Can Germany's Employers Turn Europe Around?
Throughout the second half of 2011, investors watched the sovereign debt crisis in Europe slowly deteriorate. Multiple weaker countries have buckled and are now relying on a bailout package administered by the European Financial Stability Facility.
In order to complete the bailout fund, debt investors are looking to strong European nations including Germany and Great Britain to show signs of growth. Otherwise, those investors will not have faith in the long-term stability of the affected European nations.
Today at 3:55am, Germany's unemployment rate came out and let investors know how the overall economy is doing. The number determines how companies such as Deutsche Bank (NYSE: DB), Deutsche Telekom (PINK: DTEGY), and Merck (NYSE: MRK) have helped the economy by hiring people. These companies essentially reflect how the average US consumer is able to find jobs.
Positive unemployment indicate that consumers are able to put themselves out there and find jobs, even in the face of uncertain economic times. This indicates to traders that things may be better, after all, and tends to move the equity markets higher.
This morning, traders looked for the unemployment rate to be lower than the estimate of 6.9%. The actual unemployment rate turned out to be 6.8%, meaning that German citizens were going to work more than they did in November. The positive news moved European equities higher, particularly the DAX Index. The German numbers may also move US equities higher.
Long-term investors should also keep in mind the unemployment rate from the prior period. Germany's unemployment numbers come in every month, so long-term investors should keep track monthly snapshots of the job market. For example, the previous Initial Claims number was 6.9%. Any aberrations or sudden drops could mean that consumers are unable to find fortune with the economy and that companies are unwilling to re-invest in the public.
Investors should also keep in mind that the holiday season may artificially increase employment. Many companies hire temp workers to cope with abnormally high retail volume. However, if investors see a sudden increase in jobless claims, the economy may not be in the best position.
Consumers have a few options when it comes to understanding the US economy. The unemployment rate is one indicator that could help investors gauge where the economy is heading into the future. Investors should also find real-time news feeds in order to stay on top of major developments that move markets.
Follow me on Twitter at @MakinMarkets
Bullish View:
Traders who believe that Germany's unemployment will be positive might want to consider the following trades:
- Long European Equity futures by purchasing shares or call options. If you go with the options strategy, you could purchase a straddle just to reduce risk associated with the bet.
- Short the US Dollar Index, which typically moves inversely to the Euro, which is likely to move higher on positive German news.
- Purchase option straddles of an ETF that tracks European equities like the Vanguard MSCI Europe ETF (NYSE: VGK).
Traders who believe that the unemployment rate will not be positive may consider the following positions:
- Short US equity futures. The futures market typically relies on technical analysis for entry and exit points, so identifying the next support level may be useful.
- Long the Dollar Index, which is likely to move up if the Euro goes down.
- Short the Euro, which could go down as investors fear that Europe will be worse-off than the United States. Negative German employment may indicate to investors that the European situation than previously thought.
Sign up for a free subscription to the Weekly Radar - Benzinga's weekly newsletter highlighting technical levels and analysis for major markets for the week ahead.
