Image source:
What's going on?
What goes up…must come down? It turns out that eurozone industrial output (i.e. manufacturing, mining, utilities) dropped sharply (-1.2%) in May, erasing much of the gain it had made the month before. While not necessarily cause for alarm, its a sign that Europe isnt exactly on the sturdiest of feet right now.
What does this mean?
Its quite possible that were going to see a weak quarter for European growth versus the first quarter. Wednesdays data from Eurostat revealed a larger decline than many had forecasted (the consensus had been 0.8%), and thats likely to spill over into overall GDP. Keep in mind, however, that this is only one month and theres still time for more encouraging data to emerge (also, Aprils number was very strong).
Why should I care?
For markets: Europe is in for a bumpy ride, and that could affect global markets.
With the fallout of the recent Brexit vote still underway and economic growth that appears fairly lacklustre, uncertainty in the worlds largest economic bloc will almost certainly affect companies with sales in Europe (e.g. airlines that fly to Europe or American exporters that sell into Europe). Expect to hear comments regarding Europe this earnings season.
The bigger picture: Keep an eye on whether companies invest in the future – it can tell you a lot.
The reported decrease was partly driven by a reduction in production of things like large equipment. That could be a sign that businesses arent investing as much in equipment for their future (e.g. a furniture factory didnt buy new power saws so it cant boost its production and grow its business). This is only one weak month – so its not a big deal yet, but its worth watching.
Originally posted as part of the Finimize daily email.
The top 2 financial news stories in 3 minutes. Join over one million Finimizers
