Germanys Production Shines – But Markets Dont Really Care

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What's going on?

Good news for Europe: German industrial production a.k.a. output from manufacturing, mining and utility companies jumped by the most in more than six years in January. Thats good for non-Europeans too: we need everyone pulling their weight if the global economy is going to do well this year!

What does this mean?

German production had declined for three straight months heading into January. It was being held back, particularly, by demand from abroad (e.g. Asia, where Germany sells a lot of its manufactured goods). It seems that a boost in demand within Germany might be making up for overseas weakness.

Why should I care?

For the markets: Markets didnt really react probably because they are preoccupied with the European Central Banks meeting on Thursday. The coming days will see a lot of focus on whether more negative interest rates will be helpful or harmful to Europes economy. What Europe really needs is more growth and this is at least one positive data point. Its just one month, but it could mean that Europes economy isnt slowing as much as feared – and that would likely be good for European and, probably, global stocks.

The bigger picture: The US probably cant grow very much unless the rest of the world does too. One reason is that when the US economy does well, investors start thinking that the US Federal Reserve will raise its target interest rate. That causes the dollar to go up (as weve discussed before, investors want to own investments, like government bonds, in currencies that pay them higher interest). And a stronger dollar, versus other currencies like the Euro, makes it more difficult for US companies to sell goods overseas (as an example, if the European economy is doing poorly, it would be cheaper to buy goods produced in Europe because of the low value of the Euro). That would, of course, be bad for the US economy. So, effectively, US economic growth has a sort of ceiling applied to it by growth in the rest of the world.

Originally posted as part of the Finimize daily email.

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