This morning’s German IFO Index release for October appears to confirm that the country remains the driving force for European growth. The index which is a survey of 7,000 companies within the manufacturing, trade and construction sectors climbed to 110.5 in October, from 109.5 in September and beat market expectation. The report shows manufacturing expanding at the fastest pace in over three years in response to stronger foreign demand from the US and Asia according to the survey; with the current conditions index and the expectations index also surprising on the upside.
Compare the German experience with unemployment at around 6%, the lowest since reunification in 1990, with France. France is not only trailing in the economic stakes but employment grew just 0.2% in the second quarter, lower than Spain, Italy and the UK. With French mainland unemployment running at 9.6% and the rate for under 25 year olds up at 24%, France appears to be struggling to compete even with a weaker euro against the yen, -13% since year end, and the US dollar up at levels not seen since the first quarter of this year; quite the contrary to the German experience.
Indeed the US dollar rally which started in August has extended to levels not seen since last February, now trading at 98.64 as measured by the DXY, an index of major world currencies against the US dollar, which is now up 5.5%, to levels seen in June this year. Sterling is the worst performer this year when we look at a universe of extended majors against the greenback with a total return, i.e. including interest rate differentials, of -16.6%, followed by the Swedish krona at -5.5%, and the Mexican peso at -3.78%. Surprising the Chinese renminbi is only marginally lower at just -0.45%, even after recent moves lower as the interest rate differential for the Chinese currency really does help during weaker periods.