Macro digest: Sell CAC40 & France

Sold CAC-40.I CFD's @ 4.140.37 with stop at 4.250 (on Close)

France and its stock market owns the luxury goods market. According to Bain & Co. they are 25% of the world market for these sought after products. The problem with this "luxury" is of course that EMG growth overall and China growth is slowing dramatically under the headline: "quality growth instead of nominal growth".

I have just been to several of these luxury markets: Hong Kong, Singapore, Indonesia, Brazil and Dubai and except for the later all of these markets are in a deliberate slow-down move often engineered by the governments in those countries as either current account deficits (Indonesia & Brazil) or misallocation (China, Hong kong) of free floating capital have created bubble like economies in mainly housing and investments.

The Chinese President Xi have over the last few days indicated that 7.5% no longer is feasible - a Xinhua news story have the headline: Xi says environment for economic development isn't optismistic. This is by "official" China being interpreted to mean a new growth target for 2014 of 7.0% (down from 7.5% recently).

I have pointed out before (using a Barclay chart) that every 3rd plenum have a "growth tax" of roughly 200-400 bps of growth: 

 France, the country, remains the elephant in the room in Europe. Certainly part of core Europe but now trailing their other core partners in both growth, productivity but also on its ability to create a mandate for change which is overdue. Even the EU is now getting concerned about France (and that takes a very negative outlook):

EU issues warning to France over 2014 budget

Finally, Unilever CEO Mr. Polman pointed out that even on the company level EMG data looks vulnerable (Unilever is the EMG company...)

"Chief Executive Officer Paul Polman said the economic slowdown in emerging markets is here to stay as many countries need to enact structural reforms to adjust to new conditions after the boom of recent years"

My friend Mish wrote excellent piece on the whole sector the other day: LINK

A catalyst for the short position being that we broke 100 MA on the close yesterday:

The timing ahead of the ECB could cause some "noise" but a rule is a rule:  What to expect from ECB meeting

Safe travels,

Steen

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

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