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Deciphering The Dismal Reality In Europe From The Hopeful Green Shoots

Tyler Durden's picture




 

European corporates continue to report considerably more negative surprises in production than expectations a mere three months ago - with the divide now at extreme levels. As Morgan Stanley notes though, there remains a 'hope' for green shoots in the euro area on the back of the ECB's OMT announcement and an apparently more robust China. Unfortunately, as these ywo simple charts indicate, the reality is that business surveys are pointing to a continued slide and that recent resilience is unlikely to last. In fact, in Morgan Stanley's view, incoming data and anecdotal evidence would suggest Q4 could be even worse than had been expected and the recessionary envionment will drag well into next year.

 

 

Via Morgan Stanley:

Investors on a mission to spot green shoots: Recently, we have started to receive more and more questions from investors on whether we are seeing any tentative green shoots in the euro area on the back of the ECB’s OMT announcement and an improving global outlook. These questions often reflected encouraging dynamics in Asian exports – typically a good early indicator for a turnaround in the global trade cycle – as well as better-than-expected outcomes for 3Q GDP (and an especially strong one) in the UK and the US just this past week.

 

Coupled with the ECB’s announcement on unlimited OMT bond purchases and a tightening in peripheral government bond spreads, this has caused avid euro area data watchers to ask whether 3Q activity could also have been firmer than expected in the euro area, especially after this week’s first 3Q GDP flash estimates released in Spain and Belgium. According to these data, the Spanish economy would have contracted at a slower pace of ‘only’ 0.3%Q, despite another austerity package being implemented over the summer. After the Belgian economy printed a stable GDP number in 3Q today, this could suggest that euro area 3Q GDP could have been firmer than we were forecasting (we are looking for -0.3%Q in non-annualised terms).

 

Alas, we have to conclude that the resilience is unlikely to last: In our view, the October business surveys already sent a clear warning sign not to get too comfortable in the deceptive sunshine of an Indian summer. Like the weather currently, where sunshine will likely soon give way to the first autumn storms, we would urge investors to prepare themselves for the coming winter chills.

 

In our view, incoming data and anecdotal evidence would suggest that 4Q could be even worse than we had expected so far, and that the outright contraction in headline GDP could also drag into the early part of next year. Relative to our baseline forecasts, it is actually the core countries, notably Germany and France, which recently gave rise to fresh concerns on the back of a marked slowdown in global capex (Germany) and an ambitious austerity programme (France). Meanwhile, peripheral economies such as Spain and Italy seem to have been more resilient than we feared initially – and the recession there appears to be unfolding somewhat more mildly than anticipated.

 

 

 

The deteriorating cyclical outlook for the euro area as whole as we head into the winter supports our out-of-consensus call for December rate cut: We continue to expect a reduction in all three key policy rates by 25bp when the ECB staff are forced to revise down their growth estimates once again and when they roll out 2014 inflation forecasts. Such a step would bring the deposit rate into negative territory for the first time in the ECB’s history. While the deposit rate cut could be more controversial on the Governing Council than a refi rate reduction, we believe that without a cut in the deposit rate – which is the binding lower limit for short rates – a refi rate reduction would not have much of an impact.

 

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Wed, 10/31/2012 - 21:15 | 2936320 Muppet of the U...
Muppet of the Universe's picture

I hope companies have already revised down their expectations and suffered the minor losses... b/c if Q4 is really as bad as some are saying, we could see massive, goog style, swings and misses, in Earning exp.

Wed, 10/31/2012 - 21:41 | 2936391 ACP
ACP's picture

The only place I want to see green shoots is right over the Fed's grave.

Wed, 10/31/2012 - 21:22 | 2936339 unrulian
unrulian's picture

Kevin Henry....fixed

Wed, 10/31/2012 - 21:30 | 2936349 Bear
Bear's picture

Plenty of words about everything important .... except the most important event of 2012 ... Benghazi and its coverup

And the deafening silence from the media

Wed, 10/31/2012 - 22:45 | 2936542 Muppet of the U...
Muppet of the Universe's picture

You must be new here.

Wed, 10/31/2012 - 23:33 | 2936591 Bear
Bear's picture

I have been with ZeroHedge daily for over three years and have been very impressed with the candor and intensity in attempting to get out to the truth.

Except on this issue.  All I can assume is that there is an editorial opinion similar to the MSM on this issue.

I think it is an abomination that the MSM is purposely overlooking the circumstances and events surrounding Benghazi. I think that the Administration is lying about the lead-up to 9/11, the events of 9/11 and the grievous cover-up subsequent to the events. In the last seven weeks, Obama has attempted to blame the State Department and the CIA. He lied about what happened and then lied about what he knew when and then he lied about the reasons for the terrorist attack.

And those who are charged with finding truth are lying to us by not issuing a peep.

After the election, when it no longer allows us to weigh in through our vote, we will know the truth ... and I suspect that Obama will be impeached (by the House).

If Obama wins and subsequently loses an impeachment vote, Biden will be President ... we need to know that NOW

 

Thu, 11/01/2012 - 06:59 | 2936927 Oldwood
Oldwood's picture

Because Benghazi is not about "me" or "my money". And many here despise Jews so much they would side with just about anyone who would destroy them.

Wed, 10/31/2012 - 21:27 | 2936352 Dr. Engali
Dr. Engali's picture

Yeah more rate cuts ,that will fix it. It's working like a charm now....one trick pony idiots.

Thu, 11/01/2012 - 00:35 | 2936738 mick68
mick68's picture

"the recessionary envionment will drag well into next year"

--------------------------------------------------------------------------------------------

 

Yep, all good by late 2013.

 

ROFL!!  Try,"the recessionary envionment will drag well into next decade"

 

Wed, 10/31/2012 - 21:46 | 2936362 THE DORK OF CORK
THE DORK OF CORK's picture

The European story orbits the car (its industry is bigger then the States) and the truely massive capital misallocation this creates.

 

I wonder did the very European Charlotte Rampling ever get into that car.

 

www.youtube.com/watch?v=ASoH27RNH5w

 

I have my doubts.............

 

I imagine she would walk.

www.youtube.com/watch?v=OtDfHSsQVXY


Thu, 11/01/2012 - 05:34 | 2936888 falak pema
falak pema's picture

she does walk but she don't talk and lets those gawks nail their hands to the side walk; now thats a cork that should please the dork of corkscrews.

Wed, 10/31/2012 - 21:37 | 2936378 disabledvet
disabledvet's picture

Spain and Italy are turning out better? Really? That's a 25% unemployment rate in Spain bozo! That nation is devolving into a Civil War like condition. And what does Asia have that Europe needs? How about vice-versa? I would argue these are the two biggest competitors on the planet for the consumer buck...and Asia is sprinting ahead courtesy of mega cap global energy production now producing right off the coast of East Asia...as well as of course Alaska and the Gulf of Mexico properties which are pretty much priceless right now. And is the EU exporting food to East Asia? Nope. That would be the USA, Brazil and Canada. So who are the primary beneficiaries of East Asian foreign investment then? I would argue it has been overwhelmingly Australia, the USA and Brazil. Up until Sandy it was easy to be sanguine about Europe's prospects...but post Sandy i think the Euro area is in a fight for its life. I've seen the Hyundai's...top of the line, made in Georgia i might add. Now the Fords and GM's which are posting huge profit numbers in spite of the euro-area collapse. the only thing the USA is waiting for (besides an actual economic recovery worthy of the name) is a massive technology upgrade in the vehicle fleet to ween North America from gasoline demand. If these profit numbers stay high going into next year i can easily see vehicles being produced where the gasoline is the back up power source...and i'm talking commercial vehicles not "cars in name only." Sorry but "long Europe" has been a losing trade since World War I. I'm having a hard time seeing this time being any different.

Wed, 10/31/2012 - 21:38 | 2936383 spastic_colon
spastic_colon's picture

O/T - Obama refuses to allow overseas miltary mail-in ballots

 

Facebook censures Navy Seals on Benghazi truth - Spits on 1st admendment

Wed, 10/31/2012 - 22:27 | 2936499 Bear
Bear's picture

Obfuscation everywhere you look:

1. Benghazi

2. BLS lies

3. Stonewall military votes

4. Internet  censors 

And this is just in the last few weeks

How can anyone vote for the current administration and their complicit media ... if we had a legitimate media, Romney would be ahead by 15%

Wed, 10/31/2012 - 21:57 | 2936427 Atomizer
Atomizer's picture

Europe and the other dopes in the housing markets are creating another false hope, Why?

 

I just checked my property value purchase in May. It skyrocketed to 1.7 million in 2007 under Federal Reserve Chairman Alan Greenspan.. I purchased for 260K in May 2012. Now NAR websites are claiming the property value is 420K. Never put a dime in the house. I called my realtor on another cheap property, which has a lien over 100K. I said, what price do we need, so I can bulldozer the house into the Gulf of Mexico & rebuild a new home. She said, very unlikely Atomizer. The city has first dibs on that unpaid tax money.

 

When my realtor stated, housing market is rebounding !! I told her, the municipalities are raising house values to keep your job above stagnation & by supporting the increased county wage budget forecast. I love her dearly, but her cricket no-reply spoke in volumes. Her last words, I’ll keep my eyes open for new gulf access properties.

Wed, 10/31/2012 - 22:36 | 2936525 tooriskytoinvest
tooriskytoinvest's picture

JUST-IN:

November Begins: Global Economy Is Heading For 'Great Stagnation', Crucial PMI Numbers Signal Continued Contraction In Output With Rising Costs.

http://investmentwatchblog.com/november-begins-global-economy-is-heading-for-great-stagnation-crucial-pmi-numbers-signal-continued-contraction-in-output-with-rising-costs/

Somebody Should Start The ‘Stuff Costs Too Much’ Party

http://theeconomiccollapseblog.com/archives/somebody-should-start-the-stuff-costs-too-much-party

Thu, 11/01/2012 - 01:20 | 2936796 q99x2
q99x2's picture

Not green shoots. Not shoots. Not. Not. Not. Nein, Nein, Nein. Nothing. Not a fucking thing.

Thu, 11/01/2012 - 06:57 | 2936926 Offthebeach
Offthebeach's picture

Green shoots=selling decay mold growing on the dead carcass of a dying real economy.

Yeah, it's green alright.

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