2 months into the year and its time to take a step back and analyse the macro and then end the analysis for today with a quick glance at the technical setups which have been tracking our trends all through second and third week of Feb.
Lots to analyse and so lets dive straight in.
German IFO packs a punch
The March Ifo business climate for German industry and trade strongly rose from 108.3 to 109.6. This significant increase was mainly caused by the forward looking expectations component. The trend-setting business climate for manufacturing also posted a solid gain (from 13.4 to 14.3). The Ifo business climate has risen four months in a row. Its five-months moving average rose for the first time since July 2011 (see chart below). Ifo signals the mini recession to end soon. This upswing signal is quite reliable. If the five-months moving average of Ifo goes up, 90% of these upswing signals are followed by a sustained upward movement in industrial production. The risk that Ifo gives a false signal is thus only 10%. Furthermore, Ifo does not contradict the German purchasing mangers’ index (PMI) for manufacturing. Despite its yesterday’s surprising decline, the decisive four-months moving average of the PMI is pointing upward. A four months smoothing of the PMI makes sure that the share of false signals is below 10%.
n Q4, German GDP declined by 0.2% on Q3. The rise in survey based leading indicators supports our view that GDP should not fall again in Q1. However, the still unresolved sovereign debt crisis will not allow for a classical strong recovery in the remainder of the year. For 2012 as a whole, we expect the German economy to rise moderately.
US industrial production was unchanged in January as a weather-related decline in energy output dragged the headline number down. The key manufacturing sector, however, expanded 0.7% on top of upward revisions to earlier months, underscoring that it remains at the forefront of the economic recovery.
The January report on US industrial production disappointed only at first sight. True, overall production was flat, falling short of expectations of a significant gain. But unseasonably mild weather played a major role, resulting in a 2.5% decline in output at utilities. After a string of ever milder months, energy production is now 7.5% below the year-ago level. Once the weather normalizes, this should lend support to industrial production in the coming months. More interesting than the headline number is that the core manufacturing sector increased outpit by 0.7%. Moreover, this comes after a strong 1.5% gain in December that was revised up from 0.9%. The numbers are in line with the uptrend in the ISM manufacturing index and
the sizable increase in payrolls and hours worked at factories in January. Among the industry groups, the 6.8% increase in auto production stands out. The 2.2% gain for machinery is also noteworthy, as a setback could have been expected in January after the phasing-out of bonus depreciation at the end of 2011 had boosted demand. All in all, manufacturing has picked up momentum (chart), and is now expanding at a solid
pace as demand from both consumers and businesses has improved. Nevertheless, production is still about 5% below the pre-recession level.
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We will continue to trade our currency models and portfolio will be updated with new trades.
Do take time to pour over our performance sheet as this is one of those months where we were in a spot of bother but subs would have learnt one of the key lessons on trading when you have your back to the walls.
Performance for week 25 feb 2012
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See you tmrw