EUR – The Inevitable Lost Decade Does Not Mean Lots More Shopping ?

It has not been a good week for the Euro with mostly bad news, higher Sep unemployment (12.2%, a record high) and lower Oct CPI (+0.7%, weakest since 2009), leading some to speculate that the EU is heading for Japan’s lost one or two decade(s).

Indeed the period between 1991-2000 is the official lost decade whilst 2001-2010 is now seen as the second lost decade.

The lost decade concept for Europe surfaced 2 years ago, from my memory, with an Ambrose Pritchard piece in the Telegraph citing the situation of youth unemployment then.

“the jobless rate for youth is near 10pc in Japan. It is already 46pc in Spain, 43pc in Greece, 32pc in Ireland, and 27pc in Italy.”

It compares eerily similar to the situation this week.

“the EA17 Under 25 unemployment just rose to a new record high 24.1%, from 24.0% in August, driven by Spain at 56.5%, Cyprus 43.9% (was 28.0% a year ago – thanks template), Portugal at 36.9%, and Greece somewhere in the 58% ballpark”

The irony is that the Dax broached a new lifetime high of 9070.17 on 30 Oct, more than 2.5 times higher than its crisis low in Mar 2009.

Most of the problems in Europe was solved with clever accounting, austerity and passing the buck to the kids because it will take a long time for Greece to pay off her debts which will be undertaken by the young’uns, who happen to be mostly unemployed.

The renewed vigour in Eurozone investing is led by the rest of the world, hoping to profit from asset reflation and which is, pretty obviously, not leading to long term growth in employment which would lead to consumption and spending.

That is where Yellen got it right. She sees the heart of the matter in employment regardless of whether it is meaningful. Dialastrategist, one of our rare contributors, mentioned the concept of “involuntary unemployment” that Yellen doesn’t appear to believe in which testifies to the stories of former CFOs delivering pizza these days.

So much for the big picture view. Girls should only be concerned about the handbags – bless my dear friends out there. The homing instinct of girls in major cities is the shopping strip and the recognisable European brand names.

The EUR lost about 2% this week against the USD but it will not make Louis Vuittons cheaper this year because LV raised prices 12% in Japan (in Feb), 10% in the US/UK and 5-10% in Asia, including Singapore.

So much for the slower inflation and our strong SGD policy, and if Abenomics has anything to do with it, LV should continue to hike prices to anchor inflation.

Granted that I have been good and not bought a new bag this year, I am pleased to discover I actually bought my latest LV at near lows for the EURSGD late last year ! Who would have thought I have saved 18% (10% for the price hike and 8% on the exchange rate – because it was bought in France) ? Plus it was a limited edition which is unavailable this year.

The steep drop in the EURSGD has broken the 100 day moving average quite abruptly to near its 3 months low which should theoretically be a good support except that we have the ECB next Thursday where the market is widely anticipating some easing or hint of easing (more LTRO) to temper the EUR’s strength and Juncker, Europe’s longest serving leader, just lost his post in Luxembourg on Friday despite winning the most seats. Going forward into 2014, we have Latvia to adopt the EUR currency on 1 Jan.

Market expectations are that this bout of EUR strength in the past month is but temporary and that EUR should weaken in the longer term.


Thus it stands to reason that the EURSGD could target lower in the coming days, first target 1.65 where the 200 day moving average lies.

List of European countries with negative or near zero inflation.

1.  Bulgaria (not in the EUR currency union) -1.60% Sep YoY CPI
2. Greece -1.1% Sep YoY CPI
3. Cyprus -1.03% Sep YoY CPI
4. Ukraine(not an EU member)  -0.5% Sep YoY CPI
5. Latvia (joining EUR currency 1 Jan 2014) -0.40% Sep YoY CPI
6. Switzerland (not an EU member) -0.1% Sep YoY CPI
7. Spain -0.1% Oct YoY CPI
8. Sweden (not in the EUR currency union) +0.1% Sep YoY CPI
9. Portugal +0.1% Sep YoY CPI
10. Ireland +0.2% Sep YoY CPI

Pity some friends just left for their shopping trip on Friday. Well, there is always the next friend for that new LV.