Schork Oil Outlook: Will America Be More Like Western Europe?!

The Grass is Greener on the Other Side of the Atlantic…

Over the past week the domestic markets have taken a beating over troubling macro-economic data. On Tuesday, existing home sales were reported to be 3.83 million, 33.85% below April 2010 and the lowest ever recorded by a considerable margin (the previous low, in the aftermath of the subprime crisis, came to 4.53M). Traders across the world took the news badly, and the S&P 500 index closed the day down 1.45%.

The next day was even worse: new home sales for July were down 12.4% to 276K, once again the lowest level ever recorded. But whereas existing home sales data only began in 1999, new home sales records stretch all the way back to 1963. Further, the house price index was down 0.3% MoM — lower prices and still lower sales? That’s bad news.

Luckily for traders, and for the American economy, good news and better fortunes can be found if we are willing to look eastward to the Atlantic...and beyond.

No, we are not talking about “The Situation” from the Jersey Shore’s $5m paycheck, we are talking about Western Europe.

This week alone, Dutch consumer confidence rose to 4.4 (analysts were looking for a drop to 3.8); the unemployment rate in Finland dropped from 8.8% to 7.5% (analysts expected 7.6%); Germany’s GDP rose 2.2% for the second consecutive quarter while private consumption reversed a 0.8% drop to rise 0.2%. Even yesterday (Thursday), the UK’s reported sales figure of +35 was the highest seen since August 2007.

Why does this matter? Consider the chart of retail sales in today’s issue of The Schork Report. The UK’s retail sales peaked (April 2007) in advance of domestic sales, cratered at the same time (December 2008) and the recovery even began to falter (January 2010) before the U.S.

The bottom line is that we are very closely correlated and to see the UK rally bodes well for the domestic economy — we export $75.39bn worth of goods to the UK and another $77.20bn to Germany, i.e., a combined 8.3% of our $1.838 trillion total export value.

If our customers do well, we do well. Regardless of your opinion on the Shore, that’s a situation we can all get behind.


Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.