We have a fairly quiet week on the data front for markets. The Bank of England decides on rates on Thursday. They should sit tight with the uncertainty surrounding the public vote on whether or not Britain should stay in the European Union (the vote is June 23rd). After the many averted disasters in Europe, a self-inflicted and likely fatal wound is highly unlikely. We'll say it: It isn't going to happen.
With that, the BOE should be a non-event. The event of the week will be the German GDP data. Before you stop reading, you should know that this is one of the most critical data points in the world right now.
The ECB is at full throttle trying to stimulate demand and inflation. And it's the German data that could very well be the signal that QE in Europe is working and that the ship is turning. A hotter growth number in Germany (the leading economy in Europe) could signal "green shoots" in Europe. The economic surprise index for European data has already been moving steadily higher since February.
Remember back in March 2009, Bernanke (Fed Chairman) sat in front of a camera in an interview on 60 minutes and said he was seeing signs of "green shoots" in the economy.
Here's what he said:
"I think all of our efforts, so far — have produced results. We're buying about $500 billion in — mortgages — in package and securities by — the G.S.E.s, Fannie Mae and Freddie Mac. And — that seems — to have brought down mortgage rates significantly. It allows people to refinance. To get out of high rate mortgages. We are seeing progress in — in the money market mutual funds, and in the business lending area.
And I think as those green shoots begin to appear in different markets — and as some confidence begins to come back — that will begin the positive dynamic that brings our economy back.
I do. I do see green shoots. And — not everywhere, but certainly in some of the markets that we've been — functioning in. And — we've seen some improvement in— in the banks, as well, certainly in some key cases."
That interview aired Sunday night, March 15th, 2009. If you bought stocks at the open the next day you felt 11 points of pain in the S&P 500 over the next 24-hours, and then 1,356 points of gain over the next six years.
Given the critical role Europe plays in the global recovery, we think signs of "green shoots" in Europe will be the final all-clear signal for global stocks and global risk appetite.
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