Yesterday we poked fun [12]of Goldman for suggesting that the reason for the late-day sell off was "Prudent profit-taking as folks remember Europe isn’t closed tomorrow." Turns out Goldman could not have been more right: around 4 am Eastern this morning Europe reported a series of economic updates which showed that the European economy continues to be nothing but a slow motion trainwreck and is getting far worse. Starting with final April Eurozone Manufacturing PMI which printed at 45.9 vs an initial print of 46.0, a 9 month low with a core breakdown is as follows: Italian manufacturing PMI 43.8 at a 6 month low, est 47.1 (prior 47.9), German manufacturing PMI at a 33 month low 46.2 vs initial 46.3 (prior 48.4), France manufacturing PMI 46.9 vs initial 47.3 (prior 46.7), which also followed Italy by recording sharpest drop in manufacturing new orders in 3 yrs in April, and so on as can be seen in the chart below. As every sellsider who has opined so far this morning, these numbers are all "hugely disappointing."
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Additionally, unemployment data out of Germany came worse than expected, with a +19,000 jobless print on estimates of a -10,000 decline, following a -18K print last. The unemployment rate was unchanged at 6.8% although March was revised higher from 6.7% to 6.8%. This will cause many to worry about the German GDP number which if printing negative will push the core economy of Europe into a double dip next. Elsewhere the Italian unemployment rose to 9.8% on expectations of 9.4%, but more troubling is that the youth unemployment in Italy rose from 33.9% to 35.9% in one month. Overall the eurozone unemployment rate followed the following trend: Euro 9.9%; 10.3%; 10.4%; 10.6%; 10.6%; 10.8%; 10.8%; 10.9%; and the latest print of 10.9% was an increase from 10.8% before, and sad to say, the highest print on record.
Some instant analysts views on the unemployment numbers:
MARTIN VAN VLIET, ING
"The grim unemployment figures for March will likely encourage talk about a long-overdue 'growth pact' for the euro zone. The number of jobless in the 17-country region rose by 169,000, marking the 11th consecutive monthly rise while pushing the unemployment rate up from 10.8 percent to a fresh 15-year-high of 10.9 percent.
"The figures clearly highlight the diverging economic paths of the euro zone and the United States, where unemployment is falling. In fact, the gap between euro zone and U.S. unemployment rates hasn't been this wide since the end of 2007.
"The further increase in overall euro zone unemployment reflected increasing disparities between countries, with the jobless rate in Germany remaining steady at 5.6 percent and unemployment in Spain, Portugal and Italy increasing further from already elevated levels (to, respectively, 24.1 percent, 15.3 percent and 9.8 percent).
"The depressingly high unemployment rates in southern Europe are partly caused by structural factors, but also provide a clear indication of the short-term economic pain inflicted by the draconian austerity programmes.
"The increasing economic divergence across the euro zone is making it very hard for the ECB to set its 'one-size-fits-all' monetary policy. Indeed, concerns about the ECB's policy being too loose for Germany appear to be mounting. That said, higher inflation in Germany makes it easier for southern Europe to restore competitiveness and, as such, may be just what the doctor ordered.
"Looking ahead, survey measures of hiring intentions point to further increases in unemployment over the coming months, so we would expect unemployment to breach the 11 percent threshold before long. Provided the euro zone starts to emerge from its double dip recession in the second half of this year, we see the jobless rate peaking at about 11.5 percent."
HOWARD ARCHER, IHS GLOBAL INSIGHT
"...This was the 11th successive monthly rise in euro zone unemployment, and brought the cumulative rise to 1.739 million since April 2011."
"Most countries saw unemployment increase in March although the increase was generally moderate in the core northern euro zone economies. Worryingly but unsurprisingly, unemployment continued to move sharply higher in the struggling southern periphery countries - Spain, Italy and Portugal. Greek unemployment is also rising sharply although there was no data for March.
"With the euro zone almost certainly having suffered a second successive GDP decline in the first quarter of 2012 and seemingly headed for further contraction in the second quarter, and with overall euro zone business confidence taking a renewed appreciable downward lurch in April, the likelihood is that the euro zone unemployment rate will move significantly higher, although the situation is likely to vary appreciably across countries.
"Indeed, it now looks odds-on that the euro zone unemployment rate will move appreciably above 11.0 percent over the coming months with an ever growing danger that it will reach 11.5 percent.
"Companies generally are under serious pressure to keep their labour forces as tight as possible to contain their costs in the face of current limited demand, squeezed margins (with input costs currently elevated), strong competition and uncertain growth outlooks.
"Significantly, the European Commission's business and consumer survey shows that employment expectations weakened in all sectors in April, when they particularly worryingly sank to a 25-month low among services companies.
"Furthermore, public-sector jobs are likely to be pared in a number of countries going forward as part of the austerity measures that are increasingly being implemented.
"Meanwhile, the further marked rise in euro zone unemployment in March maintains belief that consumer spending will be generally muted in the near term at least, especially as consumers are also facing sticky inflation, muted wage growth and tighter fiscal policy in many countries."
NICK KOUNIS, ABN AMRO
"It was in line with expectations. I think it is going to keep on rising over the coming months. We are currently in a moderate recession. Things may improve in the second half of the year, but we are expecting more a stabilisation then. We are going to be below trend growth for some time.
"Labour market adjustment tends to happen with a continual lag and I think the picture will be weak for the foreseeable future. You have ongoing budget cuts and the ongoing crisis. The weak labour market is also bad for consumption. The big hope for Europe is the global economy, that it will catch on the coattails of global growth."
So while futures on this side of the pond now actively ignore everything that is happening in Europe, the EURUSD has tumbled overnight. Yet if Europe is any indication, the collapse in the world's largest economic block is not only not slowing but is accelerating as the region tried hard to get back to a viable debt ratio: something the US will not do until it is far too late.
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