German Perspective - 02.06.20
What happened this week: With a few exceptions, the easing process continues in most parts of the world. Ramadan has passed and the holiday destinations are getting ready to welcome travellers in the summer season. This is all dependent on whether we see any ‘second waves’ of infections, but I think that seems reasonably unlikely with all the precautions in place.
Governments continue to pump money into the economy, but whether this gives consumers confidence to spend remains uncertain. Boosting investment and consumption is not the only option for the liquidity. Looking at the stock markets one could believe the money might take a straight road back into the financial markets. Rising stock markets are at least positive for the general mood. Hopefully the stock markets will be a good indicator and give the direction for the second half of the year.
For the moment, statistics don’t help much. Almost every sector that uses leather has had a bad time since February. Retail with shoes, garment, upholstery and luxury accessories, automotive and aircraft were all hit and suffer now either from the congestion or from the caution of spending in uncertain times. Politics are not helping either.
Business this week was slow. In Europe, tanners are waiting desperately for new leather orders and hoping for existing ones. In China, domestic business and consumption may have recovered, but without sufficient export the Chinese economy cannot thrive and return to growth. In the other big consumer markets, we are entering the summer season which is traditionally not a strong consumption period. This means that the clock is ticking for everyone in the leather pipeline. If the economists are right, we will see a strong recovery after the summer and into 2021, but this might be too late for many.
Sales activity was once again limited this week. There was a lot of interest from China, but the WeChat groups had decided to test the market again and the uniform and synchronised bidding strategy was once again down by $3-4 on the levels of mid-May. This was not taken and so it was an almost lost week. Also, the weak USD was no help.
In Europe, the short-term purchasing and hand-to-mouth purchasing continued and so bits and pieces at steady levels were accomplished over here, but nothing really convincing for the coming weeks which in many countries will be again shortened by holidays. The period until mid-July is the last chance for regular business and sales before the summer break.
The Kill: With the covid-19 outbreak in the slaughterhouses under control the overall kill begins to resume. Opening restaurants will improve the demand for beef. Weights decline. The next weeks will be curtailed by holidays.
What we expect: It is hard to find any good reason for a short-term trigger. The general conditions will begin to improve, but the timing is bad just before the summer season. Politics are increasingly affecting the market. It might take a few weeks until we will be able to gather sufficient information for a real judgement.
