Daily Commentary

MarketMinder’s View: Eurozone industrial production fell -0.3% m/m in July—not great, though not as poor as the -0.6% dip economists anticipated either. The reason: Non-durable consumer goods (those meant to last less than three years) rose 1.8% m/m, partially offsetting declines in durable consumer goods production and capital goods output. Interestingly, the economist interviewed here posited a heavy industry turnaround wasn’t coming any time soon, leaving the eurozone economy dependent on service sector growth. The implication is that this is problematic, which strikes us as strange. Services has long been the dominant economic sector in Europe—even in industrial powerhouse Germany. It has also buoyed growth in most of the world over the last few quarters. Fretting over a basic and more resilient-than-feared economic reality points to plenty of doubts on the Continent, suggesting even tepid growth can exceed low expectations.

MarketMinder’s View: Please note, MarketMinder is nonpartisan and prefers no political party or politician over another. Our analysis focuses on elections’ economic and market impact (or lack thereof). Germany will hold a federal vote in a little over a year, but state-level elections already have pundits sweating a populist wave going national after strong showings from the far-right Alternative for Germany (AfD) and left-wing nationalist Sahra Wagenknecht Alliance (BSW). This article attributes German populist parties’ ascendence to some political and sociological developments, which isn’t our focus here. Rather, we reckon chatter about German populism may grab some attention soon (especially after the US presidential election passes in November), so we think it is worth pointing out some recent trends. “The CDU, CSU or SPD still govern 14 out of 16 German states, but in the last federal election the SPD, with current Chancellor Olaf Scholz as its candidate, won just 25.7% of the vote. This was still enough to form a government together with the Greens and the FDP. However, for comparison: the SPD achieved its best result in a federal election in 1972 under Chancellor Willy Brandt, who secured 45.8% of the vote. Today, both major parties can only dream of such numbers.” Point being, Germany’s main center-right and center-left parties may not rule with the control they once wielded, but they will likely figure prominently in the next German government. Also, what is happening in Germany isn’t so different than elsewhere in Europe (see Spain). Populists may grab a greater share of parliament, but that has led to more disparate coalition or minority governments—a recipe for gridlock. It remains too early to handicap Germany’s election, but don’t pencil in a populist-led government just yet. Reality is likely to prove more benign.

MarketMinder’s View: Please note MarketMinder doesn’t make individual security recommendations—the banks mentioned here are coincident to a broader theme we wish to highlight. That theme: revisiting a false fear (specifically, rising delinquency rates) from earlier this year. Back then, we pointed out higher delinquency rates likely weren’t signaling broader trouble. The latest data confirm as much. “Delinquency rates across all household liabilities declined to just over 2% in August, compared with about 2.5% in 2019, Zandi said, citing data from Equifax, a consumer reporting agency. Late payments declined across credit cards, auto loans, personal loans, retail cards and first mortgages in August, the Equifax data showed.” See what some bank executives have presented, too. “‘Delinquencies obviously have picked up, but those are starting to crest over the last quarter or so,’ Citigroup Chief Financial Officer Mark Mason told investors at a conference on Monday. ‘That's a good sign.’ Customers with lower credit scores had shifted their spending toward purchases of household staples instead of discretionary items, Mason said.” While we don’t dismiss the fact some households are facing hardship, the broader backdrop has been better than many perceived—a hallmark quality of a bull market. For more, see last May’s commentary, “Household Debt in Perspective.”