UK inflation below target German shares broaden rally

Germany’s ZEW investor confidence survey hit 3 ½ year highs at 50 in February, while the expectations index fell to 55.7 from 61.7. These figures came in as quietly as EURUSD climbed to the highest level since January 2nd.

While much attention is placed on weak Eurozone inflation figures and the implications for ECB monetary policy, not much emphasis is placed on the implications of a stronger purchasing power to Eurozone consumers.

This may help explain the fact that consumer discretionary stocks are the best performing sectors in Germany.

Dax exceptional breadth

Meanwhile, 100% of the members in the DAX-30 index are trading above their 200-day MA, vs. 73%, 79% and 71% for the Dow Jones Industrials Index, S&P500 and FTSE-100 respectively.

The 100% breadth is the highest since June 2007. The breadth indicator (200-DMA participation) sheds light on any unfolding divergence between the price of the index and the number of individual components.

In today’s case, the 100% participation indicates perfect participation from individual shares in the whole index. Year-to-date, the leading sectors have been consumer discretionary and consumer staples.

As the charts indicate below, all of Germany’s business and investor survey are at multi-year highs, justifying the run-up in the equities and the single currency. As extreme as the breadth of equity participation appears, the data remain supportive.

UK inflation below target as jobless figures await

UK Inflation at 3 ½ year lows, UK unemployment at 4 year lows and the currency is at 3-year highs.

In fact, the pound is posting is best 7-month period since the 17% posted in March-October 2009, when global markets were ignited by joint BoE-Fed quantitative easing to the benefit of risk currencies such as GBP.

Lower inflation usually implies a weaker currency, but in the case of the UK, the steady decrease in CPI has occurred in tandem with the sharpest decline in unemployment since the late 1990s.

Sterling drops off its multi-year perch after UK January inflation falls below the bank of England’s 2.0% inflation target for the first time since November 2009 to reach 1.9%.

Today’s inflation figures mean that earnings growth after inflation is at -1.0%, which is the closest level to positive growth since October 2012.  Albeit negative, the trend of growth can point to prolonged improvement as long as inflation is contained by a robust sterling.