Another day, another set of disappointing European economic data. While the final Euroarea Composite PMI index increased by one tick from the 45.9 Flash reading to 46.0 in the final, the prior revision was also upward from 46.5 to 46.7 thereby indicating that while things had not necessarily deteriorated much in the past 2 weeks, they did relative to benchmark.
As Goldman explains: "The final reading of the Euro area May Composite PMI was revised upwards marginally to 46.0 after a flash reading of 45.9. The level reached in May is consistent with a small decline in Euro area activity (-0.1%-0.2%qoq). Together with the final reading of the Composite PMI, the May Services PMI was also released today. Compared with the flash reading, the final figure was also revised upwards (46.7 after 46.5). The broadly stable reading of the final Services PMI when compared with the flash suggests that business activity in the Euro area has not deteriorated further over the last two weeks (given that the final reading incorporates more up-to-date information). Looking at the country figures, the Services PMI declined further in Germany, France and Spain. In Italy, the Services PMI saw a small increase in May after a large decline in April. It remains to be seen, however, whether the May reading is indicative of a stabilisation, or simply a pause before the downward trend is resumed in June."
- Germany: 51.8 in May after 52.2 in April
- France: 45.1 in May after 45.2 in April
- Italy: 42.8 in Amy after 42.3 in April
- Spain: 41.8 in May after 42.1 in April
Also minutes ago German April factory orders printed at -1.9 on expectations of a -1.2 decline, and coupled with the prior revision from 2.2% to 3.2%, this confirms that the peripheral shakedown in Europe is impacting the core countries, as well as non-Eurozone targets increasingly more. This was confirmed when looking at the spread of domestic vs foreign orders. Again, per Goldman: "Domestic orders rose 0.4%mom after +1.8%mom, while foreign orders declined -3.6%mom after +4.4%mom. Within foreign orders, orders from the Euro area declined 1.8%mom after +0.9%mom, continuing the downward trend. Foreign orders from outside the Euro area declined +4.7%mom after +6.6%mom, still showing an upward trend (see chart below). There is no indication in these data that activity in the German manufacturing sector saw a sharp deterioration in Q2. Business sentiment, however, suggests that the sector is likely to lose some momentum going forward." Which means that once again, everyone's attention is now focuses on what external help can come: either from the G7 phone call in minutes, which will be a disappointment, or the ECB on Thursday, which we are confident, will also be a whimper, not a bang. As a reminder: there must be blood in the streets for coordinated intervention by both banks and fiscal authorities in Europe, for it to be effective.
German manucaturing orders continues sliding...
... As the world becomes less hospitable to German production:
Regarding Euro PMI: European GDP must be sweating it:
[5]
The Core distinction is increasingly becoming burred:
[6]
Finally, interest rates need to drop... But can they?
[5]