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A Small Bright Spot out of Europe

January 25, 2012 – 5:58 pm

There was a big surprise in the economic numbers arising out of Europe. They reported that the PMI (Purchase Managers Index) rose sharply in January to a reading of 50.4 an increase of 2.1 points. Any reading above 50 indicates growth and below 50 indicates shrinkage. For the five months leading up to January the number was below 50 strongly suggesting a recession. Now maybe the recession, as defined as two quarters of falling GDP, may not only be shallow but be avoided. Germany’s PMI for January rose to 54 from 51.3. They, being the largest economy in the EU, could hold up the weaker economies.

This good news will pivot on what goes on with the debt issue. Will Germany agree to a bigger bailout package that will essentially be back stopped with their money? Will the various countries be able to finance their huge debt at reasonable rates? Over the next couple of months Italy and others will be issuing massive amount of debt as their bonds come due. Who is going to buy that debt and more importantly at what rate?

Good news out of Europe will need to be followed by more good news about their debt. It’s a start.

Good Trading
Steve Peasley

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