Overnight Sentiment: A Tale Of Chinese And European PMIs... And Greece

Tyler Durden's picture

There were two major datapoints overnight: the first one came out early in the session, when the Chinese Flash HSBC PMI (not the official one), printed in contraction territory for a 12th consecutive month but jumped sufficiently to 3 month highs to give the algobots hope that China may be turning (it isn't: China, like the US has a major political event early November and all its data is more manipulated than ever). Regardless, this sent future rising to session highs until virtually yesterday's entire gap down was eliminated. The euphoria continued until several hours later we got composite European (as well as the most important German PMI data, and to far less relevant extent France, which always has been the dynamo in European economic growth), manufacturing and services PMI, both of which missed expectations or declined substantially, reaffirming that the German economy is getting dragged down more and more into recession even as continues funding the rescue of the periphery. As the chart from Markit below shows, German PMI is hinting at a solidly negative German GDP print, further confirmed by the German IFO business print which came at 100, a drop from 101.4 and below expectations of 101.6. Other secondary macroeconomic data was just as bad, which explains why futures are now well on their way to dropping back to their lows. Finally, today we get the FOMC statement, which will be much ado about nothing, and will merely serve as an appetizer to the December FOMC meeting, when Goldman (and Zero Hedge) now expected the Fed to expand unsterilized monthly monetization to increase from $40 billion to $85 billion (more on the shortly).

Yet perhaps the biggest shift in mood has been coming out of our old friend Greece, where Troika negotiations, largely under the radar, are progressing from bad to worse, where the bond buyback plan was scuttled last night (as ZH reported sending Greek bonds 70 bps wider on the day and rising), and where the probability of another flash election, which can crash the precarious European balance in an instant, is rising with each passing day.

German GDP vs PMI: self-explanatory.

More on Europe's PMI disappointment via Goldman:

The Euro area Composite flash PMI declined slightly from 46.1 to 45.8 in October, below our and the consensus expectations of a small uptick. The decline was driven by a fall in the manufacturing PMI (from 46.1 to 45.3). The services component edged up by 0.1ppt to 46.2. The country breakdown reveals a reversal from last month's pattern: a deterioration registered in Germany was partially offset by improvements in its French counterpart. However, the level of the German composite PMI remains much higher than France's. The Euro area Composite PMI has been broadly stable at around 46.0 since April, suggesting a decline in GDP of around -0.1%/-0.2%qoq in Q3.


1. The Euro area Composite PMI declined slightly, defying consensus expectations of a small increase (BBG Cons: 46.5). The decline was driven by a fall in the manufacturing sector (by 0.8 point to 45.3). The services component increased marginally from 46.1 to 46.2.


2. The breakdown of the survey shows that the decline in the Euro area manufacturing PMI was driven by a drop in employment (from 47.7 to 46.1), new orders (from 43.5 to 43.1) and output (from 45.9 to 44.8). For services, the headline index – which is not an aggregate of the sub components – showed a small tick up from 46.1 to 46.2. However, the sub-indices painted a somewhat mixed picture, with employment (45.9 after 47.5) and incoming new business (from 43.9 to 44.8) improving, while business expectations deteriorated (from 49.4 to 47.8).


3. In addition to the Euro area aggregate, flash PMI estimates are also released for Germany and France (see Charts 1-3 below for country developments). The gap between Germany and France's performances has narrowed somewhat after last month's sharp widening. The German Composite PMI eased from 49.2 to 48.1, while its French counterpart increased from 43.2 to 44.8. Looking forward, we expect the relative strength of Germany compared with France to continue in the coming months. While French concerns are mainly domestic, risks to the German outlook are mainly of external nature. According to Markit, French panel members reported "an unfavourable business climate, budget cuts and the lack of visibility over the next 12 months" as factors weighing on sentiment. In Germany, companies surveyed cited weakness in exports to southern economies and subdued demand in the auto sector as main concerns.


4. The Euro area Composite PMI has been flat at around its current level since April, suggesting a stabilisation of momentum at a low contractionary level in recent months. Using a pre-crisis sample, past correlation with the Euro area Composite PMI would suggest Euro area GDP growth of -0.1/-0.2%qoq in Q3 (see Chart 4). Our Euro area Current Activity Indicator– which distils information from a wider range of different activity indicators into a broad measure of economic activity– is consistent with a contraction in GDP growth of 0.3%qoq.


Flash PMIs for October:

  • Euro area: Composite PMI: Actual: 45.8, Prior: 46.1, Cons: 46.5
  • Euro area: Manufacturing PMI: Actual: 45.3, Prior: 46.1, Cons: 46.5, 
  • Euro area: Services PMI: Actual: 46.2, Prior: 46.1, Cons: 46.4,
  • Germany: Composite PMI: Actual: 48.1, Prior: 49.2
  • Germany: Manufacturing PMI: Actual: 45.7, Prior: 47.4, Cons: 48.0,
  • Germany: Services PMI: Actual: 49.3, Prior: 49.7, Cons: 50.0,
  • France: Composite PMI: Actual: 44.8, Prior: 43.2
  • France: Manufacturing PMI: Actual: 43.5, Prior: 42.7, Cons: 44.0,
  • France: Services PMI: Actual: 46.2, Prior: 45.0, Cons: 45.4,

What else is on the docket for today (via SocGen):

They are very rare the sequences when stocks get pummelled before a Fed FOMC meeting. Confidence and hope of support from the FOMC tends to buttress risk assets but it is exactly the opposite that has been going on since Friday with equity indices shedding over 2% in three days. The precise cause for the sell-off in difficult to pinpoint. Macro data has not been outright dismal. Japanese trade data have been worsening for a while and news of a 0.5% qoq contraction in Spanish Q3 GDP is not really ‘news' either. There was an element of disappointment related to the EU summit, but perhaps we should read more into the potentially more destabilising factor (in addition to the Q3 earnings from corporate America): fresh turmoil in the Greek coalition. Pasok leader Venizelos called on PM Samaras to ‘contact his EU partners' after it emerged that Pasok declined to put labour market reforms on the negotiating table. Dimar leader Kouvelis said that the Troika's labour demands are unacceptable. One wonders how much negotiation room there is but EUR13.5bn spending cuts will have to be agreed before the next bailout tranche is released. The EU is unlikely to renege on its demands. The collateral damage of the worsening market conditions is not leaving Spain unaffected and the climb in bono yields will just put that little bit more pressure on Madrid.


Focus today is on the FOMC meeting where speculation has been building that the statement could drop the ‘extended period' language in favour of numerical targets for inflation and unemployment. ECB president Draghi will brief the German Bundestag on the crisis and Germany's IFO survey will give offer the latest snapshot of business confidence. If the result from France is any guide, we should brace for more bad news and participants will be more inclined to fade rallies in USD/JP

And a complete overnight wrap up from Deutsche Bank:

Overnight markets are trading mostly stronger, led by the Hang Seng (+0.2%) and Nikkei (+0.3%). Most other indices are off the intraday lows following the release of China’s HSBC flash manufacturing PMI which came in at 49.1 (vs 47.9 previously), the highest reading in three months. The new orders component of the index hit a 6-month high, which is helping the Shanghai Composite outperform overnight at +0.4%. The AUDUSD is up about 0.5% overnight following a higher than expected Australian CPI print (+1.4%qoq vs 1% expected), dampening expectations of a November rate cut.

Today we have the important flash/prelim PMIs to contend with. However, there should be some relief in these numbers over the next couple of months purely due to the rally in peripheral spreads. We’ve included a graph in today’s EMR showing Spanish spreads and Spain’s PMI over the last couple of years. Given the relationship here one would expect some pick-ups in the PMIs for a while even if it’s counter to any longer-term weakness.

Clearly we won’t see Spain or Italy’s PMI today as flash estimates aren’t compiled for these countries but we will see an overall number for Europe (46.5 expected vs 46.1 last month manufacturing wise), Germany (48 vs 47.4 last month) and France (44.0 vs 42.7 last month). The FOMC’s meeting will also be a key event to watch today after some market chatter yesterday of the possibility of changing the extended period language into nominal GDP targeting. For the record, DB’s Peter Hooper noted that the Fed will have no inclination to make any notable changes today following the QE3 announcement last month. Maintaining a low profile given the upcoming Presidential election is also a reason for keeping the status quo intact. Nevertheless, for markets FOMC days tend to be positive for stocks. A NY Fed staff research paper noted that since the FOMC began announcing its monetary policy decisions in 1994, US stocks have experienced large excess returns in the 24 hours preceding these announcements. These abnormal returns account for more than 80 percent of the U.S. equity premium over the past seventeen years. Other major international equity indexes have experienced similar abnormal returns before FOMC announcements. For 2012 alone, our calculation shows that the S&P 500 on average returned +0.87% on FOMC days. The index has also seen a cumulative return of +5.20% (of the +12.4% YTD returns for 2012) on FOMC days this year.

While on the subject of the FOMC, the New York Times reported that Ben Bernanke will not stand for a third term even if President Obama wins the November 6th election. Bernanke’s current terms ends on Jan 2014. The news didn’t help gold prices, which finished 1.21% lower, in its largest one-day loss since July 10th.

European markets had an equally weak day with the Stoxx600 down 1.67%, its biggest one-day loss since July 23rd. In the credit space, Xover (+22bp) and European Main (+5.75bp) indices were both wider. Spanish 10yr yields added 13bps to close at 5.624%, not helped by Moody’s downgrade of five Spanish regions the day before. The timing of the downgrade wasn’t great for the Community of Madrid, which cancelled a debt issue on Tuesday due to market conditions. Madrid has the second-highest credit rating of Spain’s 17 regional governments. According to the FT, the debt was offering a 7.8% yield for a 7.5yr maturity and the cancellation may mean that Madrid’s regional government will seek aid from the central government’s EUR18bn regional bailout fund. Although according to Reuters, the EUR18bn regional bailout fund will need to be expanded to accommodate further bailout requests from the regions.

Also something worth keeping an eye on is a complaint against the ESM brought by Thomas Pringle, an independent member of the Irish parliament, that reached the EU Court of Justice yesterday (Bloomberg). The complaint alleges that the ESM violates the “no-bailout provision” under EU law. The Court is expected to rule on a legal challenge to the ESM by the end of the year. Finally, in a reminder of the mood amongst some German lawmakers, German FM Schauble offered a relatively pessimistic assessment of the Eurozone debt crisis, saying at a conference in Berlin yesterday that he wasn’t sure the “worst of the crisis is behind us” (Spiegel).

Looking at the day ahead, the focus will be on the Euro area and US flash PMIs. We may get some OMT-related headlines from Draghi’s closed-door meeting with members of the Bundestag which begins at 1pm London time. In terms of other data, the German IFO survey is due while in the US we get new home sales. It will be a relatively busy day for earnings with 43 S&P500 companies reporting including the likes of Lockheed Martin, Boeing and AT&T.
The FOMC’s statement is scheduled for 7:15pm London time.

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Josephine29's picture

Added to this was an interesting point made well below referring to the implications of the higher debt burden in the Euro area.

"But today has seen some evidence which may be a signal that they will not be divorced for too long. From Eurostat. At the end of the second quarter of 2012, the government debt to GDP ratio (in the Euro area) stood at 90.0%, compared with 88.2% at the end of the first quarter of 2012.

So if we take the fairly safe assumption that the ratio is now over 90% and rising I am reminded of the work of Carmen Reinhart and Kenneth Rogoff which told us this.

First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more."


So there is another downwards influence for the Euro area!

Pretorian's picture

I was just checking Goldman recommendation for long EUR/CAD lol . Made almost  100 pips by shorting EUR. 

Ghordius's picture

Tobin Tax being pushed by 10 "continental" EU countries - the City of London will be livid, expect more anti-EU propaganda



The 10 countries are France, Germany, Austria, Belgium, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.


The proposal for the Financial Transaction Tax, consisting of a rate of 0.1 percent on the trading of bonds and shares and 0.01 percent for derivatives deals, was put forward by the EC in September 2011.


The FTT is arguably the "statist" solution-attempt to several issues, including High Frequency Trading.


However, the proposal failed to win unanimous support among all EU member states, due to strong opposition from some EU countries led by the United Kingdom, which accounts for more than 70 percent of the entire European finance sector and fears the tax might hurt its competitiveness.


The European Commission then decided to resort to a legal process called "enhanced cooperation," under which, when at least nine member states, or one third of the 27 EU countries, support a new legislation, these countries can go ahead first, pending approval by other EU countries and the European Parliament.


The EC will prepare a revised proposal for the tax based on the original principles it raised in September 2011 and the specific conditions set by the 10 EU countries.


The FTT was also known as the Tobin tax, named after James Tobin, a US Nobel laureate in Economics, who first proposed the tax in 1972 for easing financial market volatility


GetZeeGold's picture



expect more anti-EU propaganda


Are ten marching bands and one million liters of Koolaid enough to counter the 10 fat chicks clearing their throats?


Oh crap.....is that Nigel Paul Farage getting out of the limo?

Ghordius's picture

arguments, GetZeeGold. or, even better, facts. if not available, then something funny is also ok

GetZeeGold's picture



Dude....if I get into serious trouble....I'll just ask for a bailout.


Go back to sleep sweetheart.


JPM Hater001's picture

Rock a bye baby on the Zerohedge

Ghordius's picture

re Nigel Farage I just brought some opinions from outside, a "silver bug" site called "don't thread on me" http://www.zerohedge.com/news/2012-10-23/nigel-farage-total-subjugation-...

oldfruit1's picture

tyler, you need to give some color on facebook .. fcebook results are all over the papers / net but no mention on ZH .. if you want to maintain credibility there needs to be full coverage of whats going on or at least on companies which have had a lot of commentary passed on them already otherwise it looks like you are selectively picking stories which fit the bearish thesis of this site.


Tyler Durden's picture

Short-covering squeeze as results were not worse than expected even as ad revenue per user declined. The stock is still about 50% off its IPO price, and which is slowly but surely fading into "social fad" obscurity as something bigger and cooler is set to come up and/or revulsion to all things social hits a peak. All of this was explained when the company filed, then demolished, its IPO.

This actually requires an in-depth analysis?

GetZeeGold's picture



Naw....that pretty much covers it I think.


JPM Hater001's picture

I kinda wondered the same thing yesterday when I saw the earnings

The I saw the stock was still around $20.

Thats pretty much all there was to say.

oldfruit1's picture

yeh the stocks now ONLY UP 25 FUCKING PERCENT overnight .. nothing to see here, right? 

stocktivity's picture

Yep...maybe people will some day learn to talk face to face again. When my wife and I visited my son at his college, the kids just walk by each other with their faces down texting into these little boxes. A long long time ago when I was in school, we would make eye contact , smile and say hi. Nobody looks at each other and says hello....God I'm an old fart!

Temporalist's picture

In your day people didn't post profiles of themselves on websites to have affairs or to meet people for random sex either.  The SEC also wasn't the main revenue source for the adult film industry.

oldfruit1's picture

thanks for your take on it ..

it may be off 50% from IPO but its still a ~ $40bn company. theres a lot being discussed around the stock.. namely mobile business growth, with $150m revs coming from this alone in the quarter. now whether this is a passing fad where advertisers bought the novelty of mobile advertising on facebook just to check it out i dont know. its also curious that its 'competitor' google is going in the opposite direction losing advertising revenue .. so does this mean facebook has eaten into googles market share? this has given the bulls confidence for sure.




HD's picture

"if you want to maintain credibility"

Zero Hedge started from nothing and was built on credibility. No multi-million dollar budget, no talking heads, no celebrities, no access to politicians and well fed PhD "experts".

The respect the Tylers get here was not simply given to them (especially from this crowd) - to paraphrase John Houseman, they got it the old fashioned way - they earned it.

GetZeeGold's picture



"if you want to maintain credibility"


Need to have some with start with if you want to maintain it.


Vegetius's picture

So the Vice tighten's on the crotch of the Central Banks, lets see them fix the crash thats coming?

No wonder Bernake is heading for the lifeboat his parting words will be - "I didn't do it. Nobody saw me do it, you can't prove anything"

GetZeeGold's picture



"I didn't do it. Nobody saw me do it, you can't prove anything"


That's my line - Jon Corzine

GetZeeGold's picture



It's never failed to work in front of Congress.....taking the 5th is a solid second option.

HD's picture

Bankers, politicians, baseball players - everyone gets to lie to Congress - since they can no longer distinguish between lies and the truth, it's pretty easy...

GetZeeGold's picture



Speaking of Congress.....has anyone bothered to take John Boehner's pulse lately?


JPM Hater001's picture

I think with the fiscal cliff looming it's fair to say John should have been more careful what he asked for.

Next time just as for the lego set of Congress.

Temporalist's picture
German Ifo Business Confidence Unexpectedly Fell in October

"German business confidence unexpectedly fell to the lowest in more than 2 1/2 years in October as the sovereign debt crisis damped growth in Europe’s largest economy."



VW Reports Biggest Profit Drop Since 2009 on Europe Woes

"Volkswagen AG (VOW) reported a 19 percent drop in third-quarter profit, the biggest fall in earnings since 2009, as demand weakened and discounts climbed on the effects of the European debt crisis."



These green shoots really take a green thumb

JPM Hater001's picture

VW Reports Biggest Profit Drop Since 2009 on Europe Woes

Fair enough so tell me why the European markets are up today?

Vegetius's picture

The Greek situation in itself merits far more concern than the EU has to date acknowledged. Coming out of the brutal Turkish then German occupations we see the 1945 -1949 civil war. Having worked on the Peloponnese for a year or so in small villages and towns I would say that none of the above events have been forgotten and the tales of torture, mutilation and disappeared families into the 1950s is a grudge that is nursed by these people.

Real country Greeks are a bit like Appalachian folk, you do not want to start a feud with them they love that stuff.The paramilitary nature of far right and left is normal in Greece and seems to be growing. The EU through the Euro have created a monster they are losing control of.

“I do believe that political arrangements which are based upon violence, intimidation and theft will eventually break down – and will deserve to do so.”

— Margaret Thatcher