Overnight Sentiment: Tumbling Into Global Recession

Tyler Durden's picture

As if depressing PMI data out of China overnight was not enough (it was certainly enough to send the Shanghai Composite tumbling 2.08% to 2024.8 and just off fresh 4 year lows), we then got Europe to join in the fray with a composite PMI print of 45.9, down from 46.3, and a miss to expectations of a modest rise to 46.6 (driven by a manufacturing PMI of 46.0 up from 45.1, and a Services PMI down from 47.2 to 46.0). The biggest surprise was the sheer collapse in French manufacturing data which tumbled from 46.0 to a 4 year low of 42.6 on expectations of a rise to 46.4, which sent the EURUSD firmly into sub 1.30 territory and not even several good paradoxical bond auctions from Spain (because a good auction here means no bailout, means those who bought the bonds will soon suffer big losses) have managed to dent the very poor overnight sentiment which now implies a European GDP contraction of -1% of more. Reality has also halted the global easing euphoria (the USDJPY is now 40 bps below where the BOJ announced the injection of another Y10 Trillion), and has everyone wondering, now that QEternity is priced in, what next?

Europe's PMI capitulation visually:

On Europe's PMI debacle via Bloomberg:

Europe appears headed for a deepening economic recession despite a recent easing in market concerns over the three-year debt crisis, a closely-watched survey found Thursday.


Financial data company Markit said its purchasing managers' index — a gauge of business activity — for the 17-country eurozone fell to 45.9 in September from 46.3 the previous month.


The decline was a surprise as the consensus in the markets was for a modest improvement. Anything below 50 indicates a contraction in economic activity.


September's rate was the lowest in over three years and came despite an easing in the rate of economic contraction in Germany, the eurozone's largest economy.


The decline also highlights the scale of the challenge facing European policymakers as they seek to get a grip on the debt crisis and may fuel hopes that the European Central Bank will cut its main interest rate further from the record low of 0.75 percent.


"The fall in the PMI in September is another reminder that the ECB's new asset purchase programme is not an answer to all of the region's problems," said Ben May, European economist at Capital Economics.


The euro was down 0.8 percent at $1.2940 an hour after the survey's release.


Analysts said the figures suggest the eurozone economy is contracting at a sharper rate than the 0.2 percent quarterly decline recorded in the second quarter of 2012. Conditions in both the manufacturing and services sector worsened.


"The latest readings not only suggest that the euro area has been in recession over the past six months, but also augur ill for the final quarter of the year," said James Ashley, senior European economist at RBC Capital Markets.

It was not all bad news: Spain did manage to sell €4.8 billion in bonds overnight to investors who still don't get the Catch 22 dynamics of the ECB rescue for Spain. They will soon enough. Via the WSJ:

Spain Thursday cleared its biggest hurdle since the European Central Bank signaled two weeks ago that it would buy the bonds of fiscally-frail countries, with the country selling its largest slice of debt since March.


In a sign that the impact of the ECB's pledge continues to seep through financial markets, Spain sold €4.80 billion ($6.26 billion) in the two bonds, above its €3.5 billion to €4.5 billion target. The offer received €8.577 billion in bids.


"All in all, the auction seems to have gone well and another funding challenge has been cleared successfully," said Orlando Green, fixed income strategist at Crédit Agricole.


The ECB's pledge to buy bonds with a maturity of up to three years encouraged the Spanish Treasury to launch a new three-year bond, maturing in October 2015 and carrying a coupon, or scheduled interest payment, of 3.75%.


This bond accounted for the bulk of the funds raised at Thursday's auction, with the rest coming from a new tranche of the existing 10-year, 5.85% January 2022 bond.


Thursday's auction means that Spain has completed about 82% of its annual gross fundraising target of €86 billion for 2012.


But the solid demand at the bond sale doesn't allay concerns about Spanish finances and doesn't rule out investors cooling off Spain if it doesn't move to seek aid for its funding needs.


Lower borrowing costs makes it less urgent for the Spanish government to ask for assistance, potentially undermining the biggest driver for the buoyant tone toward Spanish debt.


At Thursday's auction, the average yield on the new three-year bond came in at 3.845%. Since this was the first time this particular three-year bond has been issued and the amount sold was larger than usual, the auction results aren't directly comparable to those of the last three-year bond auction held Sept. 6 for the 4% July 2015-dated bond. At that auction, the Treasury sold the three-year bond at an average yield of 3.676%.


The average yield on the 10-year bond came in at 5.666%, down from 6.647% at the previous auction Aug. 2. This is also below a euro-era high of 7.58% achieved in July in secondary market trading, where bonds trade after their initial sale.

Finally, a complete recap of overnight market action, via DB's Jim Reid:

Away from Europe, China’s HSBC flash PMI in September came in a touch higher than August (47.8 v 47.6) but still indicative of economic weakness. The manufacturing sub-index printed at a 10-month low of 47.0. The news is not helping overnight sentiment with the Nikkei (-1.0%) and Hang Seng (-0.5%)  both trading lower while the Shanghai Composite (-1.2%) is lagging again. In Asian credit, CDS indices roll is the main focus overnight and the theme should continue into the London and New York session today. In other data Japan’s exports dropped 5.8%yoy in August to post the third straight month of declines. Meanwhile in Australia, DB’s economists now expects the RBA to ease by 50bp before year end and another 50bp by mid 2013 bringing the cash rate down to 2.5%. Nike announced a new $8bn share repurchase program after the US close.


In overnight news, the Dow Jones newswire quoting the El Pais, said that the Spanish government is looking to use the remainder of the EU100bn EU bank bailout for the sovereign sector in order to avoid an official aid request. The article said that the detailed bank recap assessment due next week by Oliver Wyman is expected to amount to EU60bn. Considering that banks may tap private financing that may leave some EU55-60bn from the EU loan for the government.


Looking at the day ahead, the Philly Fed survey will also be an important data point today following the disappointing Empire State manufacturing survey earlier this week and the weak IP data last week. The market is expecting a negative print of -4.5 in September but moderately better than the -7.1 in August. Weekly jobless data and Markit US PMI preliminary reading are also due. In Europe we will also get German producer prices, Italian industrial orders and UK retail sales but the main focus will be on the Spanish auction and European flash PMIs.

Has the time come for Morest Greatest QEst? It would be, if it wasn't all priced in now.

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GetZeeGold's picture




Tumbling Into Global Recession


Good to see everyone is staying optimistic. It's just a Recession.....that happens all the time.


Precious's picture

The final lap of four.  Bernanke in a full sprint.  Means just one thing.  The race is almost over.

JPM Hater001's picture

It's just a Recession.....that happens all the time.

It's just a Recession....That has been here the whole time

There fixed.

I now declare the onset of the depression.

malikai's picture

I now declare the onset of the depression.

Dated: June, 2001.

Lester's picture

More like tumbling into the morass of Global Collapse.

Every 30 years or so, Prechter's Elliot Wave analysis seems apt. His Tidal Wave prognostication looks valid, especially the part about "correcting all societal and economic advances since The Dark Ages".

Madness and Insanity of Crowds now seems the order of the day.

samcontrol's picture

Apart from your constant ego trip a la gold bitches when are you gonna say something interesting or relevant?

MountainMan's picture

Possible reverse head & shoulder...very bullish!

Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

QEnfinity+1^n! 'Get to work Mr Chairman.'

malikai's picture

You should have waited to blow your load Benocide..

JPM Hater001's picture

For those who say Ben should have waited until things got much worse I have news for you.

Things are much worse than you can even imagine.

These are the official numbers.  Imagine what reality is.  I would knock about 10-15% off those numbers and you might be close to the truth.

Baghdad Bob would blush at the lies the Chinese are telling.

malikai's picture

Ok, I'll take that.

But then what the hell is he going to do when real deflation takes hold now?

The next move, in order to 'shock and awe' will have to be so fucking big we really will be looking at $100 bread.

JPM Hater001's picture

I see "one" of the most likely scenarios being US dollar repatriation as a new basket of currencies are developed to trade internationally.  All those dollars have to go somewhere and when the only place dollars spend well is America I promise you deflation will not be a problem.

$100 bread will be the "on-sale" price.  Half off most probably.

trebuchet's picture

spanish Bond auction: 


Bank of Spain borrows money from ECB via Emergency lending assistance, lends to Local banks who buy Spanish Govt Debt.


is something wrong here?

smlbizman's picture

i watch my dog every day implore the same strategy...spinning in circles trying catch his tail.... the difference is...he will figure it out...

Chump's picture

Nice analogy, but he stops because he gets tired of it.

Everyone "in the know" knows this shit is bogus, but they're just not quite ready to give up.

new game's picture

a self fullfilling prophecy of ever deeping mire of bull shit all created by the powers that created this quagmire.

but you can use cog dis to your advantage:

read this and get control of your self!!!


the truely smart people at this blog will understand how important this is...

LawsofPhysics's picture

Just figuring that out now?  You are way behind the curve.  Humanity itself is an unstable ponzi, hedge accordingly.

swanpoint's picture

This is good news..... PRINT!

trebuchet's picture

-0.6% EU GDP => -0.25%  to -0.3% US GDP   (St Louis Fed estimates)

Fiscal cliff issues =  - 0.25% to -0.5% US GDP  (own back of the envelope estimates) 

China Slowdown = - 0.25% to -0.5%  US GDP   (own back of the envelope estimates)

Oil above $80 = -0.1% to -0.3% US GDP  (various study estimates)   


Fed forecast for US GDP 2012 Q4  -0.4% lower than June Forecast


Can someone please update or direct me to better estimates?





RSBriggs's picture

No need for better estimates.  Take your -1.6% estimate numbers, add in a magical (let's see now, 1.6-.4 = 1.2) seasonal adjustment of +1.2%, and just like magic, you get the Fed's estimate. 

Oh, did seasonal adjustments that don't add up to zero for this year?  No problemo - just move the balance forward to Q4 next year as a post-seasonal seasonal adjustment.

Quinvarius's picture

Obviously Krugman was right.  We didn't print enough money yet.  Haha.

moriarty's picture

No problem – inverse head & shoulders pattern it will be @ 80 in no time


Doomer's picture

French manufacturing shrinking? Guess nobody is buying jumbo jets, expensive clothing or crappy cars. Shocking.

samcontrol's picture

Are you implying that the pos buses you guys drive in a straight line are better than European cars..... ? Did any of you catch the x games by the way? See that "tiny" Frenchman < you know the guy with 8 world championships > and his "tiny" CITROEN almost lap everyone in a 4 lap race... Probably the biggest blowout in sports history. So please,,, ush about your lame bailedout, bankrupt, corrupt comp.

Cdad's picture

Just a quick question....ummm....what is the VIX doing with a 13 handle on it?  Let me know.

samcontrol's picture

easy, bb has been shorting vix products for month.

intric8's picture

Then it'll be "Buzz" Bernanke to the rescue again! "To QEternity, and beyond!"

orangegeek's picture

China feeds the US their cheaper output - cheaper than what unionized US workers can produce.


But most US consumers are generally broke.  It was only a matter of time - even Communist lying runs out of rope and sites for more empty cities to be built.


SP500 weekly is showing top regardless of how my QE plantgrow is poured on.




The biggest joke is Bernake juicing the markets at four year highs.  It's not QE/Twist - it's operation "re-elect Barry".  Good luck getting through earnings season Ben and Barry.

miker's picture

We're looking at a 4 year dead cat bounce.  Now all the information is in, even for those who don't want to believe it.  Pessimism is accelertaing.  People know in their gut this thing can't be sustained.

I'm looking for an economic stall and spiral down.  Not sure from what altitude or skills of pilot but it's a big, big freighter of a plane and those things are hard to pull out of a dive.

1000yrdstare's picture

Starting to hear from people I know that thought I was crazy for hoarding food,essentials, and planting gardens, now they are stocking up, hope they are not too late. Some people will never prepare and when the system fails they will all be standing around saying we did not see this coming...Think back to 2007, that is when you should have started preparing. They cannot stop what is coming, they have only delayed. I guess you can't blame people, We have all seen booms and busts, however this bust involves the entire planet..

JPM Hater001's picture

I met with an old advisor buddy of mine.  After discussing the reality he told me they would keep kicking the can.  Sure it will happen someday but not in the next 6 months.

"See this point in 2008 when the market dropped 50% literally overnight.  Did you see that coming?  No.  And you wont see this either even though I just put it right in front of you.  It's called normalcy bias Jesse."

q99x2's picture

Bout time they start getting honest.