Confirmation Of European Recession Following "Miserable" Composite PMIs Means French Downgrade Coming

Tyler Durden's picture

While the market continues to look forward to the latest Eurosummit on Wednesday (which rumor is may be postponed once again) with mouth-gaping expectations, the truth is that Europe "may have already entered a recession" as Goldman predicted some weeks ago, a prediction which was confirmed by today's miserable manufacturing and services PMI numbers. From Goldman: "The Euro-zone flash composite PMI came in at 47.2 in October, down from 49.1 in September. The October reading is below consensus expectations, which pointed to a somewhat more modest drop to 48.8. The decline was registered in both manufacturing and services, though it was slightly more pronounced in the latter (Manufacturing: down from 48.5 to 47.3, Services: down from 48.8 to 47.2). The pace of the decline in the headline output component of the Composite PMI accelerated in October. With its sixth consecutive monthly decline, the composite PMI has reached its lowest reading since July 2009. Looking at the components, the forward-looking indicators suggest further contraction in the coming months, with new orders remaining the weakest component at 45.4. One positive element in today’s report is that the pace of the decline in orders is decreasing, though it is clearly too early for any firm judgment whether this points to some stabilisation soon. Alongside fewer new orders reported in companies’ pipelines, surveyed firms anticipate a more muted improvement in the labour market. This is reflected through the employment component, which we view as a good gauge for medium-term outlook, declined further in October to a level of 50.3 - its lowest level since the recovery in the labour market in May 2010." As Reuters concludes: "The euro zone's debt crisis might already have pushed the bloc's economy back into recession, according to business surveys that showed China's economy taking a stride forward in October." So why is this an issue? Simple - as a reminder in a little noticed statement last week, S&P said it "would likely downgrade the credit ratings of France, Spain, Italy, Ireland and Portugal if the euro zone slips into another recession." Well there's you recession confirmation. So: where is the European bailout killing downgrade of France?

More from Goldman:

At a country level, the signals are more mixed and less straight-forward to interpret. We only have country data for France and Germany at this stage: the two flash estimates diverged somewhat in October. French manufacturing surprised on the upside, by increasing from 48.2 to 49.0, but its services counterpart plunged from 51.5 to 46.0, with business activity falling below the 50-threshold for the first time since August 2009. The German figures, by contrast, revealed the opposite development: the Services PMI jumped unexpectedly from 49.7 to 52.1, but manufacturing fell further than consensus had expected, losing more than two points from 50.3 to 48.9. Though we do not have the precise figures, the Markit press release suggested that the Composite PMI in the “rest of the Euro-zone” – excluding France and Germany, including the periphery – fell further in October, to below 45.

Overall, these figures are consistent with our view that the Euro-zone is about to slide into a mild recession in the fourth quarter. Whether it will be indeed only a mild recession will crucially depend on government’s ability to come up with a sufficient answer to stabilise financial markets.

Alas, whether or not it is a mild or profound recession matters little to the rating agencies, which will have no choice but to go ahead and pull the trigger.

And some more on the "miserable" recession confirmation from Reuters:

The flash Markit euro zone composite PMI, which measures business activity at thousands of manufacturers and service sector companies, sank to 47.2 this month from 49.1 -- some way below the 50 mark that divides growth from contraction.


That was below every forecast from 19 economists polled by Reuters, to say nothing of the consensus for 48.8. Survey compiler Markit said it was consistent with a 0.5 percent rate of quarterly decline in gross domestic product.


"All in all this is a miserable report, highlighting the fact that the euro zone is falling into recession again," said Peter Vanden Houte, chief euro zone economist at ING Financial Markets.


"The snail-like progress in the resolution of the European debt crisis is unlikely to alter this picture soon."


Still, world stocks put in solid gains on Monday, following a rally on Wall Street on Friday, on comfort that China's economy may not be in as much danger as feared.


The China Flash PMI showed its vast manufacturing sector snapping a three-month run of contraction, thanks to robust domestic demand. Price pressures also eased, in perhaps the only positive common ground shared with the dire euro zone report.


Economists, who largely failed to see the Great Recession coming in 2008 until it had already started, were unusually frank about the significance of the surveys.


"If the euro zone can't slip into recession when it is facing the biggest financial crisis for generations and business surveys fall to the extent that they have done, when can it?" said Alan Clarke, economist at Scotia Capital.


Jeavon Lolay, head of global research at Lloyds Banking Group, agreed: "It definitely suggests recession from this point."

Alas, that's not what French banks, whose existence depends on FrAAAnce's rating, needed to hear today.

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BandGap's picture

Cue the circus music, bring on the car stuffed with clowns.

qussl3's picture

Careful, else them eurocrats be angling to ban yea blogs for spouting "unnecessary" information.

Ghordius's picture

I presume you know you are taking stuff out of context, but do you know why many "yea blogs" server are not in the US and not in the EuroZone?

dbells32's picture

Only a matter of time until the US equity markets start waking up to the realization that European officials have done nothing but float rumors for 11 weeks and that the EMU is a trainwreck.

Ghordius's picture

opps, posted previously in the wrong place

my question was

So if a fairy would magically solve the Euro-Debt-Crisis the US equity markets would just go back to the "good ol'days"?

Sudden Debt's picture



they figured that one out from the start when they started useing: Europe & Plan in 1 sentence.

It's not like anybody really expected something from our politicians. Their jobs is to make us laugh and some of them did just that. so mission accomplished!



Ghordius's picture

so this is the reason all my Belgian friends are so glum

lack of government - only EuroComedy available...

perhaps in the EuroZone we should swap some comedians, from time to time...

slewie the pi-rat's picture

let's send them ann coulter & her fuk_u follies revue, BiCheZ!

maddogs's picture

EU leaders are announcing "progress" but there is little progress to be found. Banks have "volunteered" to 40% haircuts but EU leaders want 50% minimum. Is that progress?

swiss chick's picture

Agree but at the same time it takes the focus off the US

GeneMarchbanks's picture

EFSF gets paraded. Sarkozy gets degraded. France gets ?

slewie the pi-rat's picture


howzabout a reggae version of:

"i shot the sheriff,,,
...but i did not kill the
europeon bailout by downgrading france..."

nmewn's picture

"Mouth-gaping expectations" theres a productive activity, time to short flying insects.

Hobo's picture

I hear you, and good analysis, but ZH has been calling this market short for the last n months/years. I'll wait for a technical confirmation of all the poor fundamental news.

HD's picture

Your confirmation may be a sudden and unexpected 1000 drop in the Dow.  HFT has done nothing but repeatedly squeeze the shorts - there is no new money and no volume. The equity markets will realign with the reality of the credit markets and, well...KABOOM! S&P 950

Ghordius's picture

So if a fairy would magically solve the Euro-Debt-Crisis the US equity markets would just go back to the "good ol'days"?

GeneMarchbanks's picture

'So if a fairy would magically solve the Euro-Debt-Crisis the US equity markets would just go back to the "good ol'days"?'

I'd say we're in the good ol'days right now. After that DOW 12000 party and the subsequent CNBC ORGYFEST, we're likely to get a nice, new refreshing batch of QE. Then it all goes bubbly...

Ghordius's picture

bubbly yum!

so after QE, QE2, QE Lite, OpTwist, comes.... QE Champagne?

broke433's picture

Haha, that graph kind of looks like the price of silver :/

And isn't a recession 2 consecutive quarters of negative GDP? it would take two more quarters to confirm this.

daily bread's picture

That's like a doctor discussing a woman's possible pregnancy:  "well, you show all the signs, but we can't confirm you are pregnant until you deliver."

broke433's picture

Besides, it's window dressing time... New quarter and fund managers better catch up :/

TooBearish's picture

Its not a recession unless Merkozy says so and they have pre-empted by outlawing recessions...BTFD

silver4me's picture

Off Topic,

Why the U.S. really wanted Gadaffi out. RT explains his gold back currency plan for Africa

Sequitur's picture

Years past I would have dismissed this as nonsense. No longer. First, the so-called "rebels" in Libya started a central bank.  What kind of "freedom fighters" start an investment bank in the midst of rebellion? Second, the recent debacle concerning Iran's purported attempt to assasinate a Saudi diplomat -- lots of mainstream news outlets questioned the United States' "evidence" concerning the U.S. claim. 

maddogs's picture

To add, Iraq was believed to be heading towards exchange preferrered non-dollar for it's Oil Sales,, now Shell and Exxon can assure this will not happen.

mvsjcl's picture

From the article:


"The document from the Vatican's Justice and Peace department should please the "Occupy Wall Street" demonstrators and similar movements around the world who have protested against the economic downturn."


Seriously, a full-court press of stupidity and spin mongering. Yep, them OWSers keep calling for more NWO!

ThatThatcher's picture

But the market is buoyed on spurious talk of a 'silver bullet' cure in the Eurozone and better than expected Chinese PMI. Who will they export to? We all know domestic demand is still weak

broke433's picture

ES about to hit 200 ma soon, short that bitch when it hits 1270~

Ted K's picture




(Hey, does anyone know where the restrooms are in this square???)

disabledvet's picture

Chinese imports of nat gas up over 200 %? oil imports actually down? And yet oil soars in price while nat gas stays depressed. Go figure. Honda will role out the nat gas "Civic" nationwide next year. A French steel mill relocates to Ohio because the cost of energy is so cheap...and the use of steel is really high in Ohio for some reason. Oh, yeah: they make Hondas in Ohio...I forgot. How long before they make Pugeots? France might explode but the French will survive. Destroy France at your peril--no matter the euro or the EU...or the banks.

ivars's picture

This was a productive weekend!

I think I finally managed to match them! Of course, crash (mimicking recession in q1 2012 in the USA and probaly worldwide) is there for all to be seen:

Now I have a really superb forecasting /history study interest tool . Have a look at exercise behind matching GREAT DEPRESSION and GREAT RECESSION timelines for the first time ( once  I managed to patternalize ( ?) OUT FED's grip on USA stock market prices)  and, as usual, better visibility charts plus explanations here:

And here:

The supplement chart for rereading the history of GREAT DEPRESSION and rethinking the future as time line can be extended as well:

lolmao500's picture

And since the socialists are likely to win in France in April, nothing much will change.

What would be epic is if the FN were to win. They would cut all bailouts and tell the PIIGS to come and get it if they want to be eaten.

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