Latest Global Economic Slowdown Confirmed After Disappointing Chinese, German PMI Data

Tyler Durden's picture

If there was any debate about the global economic contraction, driven largely due to pundits confusing manipulated stock market levitation with this anachronistic thing called the "economy" and fundamentals for the fourth year in a row, all doubts were removed after this morning's manufacturing PMI data out of China, which as reported previously was a big disappointment (sending the Composite firmly into the red for the year down 2.57% to 2184.5) only to be followed by just as disappointing manufacturing and services PMI data out of Germany, which tumbled from 49 and 50.9 to 47.9 and 49.2, respectively, missing estimates of 49.and 51. This was the first decline in the German private sector since November 2012 and thus, for Europe's growth core.

The composite German PMI tumbled to a 6-month low of 48.8 as a result, dropping at its fastest pace since October 2012, meaning the European economic deterioration is just getting started, and at the worst possible time for Merkel several months ahead of her reelection campaign. The end result was a miss in the blended Eurozone Mfg PMI, which dropped from 46.8 to 46.5, even as the less relevant Services component eaked out a small gain from 46.4 to 46.6, on the back of a dead cat bounce in French economic indicators. Bottom line: a contraction in both European manufacturing and services for the 15th consecutive month. Some "recovery."

Commenting on the flash European PMI data, Chris Williamson, Chief Economist at Markit said:

“Although the PMI was unchanged in April, the survey is signalling a worrying weakness in the economy at the start of the second quarter, with signs that the downturn is more likely to intensify further in coming months rather than ease.


“Thanks to an upturn in the survey at the start of the year, the PMI suggests that euro area GDP fell by around 0.2-0.3% in the first quarter after a 0.6% drop at the end of last year. However, the April reading points to a 0.4% rate of decline, with downside risks. Worryingly, the rate of loss of new business gathered further momentum, suggesting that activity and employment could fall at steeper rates in May.


“The renewed decline in Germany will also raise fears that the region’s largest growth engine has moved into reverse, thereby acting as a drag on the region at the same time as particularly steep downturns persist in France, Italy and Spain.


“Policymakers will at least be relieved to see inflationary pressures cooling, which could further open the door to renewed policy stimulus.”

Needless to say, this is bad news for EUR bulls (such as all sellside banks who have been furiously selling their EUR exposure to clients on their long EUR calls for the past 3 months, and all GETCO ES-linked correlation signals) as the ECB was just waiting for an indicator that the European economy was slowing down even more before it cut rates. It just got this indicator today.

Confirming that the market is no longer driven by anything remotely related to underlying economics, stock futures have barely moved and in fact are green for the S&P and Dow, reflecting hopes of even more easing out of Europe this time, while Italian 10 Year bonds have dropped below 4% for the first time since November 2010 on hopes of who knows what: that Italy will have a functioning government perhaps? Yes, funnier things have been said. But if this lunacy explains the Italian bond rip, nobody knows why Spanish bond yields are tumbling. Oh wait, the Japanese liquidity tsunami. All is clear now. As for French 10 year bond yields dropping to a record low yield of 1.708%? Ah, forget it.

Some other highlights out of doomed Europe, only kept afloat courtesy of the Japanese wall of money:

  • EC May Allow Spain 2013 Budget Deficit at 6.5%: El Pais
  • Bank of Spain Considers New Rules on Risky Loans: Pais
  • Spanish 10-Year Bonds Advance for Fifth Day; Bunds Gain
  • Italy’s Grillo Says State to Run Out of Funds in Fall: Bild
  • Goodbody: Irish Precautionary Program Would Aid Bailout Exit

European markets recap:

  • Spanish 10Y yield down 14bps to 4.35%, lowest since Nov. 2010
  • Italian 10Y yield down 7bps to 3.99%, lowest since Nov. 2010
  • Portuguese 10Y yield down 10bps at 5.779%, lowest since Oct., 2010
  • Irish 10Y yields down 17bps at 3.493%, earlier hit lowest since 2006 at 3.479%
  • U.K. 10Y yield down 2bps to 1.63%
  • German 10Y yield down 2bps to 1.21%, earlier hit lowest since July 2012 at 1.193%
  • Bund future up 0.16% to 146.59, earlier hit YTD peak of 146.77
  • BTP future up 0.71% to 114.95, earlier hit YTD peak of 115.04
  • EUR/USD down 0.64% to $1.2983
  • Dollar Index up 0.36% to 82.97
  • Sterling spot down 0.44% to $1.5223
  • 1Y euro cross currency basis swap down 1bp to -23bps
  • Stoxx 600 up 0.93% to 288.34

Finally, the full overnight summary as usual from DB's Jim Reid

European policymakers will be watching today’s April flash PMIs in earnest as the market continues to grapple with whether we’re in the midst of a Q2 slowdown or not. After the disappointment of last month where the euroarea flash composite PMI fell 1.3 points to 46.5, the forecast is for the composite reading to stabilise at the same level for April. The market is expecting a 0.1pt improvement in the euroarea services PMI to 46.5 to be offset by a 0.1pt downtick in the euroarea manufacturing PMI to 46.7. For France in particular, consensus is for a small improvement in both the manufacturing (44.1 vs 44.0 previous) and the services PMI (42.0 vs 41.3). In Germany, the manufacturing PMI is expected to remain unchanged at 49.0, with a small uptick in the services PMI to 51.0 (vs 50.9).

Overnight, China has kicked off this month’s PMIs on a downbeat note with the HSBC flash manufacturing PMI coming in at 50.5, which is down from estimates of 51.5 and lower than last month’s reading of 51.6. The 3-month average dropped to 50.8, the lowest level since December 2012 when China was in the middle of a 2H growth slowdown. There was broad-based weakness in the details of the report. New export orders fell to 48.6 from 50.5 in the previous month suggesting softness in external demand. The employment subindex as well as input/output indices fell month-on-month in April.

Asian markets have sold off in reaction to the Chinese data with the Shanghai Composite (-2.1%) and Hang Seng (-1.2%) indices firmly in negative territory. Chinese construction, commodities and oil & gas stocks are bearing the brunt  of the selloff. Other sectors which are underperforming are Chinese real estate and banking stocks. Other Asian bourses have pared earlier gains, while the S&P500 futures is trading down 4.5pts as we type. The Australian dollar is 0.4% weaker against the USD, and commodities such as copper (-0.9%) and crude (-0.6%) are weaker.

Away from PMIs, the other major event for macro watchers today is the March quarter results for Apple. As we mentioned yesterday, tech earnings have disappointed so far this reporting season particularly on the revenue side. Add to this the fact that Apple’s share price has shed 25% in the year-to-date, and it’s fair to say that markets are bracing for a reasonably poor quarter from the S&P500 heavyweight. Indeed, Street EPS estimates for the March quarter have declined about 20% in recent months according to Bloomberg data. As it currently stands, the Street’s is anticipating Apple to report EPS and sales of $9.97 of $42.3bn respectively for the March quarter. Aside from Apple we have around 36 other S&P500 companies reporting as we approach the peak days for earnings season later this week.

It was a quieter day on the earnings calendar yesterday but macro bellwether, Caterpillar, recorded a notable miss on both the earnings and revenue lines. Despite the earnings miss and 2013 profit downgrade, the stock closed 2.8% higher after management made some upbeat comments about global mining demand and announced a resumption of its stock buyback.

Elsewhere in the markets yesterday, risk assets continued to trade well despite weaker than expected US existing home sales data. Existing home sales dropped 0.6% in March to an annual rate of 4.92m, against consensus estimates of 5.03m. However there was evidence that the home sales slowdown was being caused by supply constraints. The listings of existing homes hovered around 4.7 months (down 17% yoy). Meanwhile, the share of distressed sales dropped to 21% last month which is a new cyclical low. The S&P500 closed near the day's highs of +0.47% with 9 out of 10 sectors trading up. Gold and crude continued to firm yesterday, closing 2% and 0.9% better, leading a rally in commodity stocks on the S&P500, but much of that looks set to reverse today.

In Europe, comments from re-elected president Napolitano pledging to end the country's political stalemate helped periphery bond markets rally. Italian two year yields dropped to a record low of 1.2% and 10yr Italian bond yields reached a two-and-a-half year low of 4.05%. The strong performance in bond markets helped the European iTraxx (-2.5bp) and Crossover (-8.5bp) credit indices outperform equities on the day.

Turning to the day ahead, the French kickoff today’s European flash PMI data at 8am London time, followed by the German reading half an hour later and the Euroarea composite number at 9am. In Italy, President Napolitano is expected to commence meeting with political leaders in an effort to forge a workable government. In the US, the flash Markit PMIs are due, together with
data on new home sales. In addition to Apple’s earnings, Lockheed Martin, Yum! Brands and AT&T may also be of interest for macro watchers.

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rajat_bhatia's picture

Wonderful rally in DAX today :-) 

GetZeeGold's picture



Because a slowdown is wonderful's not like we're dead or anything.

de3de8's picture

Yeah, like we're catching our breath

Sheeple Shepard's picture


This article is a must read, these people are nuts.


"The International Monetary Fund (IMF) has been hosting a conference on rethinking economic policy, organised by four experts in the area, including the IMF's own chief economist.

One of the other organisers - the Nobel Prize winner George Akerlof of the University of California - had a vivid analogy for the state of uncertainty the economics profession now faces.

"It's as if a cat has climbed this huge tree - the cat of course is this huge crisis. My view is 'oh my God the cat's going to fall and I don't know what to do'."

Another one of the organisers, David Romer also of the University of California, picked up the analogy: "The cat's been up the tree for five years. It's time to get the cat down from the tree and make sure it doesn't go back up."

The trouble for the economics profession is, according to the last of the conference hosts and another Nobel Prize winner, Joseph Stiglitz: "There is no good economic theory that explains why the cat is still up the tree""

Bernanke says "Shoot the cat!"


overmedicatedundersexed's picture

well now: "There is no good economic theory that explains why the cat is still up the tree""  would the explanations be crime, lies, meglomania,corruption,sociopaths in power? don't look there, look for economic reasons.

Sheeple Shepard's picture

The mind boggles, doesnt it? And from a Nobel Prize winner for economics, no less.

Ghordius's picture

the answer is easy. it's Schrödinger's cat, meaning the cat is at the same time alive, up on the tree and on the pavement, dead

gold and the USD are behaving in the same way since 1971, one of them is worthless and the other money - at the same time

new game's picture

the cat is not in the tree, all an illusion to get everybody to look at the tree while everything around you changes...

TwoShortPlanks's picture

I have nothing to contribute.

new game's picture

mankind idiots refuse understand the cycles of econ, and natural world.

must control outcome, ignore reality of life cycles/balance by econ purge of weak players. same for organisms.

darwin and weak links be damned-we are in control(until NOT).

on cliff of populations end game-too many useless eaters living off productive souls.

good day to die? bombs, garbage food, deadly water, terror kill, mental disease/suicide, monsanto freakfood, sugar disease-called obesity, healthcare for zombies, bullets, and head on car crash. or natural causes...



oh, and have a great day!!!! :-)

NoDebt's picture

No, we're not dead yet.  It just feels that way.  Where's my Swirlogram?  I need more Swirlogram!

Last time it was posted it was well into the "slowdown" quadrant headed towards the "contraction" quadrant.  And that seems to be what's playing out.

hugovanderbubble's picture

Worst Volume in Spanish April Market since 1995


No volume and market up 4% in 2 days in a row lol

gatorengineer's picture

And the Dow and Daq futures are Green.......

Offthebeach's picture

Green, did you say " Green"?

Is that green as in " green shoots", or green as in gangrene?

( James M. Buchanan's Public Chose applied to Central Banks. They're inventivised to make things worse. It is in their interests. Prestige, power, staff, wealth. )

The Second Rule's picture

They can paint them red, green, blue, tope, or polka dot. When the ENERGY runs out, the world runs out. Check the dipstick on the great elephant oil fields around the world:

  1. North Atlantic. Fields crashing.
  2. Mexico - Cantarell. Fields crashing.
  3. Kuwait - Burgan. Fields crashing.
  4. Alaska - North Slope. Fields crashing.
  5. Venezuala. Fields crashing.
  6. Saudi Arabia - Ghawar? Oh, well nobody knows now do they because Saudi oil reserves are a "state secret." But based on the fact that they are drilling in the ocean....Fields crashing.

Stop playing games. Stop kidding yourself. The great western civilization game (based on oil) is OVER.

new game's picture

but, but we have fracking to extend this paradine 20 more years, all good...

The Second Rule's picture

And how long does a Bakken, or Barnett, or Marcellus shale field last? Apparently, not long. Shale gas/oil extraction is the latest ponzi scheme.

Tijuana Donkey Show's picture

So I should by an Esclade extended, and drive it everywhere? 

Sudden Debt's picture

Largarde confirmed on bloomberg that the only thing the ecb can do now is start to print.

no more ammo bitch!


Ghordius's picture

SD, there are enough spin doctors, you don't need to become one, too. Lagarde said the ECB is the only central bank that has room to manouver, which means that it's the only one that hasn't printed like there is no tomorrow, yet

yes, she is calling for "aggressive monetary policies" and said "I trust that they will be using that space when they feel that it will be most useful and they have biggest leverage effect." - though the question is more if her advice will be heard or not

Sheeple Shepard's picture

The Germans just ain't going to let the E.C.B "print like there is no tomorrow". They will sooner jump before than get "suicided".

Ghordius's picture

since there is little interest by the other 16 countries to get Germany to leave the ECB club...


and yet, savour what the IMF chief is saying: the ECB is the only CB with room to manouver. what does this say about her views on the other central banks?

Sheeple Shepard's picture

True, and the F.E.D gives lip-service to the idea of "easying off" the hot money. Laughable.

NoDebt's picture

The ECB's the only one doing it wrong is what they're thinking, I would guess?  ;)

I mean if your friends all told you to jump off a bridge, would you?  Obviously not.  But if your friends told you to jump off a bridge and then they jumped off themselves, would you then?  Ok, bad example.

Who needs room to maneuver anyway?  Sounds highly over-rated.  The whole world is running on just-in-time, just-about-legal and just-shy-of-disaster.  Why hold anything back.  You gotta bet "all in" on every hand.

Sheeple Shepard's picture

If your "friends" held a pistol to your head and told you to jump or get your brains blown out and fall, what would you do? 

Ghordius's picture

but since it takes often 18 months for certain monetary effects to take hold (and more when deleveraging occours) then it's more like "my friends put timebombs under their houses" followed by "they are telling me to do the same"

Sheeple Shepard's picture

 "You gotta bet "all in" on every hand." And if you lose, just double your next bet and go again. What could possibly go wrong? ; )

NoDebt's picture

Yes, yes and yes to above comments!  Up arrows for everyone.

new game's picture

to keep the train on the tracks and rolling they will print...(Their logic supported by political system/corruption/military). simply the power to take by tax or steal with gun to your head/or/and incarceration.

japan is the poster child til derailment and crash.

Offthebeach's picture

Oy, so far, not so much.

The " fusion " of industrial, financial and state power says they go on printing.

Like everywhere, German sheeple's opinion doesn't amount to a bucket of warm spit.

hugovanderbubble's picture

Spain is in default

Spanish Covered Bonds are all illiquid, cos real estate valuations are a complete farce. 

Spain , Portugal and Italy may face with Sovereign and Corporate Debt Haircuts Schemes.

This will bring back the EURUSD to 0.90-1.05 level.


Game over


Long Spanish CDS 2yrs

Long Italian CDS 2yrs

Long French CDS 2yrs

Sudden Debt's picture

France is also pretty deep in the gutter. They're also broke but just don't want to admit it.



hugovanderbubble's picture

Hi Sudden,

Still waiting for a huge black swan with French Insurance Company.....(Groupama and Axa are my targets)

France will be the next on the list.


CAC below 3.000 easy 

morning's picture

Wasn't SocGen at the forefront?

hugovanderbubble's picture


Soc.Gen is backed by French Government

They can still make huge derivative book losses and keep running their cooked books. (them same applies to Credit Agricole and specially in the Amundi Funds)

However, AXA will crash during this cycle cos the mismatch between assets and liabilities and the megadeflation coming will explode in France.

fonzannoon's picture

hugover I think you have absolutely hit the nail on the head.

Rip van Wrinkle's picture

What's that?? One bankrupt entity backed by another bankrupt entity?


Might not turn out too well for the common froggies.

Sheeple Shepard's picture

Trillion Dollar coin or BitCoin?

hugovanderbubble's picture

I prefer Physical Hard Assets rather than TDC or BC, but i respect all of them

GetZeeGold's picture



Glass beads and whiskey.

Sudden Debt's picture

The steel industry in europa has already gotten a serious beating...

they look at centerstage germany but everywhere else in europa, THE DROP IS 3 TIMES BIGGER!

and yet we keep rallying...

hugovanderbubble's picture

New Spanish Auto Sales - NEW LOW RECORD


Tell me how the hell spain is going to grow?


SME are all without liquidity with huge solvency problems.

No Employment Generation

Massive People leaving Spain to Latam; Middel East and Center Europe.


BUT THE DEBTS....(principal and interests keep running...)


Spain needs urgently to request the PRECAUTIONARY CREDIT LINE and the suffer the JUNK BOND DOwngrade by Rating Agencies - Then the Super Debt Haircut Programme. 


hugovanderbubble's picture

SHORT IBEX 8.181 Target  4.500-4.900 

Ghordius's picture

"In Europe, comments from re-elected president Napolitano..." I thought that someone that is not directly elected by the people does not count as "elected" in the common Anglo-American view - and differing constitutions and political systems be damned

Sheeple Shepard's picture

Seems that there is a strong whiff of deflation emanating from every sector, other than the "stawks", no surprise there. Pull-back or not i for one am very wary of buying any more P.Ms at the moment, cash is going to be king for a while yet(and lack of debt). The bottom of the lake is going to stay un-dredged this year, and maybe next.

hugovanderbubble's picture

Spanish Bolsas y Mercados has recorded the worst Equity Sales Fee Income in the last decade.

No Deals in Spain, Market is like a desert.

No fee generators...No jobs....Algos Collapsed cos no ammo.

Silverhog's picture

Since early January all my business friends have seen a serious decline in sales. Far worse than anything last year, and that was not a great year. Some sort of 2008 market earthquake is coming and the metals are flashing RED lights lookout. Magnitude 8++    

dobermangang's picture

I agree.  Business is awful.  It's a sign of the times.  Sorry guys, I got nothing funny to say.

GetZeeGold's picture



The main mall near me is half empty. It's like walking through a morgue. Then I turn on CNBC and it's this whole other universe.

NoDebt's picture

You should try to become more comfortable with dichotomy.  I have.  Now I can say things like "DOW 36,000!!!" and it doesn't hurt a bit!  I enjoy the mental exercise of telling my brain not to believe what my eyes are seeing every day.