observations from Goldman: on Europe’s absolute manufacturing disaster:
The Euro area final manufacturing PMI printed at 50.7 in August, 0.1pt below the Flash and the consensus estimate (Flash, Cons: 50.8). This implies a 1.1pt contraction from the July print. The French component was revised up relative to the flash (+0.4pt), while the German component was revised down (-0.6pt). The August figure in both Italy and Spain showed continued loss of momentum, with the manufacturing PMI easing 2.0pt in Italy and 1.0pt in Spain relative to the July print (against a consensus expectation of a smaller decline).
- The Euro area aggregate Final manufacturing PMI printed at 50.7, 0.1pt below the August Flash owing to a considerable 0.6pt downward revision in Germany, outweighing a 0.4pt upward revision in France.
- The breakdown of the manufacturing PMI reflected the weaker headline print: New orders fell 1.4pt to 50.7 while stocks remained stable, thus implying a 1.3pt contraction in the forward-looking order-to-stocks ratio. Employment edged 0.6pt lower and remains relatively weak at 49.3. Output also declined by 1.7pt, now standing at 51.0.
- The Euro area manufacturing PMI now stands 5.7pt below the peak it reached in January. The manufacturing PMI for the Euro area is now roughly back to the levels seen around a year ago. That said, the PMI remains around 7pt above its low observed around mid-2012.
- Relative to the July print, the Final August manufacturing PMI shows a 1.0pt fall in both Germany (to 51.4) and France (to 46.9). The Italian manufacturing PMI fell by 2.0pt (to 49.8) against expectations of a smaller contraction (Cons: 51.0). The Italian PMI has eased 4.2pt since its recent peak in April, pointing to further weaknesses in Italian manufacturing activity. Its Spanish counterpart also declined by 1.0pt but remains a higher level of 52.8 (Cons: 53.3).
- Developments outside the major Euro area economies were mixed: the Dutch PMI declined 1.8pt (to 51.7). But the Greek PMI rebounded robustly by 1.4pt to 50.1 and the Irish PMI showed a strong gain of 1.9pt (to a very robust 57.3).
So in the aftermath of so much bad news which “guarantees” (at least according to the sellside penguinry) that Draghi will have no choice but to ease further this week, we are stunned to find Europe not hitting new record highs: according to RanSquawk, European equity markets trade in minor negative territory, as tentative sanctions risk and continued conflict in Eastern Europe sends stocks lower.
Furthermore, poor Eurozone data in the form of German, Italian and Spanish Manufacturing PMIs highlighted the continued challenges faced by Eurozone policy makers and central bankers. The FTSE-100 underpeforms after Goldman Sachs downgraded Royal Dutch Shell to neutral from buy at Goldman Sachs. Nonetheless, the Swiss Market Index has shrugged off the concerns as blue-chip Novartis trades at record highs after their experimental heart failure drug reported very strong results on Saturday. 11 of 19 sectors rise, led by healthcare. 46% of Stoxx 600 members gain, 52% decline. Eurostoxx 50 +0.2%, FTSE 100 -0.1%, CAC 40 -0.4%, DAX -0.3%, IBEX -0%, FTSEMIB -0.5%, SMI +0.7%.
Asian markets have been edging on the front foot overnight despite these headlines. The Nikkei is up by about 0.2% whilst China is up by about four-tenths of a percent as we type despite an overall softer Chinese PMI manufacturing report for August. The headline came in at 51.1 versus expectations of 51.2 but we saw broad based weakness in the details. Output (53.2 v 54.2) and new orders (52.5 v 53.6) were both lower on the month. Backlog order (45.9, down 0.5ppt), raw material inventory (48.6, down 0.4ppt), and employment (48.2, down 0.1ppt) sub indices also fell deeper into contractionary territory. Away from the official reading, the HSBC variant’s final print for August came in at 50.2 also slightly below the flash reading of 50.3. In core rates markets, Treasuries are steady with the 10yr yield holding at around 2.34%.Asian stocks rise with the Nikkei outperforming and the Kospi underperforming. MSCI Asia Pacific up 0.1% to 148.1. Nikkei 225 up 0.3%, Hang Seng up 0%, Kospi down 0%, Shanghai Composite up 0.8%, ASX up 0.1%, Sensex up 0.9%. 7 of 10 sectors rise, led by utilities and tech.
