· Mixed but weakening, conditions.
The monthly EU sectors show that weakness still stalks the EU region. Still some sectors have improved this month. The EU industrial index improved in November to +3 from +2. The retail index improved from +2 to +4. Despite that consumer confidence slipped to -7 from -5. The construction sector also switched from being flat to a -1 reading. But the largest drop was in services where the index fell to +14 from +19. The services readings now stand only in the 52nd percentile of its range. Retailing and construction are still in the 90th-something percentiles of their respective ranges. The industrial sector is now in its 88th percentile. But consumer confidence has slipped to the 69th percentile. While there is some mixture in these figures it is clear that the consumer is beset with concerns while the MFG sector has held up. Construction, not having ever been very strong, give us a very high positive range ranking on a raw reading of -1.· The good, the bad and the ugly. Across EMU countries we find weaker conditions in general. The overall sentiment is at a ranking of only the 71st percentile. France still ranks in its 81st percentile. Germany has slipped to its 64th. Italy and Spain hover around the 50% mark for overall sentiment.
· Risk of action…and inaction. On balance, Europe is slipping but not yet doing poorly. But we know that exchange rates work with a lag and there is more of that strong euro impact in train. Also, that the recent inflation headline of 3% will send chills up the spine of the ECB. Despite concerns of an overly strong EURO the ECB with too-strong money and credit growth will have a hard time balancing the things it wants to do (hike rates and fight inflation) with the things it does not want to do (weaken already weakening growth and spur an even stronger euro).