Earnings have not disappointed but the global macro picture continues to show weakness. China export data contracted Tuesday and German business activity faltered. Global growth is not expected to be robust anytime soon, and this continues to play into selling inflationary assets.
The G20 met over the weekend and downplayed the threat that inflation posed to the global economy.
A driver behind global weakness has been the German economic slowdown. German business activity showed contraction Tuesday, which continues to increase the negative sentiment surrounding the eurozone.
Many analysts have called into question the European Central Bank's lack of rate cuts, but with the unrelenting economic deterioration a rate cut may be forthcoming.
Intermarket chart comparisons illustrate the recent downturn in Europe and how it has affected currency movements.
There are two charts above. The top chart is of MSCI Germany Index Fund
The chart below it is of CurrencyShares Euro Currency Trust
The next chart is of DJ-UBS Copper Total Return Sub-Index ETN
The breach of a long-term relative bottom highlights the decline in demand for industrial commodities and slowdown in worldwide manufacturing.
Goldman Sachs recently cut its commodities outlook, which signals the sour taste commodity weakness has left investors. Until Dr. Copper bottoms, global growth sentiment should remain constrained.
The last indicator is of Industrial Select Sector SPDR
The fiscal spending cuts have been a drag on growth, and the ratio above shows this. Industrials have been a mixed bag of results throughout earnings season so far, and are clearly influenced by both domestic and global economic trends.
Thursday, I will write about the implications of a global slowdown on risk assets, but as of now the intermarket trends continue to indicate a risk pullback.
At the time of publication the author had no position in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
- 10 Major League Towns Where Baseball Doesn't Cost a Bundle
- Men's Underwear Sales Show Bulge in the Economy
- When You Can Buy After a Foreclosure
- Investment & Company Information