German Perspective - 09.06.20
What happened this week: The strange times continue. We got another example of how little things in the markets are synchronised. Stock markets continue to rally and the levels they are climbing to are impressive. There doesn’t seem to be much correlation with reality, but then investors mostly trade the future and not the present. Investors are not always right, but the stubborn trend of recovery is impressive and given those pouring money into the markets are often privy to better information than the average person we have to assume that there is an recovery on its way.
With only a few exceptions, the easing continues, independent of the coronavirus cases registered in several regions and countries. We are not going to enter the dispute about the actions taken, but lockdown and massive restrictions are causing relatively more damage than the virus itself. Figures from the labour market show rising unemployment. Why do we spend time discussing the general markets? Well, because they display confidence which is exactly what we are missing in the economy and in particular in the hide, skin and leather business.
Global manufacturing, maybe with the exception of China, continues to be mostly paralysed. The wait-and-see attitude is congesting the product flow. The better the news and financial markets seemed this week the less tanneries across the globe decided on their productions. You hardly find anyone who has any positive plans and most people just tell you they will cut their production or say how long they are going to close for.
It is not the first time in this industry that we have seen this. Long term, the hide market has always been a good indicator for the future of the economy. Short term, the same people have not been so good. The business is still very emotional and even the global corporations at the end of the pipeline are not a big help. Their systems are set for reaction and not for action. As a consequence, this week was, from our perspective, the slowest one in the entire coronavirus period. Even during the total lockdown, tanneries and manufacturers were busier than at the moment. In theory it can be explained but in practice it's difficult to understand. Yes, we are in the low season and we have the summer in front of us. But the current production which is possibly around 30% of capacity would not even reflect the minimum demand. It certainly does not reflect any expectation of an improvement.
This does not correlate with the quick reactivation of general life. Nobody is taking any decisions and everyone is just replying: “We don’t know, we have to wait for our client.” Well, there's not much to wait for at the beginning of June and this is true for every year, with or without coronavirus. With the action taken now it's going to be interesting to see what the consumer is offered in October. Business this week was extremely quiet: spot deals here and there and specialties, that was it. Asia was trying to take the chance to check what kind of bottom fishing is possible.
The kill: The kill recovered mainly for the items related to export. Nothing big, but also nothing unusual for this time of the year.
What do we expect: For the coming week we shall be curious if the positive tone of the general financial markets plus several commodities is going to encourage confidence in tanners. There is no reason to believe in a market bonanza now, but anyone who has confidence in his business might be well advised to wake up.
