Article / 09 November 2015 at 4:58 GMT

3 Numbers: Weak emerging markets could pinch German exports

editor/analyst /
United States
  • Weak market conditions could squeeze Germany’s exports in September
  • Will the Eurozone Sentix Investor Confidence update show signs of stability?
  • The Fed’s LMCI to provide more perspective on October’s surge in US payrolls

By James Picerno

Last week’s surprisingly bullish report on US payrolls in October will continue to colour the economic updates this week as the crowd comes to terms with what looks like a sure bet that the Fed will start to raise interest rates next month. 

In the meantime, today’s update on foreign trade for Germany may show more fallout with exports in the wake of the slowdown in emerging markets. We'll also see a new read on Eurozone investor sentiment via Sentix and later, the Fed releases its monthly update of its Labour Market Conditions Index. 

 Heading down? ... weak market conditions could squeeze Germany's exports. Photo: iStock

Germany: Foreign Trade Report (0700 GMT) Last week’s numbers on factory orders and industrial output were surprisingly weak, raising new questions about the blowback from emerging markets for Europe’s largest economy.

“After a good development in the first half, German industry is currently experiencing a light headwind from the world economy, in particular due to a slowdown in some large emerging markets,” advised Destatis, the country’s official data division.

A rebound in the near term is considered unlikely, but any fallout is expected to be relatively contained and little more than a minor risk for the Eurozone generally. Bernenberg Bank last week noted that “we find no strong evidence that the controlled slowdown in China, the recession in some other emerging markets and the "Dieselgate scandal" are hurting demand beyond the export-oriented sectors directly affected.”

Nonetheless, the road ahead for Germany could be rocky as this export-oriented economy comes to grips with a slowdown in China and other emerging-market nations. “Disappointing industrial production doesn’t bode well for German third-quarter gross domestic product,” said the chief economist at ING-Diba AG in Frankfurt last week. “The Chinese and emerging-markets slowdowns are also leaving their marks on the Eurozone’s largest economy.”

Today’s update on foreign trade for Germany will test the view that the blowback will be relatively light. The previous report certainly painted a worrisome profile. Exports in August posted the biggest monthly decline – a drop of 5%, seasonally adjusted – since the financial crisis. Anything that resembles a repeat performance in September will raise more doubts about Germany’s near-term growth outlook.

Exports are still growing in unadjusted year-over-year terms, which offers some cover for rejecting the bearish view. But the trend is faltering and so the market will be sensitive to another round of deceleration.

Eurozone: Sentix Investor Confidence (0930 GMT) Is the recent stumble in Europe’s macro trend a soft patch or a sign of deeper trouble? No one’s really sure at this point, although there’s a growing sense that the recent downshift may be stabilising.’s updated GDP estimates reflect fractional but positive revisions. The initial data on third-quarter GDP that’s due on Friday is expected to post a 0.25% quarter-over-quarter rise. That’s well down from Q2’s 0.4% increase, but the latest Q3 nowcast marks the first rise in expectations, albeit fractionally, since late September. A similar reversal can be found in the Q4 projections that were published on Friday.

The outlook for economic activity is still weak, even by Europe’s low standards. But arguing that the worst has passed will draw more support if today’s sentiment data hints at stability. Recent updates for the Eurozone Sentix Investor Confidence Index, however, suggest that economic momentum remains vulnerable. The benchmark slumped to 11.7 in October, a nine-month low. Sentix noted that both the expectations and current-conditions data dropped in the previous update.

On the bright side, Markit’s composite data for manufacturing and services looks relatively stable through last month. Nonetheless, if the Sentix benchmark for the Eurozone posts another slide today the case for expecting stability, much less stronger growth, will remain on thin ice.

US: Labour Market Conditions Index (1500 GMT) Friday’s surprisingly strong jobs report for October was a game-changer. The crowd was looking for a rebound in payrolls, but the 271,000 surge was far above the consensus forecast, pushing the odds of a rate hike close to a near-certainty for the Federal Reserve’s policy meeting next month.

“It's pretty clear that the Fed would be justified in hiking in December if the economy doesn't hit another air pocket,” observed the chief portfolio strategist at Wells Fargo Funds Management.

Nonetheless, it’ll be interesting to see how today’s broad read on labour conditions stack up via the Fed’s multi-factor index. A weak number in today’s October read probably wouldn’t derail the renewed case for a rate hike next month, but it would trim the odds a bit. On the other hand, if growth in payrolls is really on the upswing again we should expect to see a degree of confirmation in today’s release, i.e., a robust increase.

The last several updates of the Labour Market Conditions Index (LMCI) have reflected a lacklustre trend, which aligns with figures from other sources. LMCI ticked down to a zero reading in September, the lowest since April. Given Friday’s bullish update, LMCI should register a decent increase in today’s report. If not, maybe there’s less to October’s revival than the headline data suggests.

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– Edited by Gayle Bryant

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform.


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