Something funny happened in January as the EURUSD rose from its period low in the 1.26 level: German Industrial Orders imploded as the joint currency strengthened. But not so much for domestic orders within the Eurozone, which actually increased by 0.9% in January (as a reminder, the sole reason mercantilism still works efficiently within the Eurozone is that the Bundesbank, via TARGET2 and the ECB, subsidizes the import economies of the periphery via recycled Current Account proceeds, as shown here). Where the demand collapse came from was non-Eurozone (read China and America) orders which fell a whopping 8.6% in January, after posting a 12.1% rise in December as the EUR was plumbing 2011 lows. As a result, the blended orders rate was down 2.7% on expectations of a 0.6% increase. Does it become clear now why resolving the Greek crisis is not in Germany's interest, as all that would do is send the EUR even higher, and impair German industry - the lifeblood of Europe - even more? Alternatively, does it become clear why Bernanke is just itching to shift the weak currency regime from Europe and back to the US again, with the only thing holding him back being the fear of crude exploding, especially if some Made in Israel bunker busters explode somewhere deep in the Zagros mountains?
More from Goldman on the German industrial collapse:
Manufacturing orders dropped 2.7%mom in January after +1.6%mom (revised down slightly from +1.7%mom initially)
Domestic orders increased by 0.9% after a contraction of 1.8% in December, while foreign orders were down 5.5%mom after +4.3%mom in December.
Orders from within the Euro-zone fell by 0.4%mom after +6.2% in December while orders from outside the Euro-zone plunged -8.6% after +12.1%.
Looking through the usual volatility of the series – which is high - orders were down 3.1% (on the 3m/3m basis).
Orders from within the Euro-area have deteriorated by more in Q4 than from the non-Euro-area (again on a 3m/3m basis, see chart below).
The manufacturing PMI showed a rebound in the new orders component in January from 44.7 after 48.2, and stabilized at that level in February. The correlation between the PMI index and orders is quite high (see chart), and despite monthly volatility, points to some further stabilization in new orders in February.
