While everyone is focused on US Indices which are chopping and trying to break out, I’m noting that the DAX has already broken out to a new All-Time-High !
What I find weird about the whole thing though is that in the meantime the Chinese market is collapsing: On a relative basis the DAX has outperformed the HSI by nearly 20% in a month (chart below)! I find this strange because the DAX is usually a bellwether of global economy and used to be quite correlated with Asia. This is a called a D I V E R G E N C E !
So lets assume that Germany, like the US, has also decoupled from the rest of the World. Well, today 6th December, German Factory Orders came in … DOWN 7.3% yoy. So much for de-coupling.
The only rational explanation for the DAX strength is of course that the Bond Yields in Europe have collapsed (courtesy of a Yellen + Lagarde tag-team!), and the DAX is basically just tracking the strength of the Bond Market.
Add a sprinkle of a weaker Euro and boom, there’s your ALL-TIME-HIGH!
Old timers will remember how many times before we’ve seen this bullish setup in Europe, only to be punched in the face by the cold reality that ultimately Germany just makes stuff that it sells to the rest of the World, INCLUDING China.
So any sustained strength needs a global recovery, INCLUDING China.
The Chinese stock market, the Oil price, the Factory Sales data, the PMIs etc etc do not give such indication at this point in time.
Anyway, as I keep repeating for my regular readers: If you don’t have to invest in Europe, then don’t. It’s better to stick to America, where all you have to do is figure out what Yellen wants ;)
Disclaimer:
This is NOT financial advice. This is Parody, often in its finest form!
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