The global capital markets are finishing the week on a more stable note than it began. Indeed, since the middle of the week, many of the besieged emerging market currencies, like the South African rand, Turkish lira, and Argentine peso have posted some corrective upticks. Today, the MSCI Emerging Market Index is snapping a seven-day slide register a modest gain, ahead of the Latam session.  

The euro is trading firmly within yesterday’s range when it made recorded the high for the week near $1.1660. Like yesterday, in the face of an unexpected drop in German factory orders, the euro is showing resilience despite more disappointing German data. The real sector data is not nearly as strong as the survey data suggested. German July industrial output was expected to post a small gain and instead fell 1.1%. To put it in perspective, consider that the average monthly change this year is -0.2%. In the same period last year, German industrial output averaged a 0.5% increase per month.  Germany also reported a surprising 0.9% drop in exports. Economists expected a 0.3% increase. German exports edged 0.1% lower a month on average this year compared with a 0.8% average in the first seven months of 2017.  

Germany’s trade surplus fell to 16.5 bln euros in July, down from 21.8 bln euro in June. It was not simply a case of weakening exports, but imports jumped 2.8%. The broader measure, the current account surplus dropped to 15.3 bln euros from 26.6 bln. Germany’s external surplus is controversial in the EU as well as with the US. The deterioration reported today, however, will do little to assuage critics, who want to see a change in German macroeconomic policy in favor of greater investment and a less restrictive fiscal stance.  

To be sure, Germany is not the only source of disappointment in the EMU today. The Dutch reported a 0.9% decline in manufacturing output.  It is the second consecutive decline.  Spain reported a 0.3% decline in July industrial output. It is also the second consecutive decline and the third fall in the past four months. France provided the unexpected good news. Industrial production and manufacturing output were stronger than forecast (0.7% and 0.5% respectively, when both were expected to rise 0.2%). And, the considerably smaller trade deficit (3.5 bln euros down from a 6.02 bln euro shortfall in June) allow France to record its first current account surplus since February.