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European Economy Contracts For Fifth Month In A Row, More Pain Ahead

Tyler Durden's picture





 

Following today's release of European manufacturing PMI data we are sadly no closer to getting any resolution on which way the great US-European divergence will compress. Because all we learned is that, very much as expected, Europe managed to contract for a fifth month in a row, with the average PMI in Q4 2011 the weakest since Q2 2009, essentially guaranteeing a sharp recession once the manufacturing slow down spills over to GDP. The only silver lining was that the contraction across the continent was modesty better than expected, however if this merely means that the band aid is being pull off slowly and painfully instead of tearing it off is up for question.

The released December manufacturing PMIs were as follows:

  • Italy: 44.3 vs 44.0 previously, exp. 43.8
  • France: 48.8 vs 47.3 previously, exp. 48.7
  • Germany: 48.4 vs 47.9 previously, exp. 48.1
  • Greece: 42.0 vs 40.9, nobody cared about expectations as the economy is total freefall

And the consolidated Eurozone PMI number came at 46.9, just a tad higher than the 46.4 in November, and in line with expectations.

The worst news, as Reuters reports below, is that New Orders are dropping at a faster pace than output cut, meaning the contraction is back end loaded and more deterioration is imminent.

But first visually, Europe's Industrial Production is still lagging the slowdown in manufacturing. Expect this compression to also collapse, likely in an adverse fashion.

And from Reuters:

Euro zone manufacturing activity declined for a fifth consecutive month in December, although at a slightly slower rate than November's 28-month record low, a survey showed on Monday, suggesting the decline would continue in the early months of 2012.

 

Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) rose slightly in December to 46.9 from November's 46.4, but marked its fifth month below the 50 mark that divides growth from contraction. It was unchanged from an earlier preliminary reading.

 

Survey compiler Markit said levels of production and new orders fell in all of the euro zone countries covered by the survey for the second month running.

 

"Despite the rate of decline easing slightly in December, production appears to have been collapsing across the single currency area at a quarterly rate of approximately 1.5 percent in the final quarter of 2011," said Chris Williamson, chief economist at Markit.

 

"The survey also points to a strong likelihood of further declines in the first quarter of the new year, with producers cutting back headcounts, inventories and purchasing."

 

The euro zone economy is already stuck in a recession that will last until the second quarter of 2012, Reuters polls of economists suggested last month. They forecast the economy will probably see no growth this year.

 

Business and consumer confidence in the currency bloc has been eroded by a weakening global economy and by euro zone policymakers' failure to make progress on resolving the euro zone debt crisis. Austerity measures imposed to try and cut high debt levels in the currency bloc risk further undermining euro zone economies this year, analysts say.

 

The new orders component of the December PMI survey also picked up slightly, to 43.5 in December from 42.4 the previous month, but it remained weak and Markit warned of a persistent and worrying divergence in order levels and output.

 

"Worryingly, new orders are falling at a far faster rate than manufacturers have been cutting output, meaning firms have been reliant on orders placed earlier in the year to sustain current production levels," said Williamson.

 

"This is particularly evident in Germany, and suggests that operating capacity will be slashed in coming months unless demand revives."

But fear not: the US is fine as it continues to export stuff to... someone. And lest we forget, US banks are completely isolated from European contagion.

 


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Mon, 01/02/2012 - 06:30 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

'But fear not: the US is fine as it continues to export stuff to... someone. And lest we forget, US banks are completely isolated from European contagion.'

Totally hedged.

And exports are just booming as that DXY is suggesting.

Mon, 01/02/2012 - 07:26 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Greece has a PMI? 

Actually Greece is a classic example of a service society in free-fall. PMI might be a bit of an ox and as much of a moron in the case of greece. Same as the US of A minus the MIC.

And tragically, as goes the white world, so does the brown and yellow and every other hue in existence.

ori

/2012-the-year-of-anomaly/

Mon, 01/02/2012 - 08:06 | Link to Comment hugovanderbubble
hugovanderbubble's picture

Shorting EURUSD from 1.2930 till 1.2690 seems reasonable for next weeks.

Mon, 01/02/2012 - 09:41 | Link to Comment knukles
knukles's picture

Opps! Time for another Summit!
Then STFB (Sell The Fucking Bounce)

Mon, 01/02/2012 - 11:12 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

You can't make big money like that.  

When you take that position, the clock starts running on the next bullshit intervention announcement and government decree, and it could happen at any second with no warning at all.

So you take a position and even if it moves in your direction, it can reverse and kill you overnight while you're asleep.

Mon, 01/02/2012 - 11:57 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Add South Korean manufacturing to the contraction list.

Actually, add quite a few nations that haven't been 'officially' announced as suffering economic contraction, since the gap between reality and what's been reported is so large:

S. Korea manufacturing shrinks most in 3 years

S.Korea Dec manufacturing sector activity falls most in 3 yrs

World in New Era of Low Growth: South Korea President

Mon, 01/02/2012 - 17:31 | Link to Comment xela2200
xela2200's picture

EURUSD seems a bit crowded. It can go against you in a hurry.

Mon, 01/02/2012 - 09:40 | Link to Comment midtowng
midtowng's picture

I'm not afraid. I totally believe the bullshit numbers our government puts out, and that it will mean our economy will grow even during WWIII and beyond.

Mon, 01/02/2012 - 10:04 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

"The Ministry of Peace" will continue to defend us and give us jobs.

Mon, 01/02/2012 - 12:27 | Link to Comment Sam Clemons
Sam Clemons's picture

Our number one export:  Debt (Treasuries).  And even that is fading.

Mon, 01/02/2012 - 06:36 | Link to Comment Sandmann
Sandmann's picture

US corporations have been based in Europe since 1890s

Mon, 01/02/2012 - 06:59 | Link to Comment hugovanderbubble
hugovanderbubble's picture

Doesnt matter,

Stocks with ANEMIC volume up 1.6%

*they are preparing the french downgrade softly

 

Mon, 01/02/2012 - 07:07 | Link to Comment Sudden Debt
Sudden Debt's picture

Let's not froget thet it never happend that the PMI dropped so low in oktober till now. It mostly goes down after newyear... So we're in for a ride on this one...

Mon, 01/02/2012 - 07:13 | Link to Comment hugovanderbubble
hugovanderbubble's picture

good point.(Sudden)

After Xmas sales, a desert till summer..

Mon, 01/02/2012 - 07:26 | Link to Comment PontifexMaximus
PontifexMaximus's picture

EU markets have to move higher, London traders playing EU short have to bite the bullet. Don't forget, big refi ops in Euroland have to be successful and therefore markets need to be proped up, whatever it costs. Forget about neg pmi etc. Again, watch only Italy, follow closely moves of the triple Monti, he has no time. Therefore, results (neg) will hit the markets soon, the can will hit against the wall of worries.

Mon, 01/02/2012 - 07:36 | Link to Comment valley chick
valley chick's picture

but...but...but...isn't there a chance for a summit somewhere around the 9th of January?  Will be time to crank up rumor mills for the market.  That will fix everything. /sarc

Mon, 01/02/2012 - 07:41 | Link to Comment PontifexMaximus
PontifexMaximus's picture

Yes, sarkomerkelberlinmeeting

Mon, 01/02/2012 - 08:35 | Link to Comment Blank Reg
Blank Reg's picture
Similar Articles You Might Enjoy:

This is what you have after every article.

ENJOY! I'm not enjoying ANY of this stuff!

Oh well. I'm going back to CNBS where I can read about rainbows an unicorns. Bye.

Mon, 01/02/2012 - 08:39 | Link to Comment Socrate
Socrate's picture

Risk on on such a good news</sarc>

Mon, 01/02/2012 - 08:41 | Link to Comment hugovanderbubble
hugovanderbubble's picture

Directly risk has dissapeared till eternity:)

Limbo Trading

Mon, 01/02/2012 - 08:49 | Link to Comment fonzanoon
fonzanoon's picture

Anyone like Siemens here? Just curious.

Mon, 01/02/2012 - 09:36 | Link to Comment hugovanderbubble
hugovanderbubble's picture

Siemens will suffer from emerging countries slow path growth.

Imho its not a good play in this moment,

of course is a great company , but timing is not the best one.

Wait for Dax following levels

5.225

5.030

4.837

4.745

 

Of course are swing levels, there try to load proportionally

Regards,

 

Mon, 01/02/2012 - 10:04 | Link to Comment fonzanoon
fonzanoon's picture

Thanks for your 2 cents. Much appreciated.

Mon, 01/02/2012 - 17:35 | Link to Comment xela2200
xela2200's picture

I worked for Siemens for a few years. It is a very well run company from what I could tell. Therefore, if You are in it for the long haul, You should be OK with this conglomerate.

The only thing I did not like about working at Siemens was that people here in the US kept on asking me if it was a porn site. :-)

Mon, 01/02/2012 - 09:00 | Link to Comment papaswamp
papaswamp's picture

Less worse...rally on!!!

I love when reports show contraction in an economy, but because it wasn't as bad as thought, markets rally. This is the new key for equuities. Predict disaster and when it is only mild pain and suffering it's time for a rally. Seriously sad state of affairs the world finds itself in.

Mon, 01/02/2012 - 09:21 | Link to Comment dcb
dcb's picture

OK, but you want to buy securities/stocks when the economy is in a recession

Mon, 01/02/2012 - 09:48 | Link to Comment dcb
dcb's picture

ande headlines from today, markets closed oin the us. I think watch a big jan because end repo 105, just like october.

European (SXXP) stocks gained on their first trading day this year, following the Stoxx Europe 600 Index’s first annual loss since 2008, as a measure of German manufacturing beat estimates and a gauge of chemical makers rose. Asian shares retreated.

breakout time.

Mon, 01/02/2012 - 12:40 | Link to Comment bigkahuna
bigkahuna's picture

Well then-- BUY BUY BUY!!!

 

LOL

Mon, 01/02/2012 - 09:34 | Link to Comment MFL8240
MFL8240's picture

Was an expansion anticipated?  This is ridiculos.

Mon, 01/02/2012 - 09:45 | Link to Comment gatorengineer
gatorengineer's picture

Excuse me, but these are all better than expected and presumably priced in.......  Sat over the holiday short Tbills and the euro........  Will cash out the Tbill trade tomorrow mornng for 3 or 4 percent gain, and will stay euro short until around 1.26, will play the bounce back to around 1.29.....

Unless Barry unexpectedly speaks market should rally for a couple of days and give me a shot to load some shorts......Dope we can believe in.......

 

Mon, 01/02/2012 - 09:53 | Link to Comment Georgesblog
Georgesblog's picture

"The U. S. banks are completely isolated from the European contagion". .... Yes, and Mary Poppins had a little lamb. With the Fed committed to propping up Europe,  the contagion is in the debt swaps. Speaking of debt, that is the major export of the United States.

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

Mon, 01/02/2012 - 09:54 | Link to Comment TheSilverJournal
TheSilverJournal's picture

Imagine how big the contraction will get when they're no longer able to paper over the malinvestment because the printing press is rendered worthless with hyperinflation. The clearing of the malinvestments will be painful, but it will be followed by a boom in productivity as resources are allowed to once again be allocated productively.

TheSilverJournal.com

Mon, 01/02/2012 - 17:41 | Link to Comment xela2200
xela2200's picture

That is if We still have resources. Also, think what a readjustment like that could mean to the population (poverty, famine, etc). If the Markets were allowed to do their job, it could have been gradual. However, with government intervening, who knows what the snap back could be (oil, silver, copper, etc). Volatility is the invisible hand fighting with the powers that be.

Mon, 01/02/2012 - 10:08 | Link to Comment Quinvarius
Quinvarius's picture

How the F they managed to get gold down into the 1500's on all this printing and economic destruction is beyond me.  Why the governments would even want it down, making them look even less solvent, is also beyond me.  Gold at the right price to balance out debt kicks the can all by itself. 

Mon, 01/02/2012 - 17:44 | Link to Comment xela2200
xela2200's picture

Gold has to be knocked down if You intend to add liquidity. Perceived value of Dollar. That is my take on gold and silver at least. Shorts are moving out of their positions in gold and silver on a big way if You can still believe the COT.

Mon, 01/02/2012 - 10:44 | Link to Comment Snakeeyes
Snakeeyes's picture

But Germany actually had a good report on manufacturing.

Mon, 01/02/2012 - 10:45 | Link to Comment Herne the Hunter
Herne the Hunter's picture

Have a look at the Google Air Travel Index... falling off a cliff...

http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Linear&c...

Mon, 01/02/2012 - 11:39 | Link to Comment beenburnedtwice
beenburnedtwice's picture

That's an interesting chart.  Pay particular attention to the YOY Change tab for the startling cliff jump.  Thanks HtH.

Mon, 01/02/2012 - 11:07 | Link to Comment Atomizer
Mon, 01/02/2012 - 11:12 | Link to Comment fonzanoon
fonzanoon's picture

Look at the european markets rip higher! 2012 more of the same.

Mon, 01/02/2012 - 11:20 | Link to Comment Dick Darlington
Dick Darlington's picture

And here's how msm spins the ongoing contraction. This is really getting old...

 

From BBG:

European Stocks Rise on Manufacturing

http://www.bloomberg.com/news/2012-01-02/most-asian-stocks-fall-as-won-e...

Mon, 01/02/2012 - 11:36 | Link to Comment SLOMO66
SLOMO66's picture

The DAX is up 163.73........based on what?.......

 

Mon, 01/02/2012 - 12:06 | Link to Comment Boilermaker
Boilermaker's picture

Based on the fact that they can do it at-will and with or without justification.

Please don't tell me you're still clinging to the notion that this is actually legit trading activity.

HEADLINE:  "STOCKS SOAR TO RING IN 2012"

It's just a fucking propoganda tool now.

Mon, 01/02/2012 - 11:47 | Link to Comment RobotTrader
RobotTrader's picture

Looks like more pain for the bears in 2012.

 

Consensus is nearly universal that things are going to get worse.

NY Times today running an article about Europe, austerity, and the coming deep recession.

Eventually the 35-year bond bubble is going to pop and all that money is going to go into beaten down cyclical stocks.

Mon, 01/02/2012 - 12:01 | Link to Comment thelonegunman
thelonegunman's picture

Hmmm.. Austerity budgets and 'belt-tightening' doesn't seem to be 'inspiring all the 'investment' and 'turn-around' touted as promised...

Mon, 01/02/2012 - 12:03 | Link to Comment RobotTrader
RobotTrader's picture

Huge day for the DAX.

6,000 cleared with ease.

http://www.wallstreetbear.com/board/view.php?topic=92640&post=335597

It has been proven over and over again.

The time to buy stocks is when the economic news is at the worst.

I won't really be interested in shorting anything until the economy is rip roaring, things are good, and stocks start acting tired in the face of good news.

 

Mon, 01/02/2012 - 13:03 | Link to Comment Atomizer
Atomizer's picture

 

Joseph Goebbels Hitler's Minister of Propaganda

 

Obama teleprompter Truman speech in 3,2,1.. Shovel Ready Jobs Bitches.. Coughs QE3.

RT, being a permabull will catch up to you, so will your political affiliation. Debasing a currency is no answer in solving problems on controlling checks & balances. Once your gravey train dries up, you'll be the first to ask taxpayers to front money for your mistakes.

Think.. Lamp posts, rope, trees, bullets and the very thieves that are robbing people blindly. Who do you think will win? Don't answer.

 

Mon, 01/02/2012 - 19:26 | Link to Comment chump666
chump666's picture

It's a Eurostyle bulltrap, i.e f*cking brain dead momos looking desperate.  You buy into that, you deserve to live in a cardboard box broke and boned.

The Europeans have no idea what they are doing anymore, so the market WILL NOT take cues from German and Frenchy momo traders.

Get ready for the most brutal volatility you will ever see.

Europe is wall to wall with rogue traders anyways...check your rogue trader list.  Europe is a joke.

Mon, 01/02/2012 - 12:09 | Link to Comment Boilermaker
Boilermaker's picture

Is everyone ready for a +20 handle ES opening at 6pm?  I sure am.  It's a massive show of 'confidence' for the New Year.  Now, I have to unpack the streamers and noise makers and head to Kroger for another bottle of champaign.

It's a MIRACLE!

Mon, 01/02/2012 - 12:48 | Link to Comment BORT
BORT's picture

4 week moving average petroleum products supplied is continuing to plunge.  Weekly data not subject to seasonal adjustments , etc.  We are going down.  Go to www.eia.gov and navigate to weekly product data

Mon, 01/02/2012 - 12:53 | Link to Comment nolla
nolla's picture

Yes, Europe is up today, a lot. Yet, it comes with extremely low volume, JAP, Brits and US all closed.

Only about 270k EuroStoxx50 futures traded when the volume has been around 1.5 - 2 million before this XMas lull.

http://www.eurexchange.com/market/quotes/IDX/STX/BLC/OESX_en.html#table

I wouldn't read anything into this - only that it resembles somewhat the first days in 2009. First day was UP about 3-4%, the second day UP, too, but then...well, you know what happened between Jan-March 2009.

Mon, 01/02/2012 - 14:17 | Link to Comment CitizenPete
CitizenPete's picture

Dinner for one in the EU:

 

http://youtu.be/Bosww6HLgRg

Mon, 01/02/2012 - 14:23 | Link to Comment kelpie-capital
kelpie-capital's picture

Europe and the US will continue to diverge because they continue to have diverging policies.

My atttempt to explain the 2 contrary approaches to the Balance Sheet Recession disease the developed world has caught...

www.kelpie-capital.com/2011/12/29/balance-sheet-recession-basics-not-you...

Mon, 01/02/2012 - 15:07 | Link to Comment whoisjohngalt11
whoisjohngalt11's picture

Love your Wit there Tyler ;-) But fear not: the US is fine as it continues to export stuff to... someone i have always been impressed that we can all get jobs shining each others shoes too...

Mon, 01/02/2012 - 22:56 | Link to Comment covert
covert's picture

where are the factories? chine has more freedom of enterprize than america.

http://covert.mypressonline.com

 

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