European Economic Data Beats Expectations

Traders received new data on the health of the European economy Monday as trade expanded and Spanish industrial orders beat expectations. The data may indicate that European growth is bottoming and that the recovery is set to restart.

The trade balance across the Eurozone was reported at 6.3 billion euros, beating expectations of a 5 billion euro trade balance and higher than May's reading of +4.5 billion. The stronger trade balance is a positive sign for a recovery in Europe as the weaker euro has made exports more attractive to foreigners. The strong balance is also a positive for the global economy following last week's report from China that export and import growth slowed in June. As China's largest trading partner, good data from Europe is a strong indicator that China too may be bottoming.

New data on the Spanish economy was also released Monday, with industrial new orders falling less than expected to 3.7 percent in June as compared to economist estimates of a 5.0 percent drop and May's 4.3 percent contraction. New orders tend to lead growth, so a bottom in new industrial orders could be indicating future industrial strength.

Lastly, inflation data for the Eurozone was released, with core CPI growing at a 1.6 percent annual rate in June, the same as the rate in May. Tepid inflation is good for hopes of further easing, as the European Central Bank would act if medium-term inflation expectations remain low. At its July meeting, the ECB cut rates as inflation slowed and further rate cuts are expected by economists. Unlike the Federal Reserve, rates are above 0 percent and the ECB has room to cut rates further should conditions deteriorate.

Should inflation stay low and economic indicators bottom, stocks could rally. As a whole, the European Union is the world's largest economy, so any increase in growth there will spill over and benefit other economies. As China's largest trading partner, a trade that could exploit a bottom is going long the iShares FTSE China 25 ETF FXI. Chinese exports would probably grow with Europe's economy, boosting its economy and its stock market.

Investors could also look to go long the iShares Germany ETF EWG, as Germany's export-focused economy will benefit from the weaker euro and from a pick-up in global growth. The euro has depreciated from 1.45 in August of 2011 to 1.2263 currently. This depreciation makes exports more attractive to foreigners, boosting sales and the economy as a whole.