | leading indicators | mario draghi | onerous terms | q3 | recession | troika