Europe: Weaker euro is not helping exports

Outlook:

It’s another short week. Today we get the Dallas Fed manufacturing survey. Tomorrow it’s US trade and Case-Shiller (for October). Wednesday it’s NAR pending home sales. On Thursday, the bond market closes at 2 pm and so does FX, but equities trade to the bitter end, which is a biggie—end-month, end-quarter and end-year. Friday is New Year’s Day (and China’s manufacturing PMI). Technically, it’s also the day Neel Kashkari (you remember him from managing TARP) becomes president of the Minneapolis Fed.

The WSJ has a story today on why currency effects are far less powerful these days on trade data because the global supply chain is chock-full of imports. The OECD finally did some useful work and comes up with the import component of exports. “The foreign content of Switzerland’s exports, for instance, increased to 21.7% in 2011 from 17.5% in 1995, while the imported content of South Korea’s exports almost doubled, to 41.6% in 2011 from 22.3% in 1995.”

In Europe, the weaker euro is not helping exports much---“… in the three months to September, eurozone growth was held back by a more rapid growth of imports over exports, while industrial output flatlined. Experts believe it takes about 12 to 18 months for foreign-exchange moves to have their full impact on trade flows, so the effect would have been felt by now in both the eurozone and Japan. The euro started weakening against the dollar in early 2014, while Japan is about three years into its currency depreciation.”

This is not to say the too-strong dollar is not harming US exports. “For the economy as a whole, the foreign share of U.S. exports is at the lower end of the global range, at around 15%, compared with more than 25% in Germany.” We get the trade data this week.

As usual at this time of year, the press is full of comparisons of stock market performance. The WSJ goes into head-spinning detail. One little point worth repeating (maybe)—“Bets on the market’s decline have been on the rise. Short interest rose to a four-year high of 3.1% as of Dec. 22, according to data provider Markit.”

We advise Readers to square up and stay square into next week. It’s a coin-toss at this point whether the dollar recovers gains or not.

Tidbit: On Sunday, Fareed Zakaria’s tv show on CNN, “GPS,” had a one-hour piece on "The Long Road to Hell: America in Iraq." You’d think we don’t need another documentary on Iraq but go find this one online—it’s brilliant.

Holiday Schedule: We will publish today and tomorrow but not the rest of the week. No reports on Wednesday through Friday. We will resume publication on Monday, Jan 4.