While Belgian caterers are delighted that Europe's increasingly more unelected leaders quarrel endlessly over who gets to foot the bill to keep the market fooled for one more week that things are fixed, Europe is burning. The just released MarkIt PMI data showed that while Spanish bonds may be up 50 bps one day, down 75 bps the next, "the downturn in the Eurozone manufacturing sector extended to an eleventh successive month. Production and new orders suffered further severe contractions, leading to the steepest job losses since January 2010." And here is where Germany, which as noted earlier, is becoming isolated in its European bailout ambitions, should pay attention: "The rate of decline in Germany was the steepest for three years,
and marked a fourth successive monthly decline in the region’s largest
economy." This metric is only going to get worse, only in the future it will be coupled with increasingly more direct and contingent debt all around.
From MarkIt [16]:
At 45.1 in June, unchanged from the previous month, the final Markit Eurozone Manufacturing PMI® was up slightly from its earlier flash estimate of 44.8. However, the rate of decline signalled was identical to May, when operating conditions deteriorated at the fastest pace for almost three years. Over the second quarter as a whole, the PMI registered its lowest average reading (45.4) since the second quarter of 2009.
PMI surveys signalled manufacturing contractions in all of the five largest national economies in June. The rate of decline in Germany was the steepest for three years, and marked a fourth successive monthly decline in the region’s largest economy. Steepening rates of contraction were also signalled in Italy and Spain, though mild decelerations were reported by France and the Netherlands. Greece, meanwhile, sank back to the bottom of the PMI league table. Austria teetered only slightly above stagnation but Ireland remained a brighter spot, seeing a faster rate of manufacturing expansion as its PMI hit a 14-month peak.
Chris Williamson, Chief Economist at Markit said:
“The Eurozone Manufacturing PMI suggests that the goods-producing sector contracted by around 1% in the second quarter, with this steep rate of decline looking set to accelerate further as we move into the second half of the year. Companies are clearly preparing for worse to come, cutting back on both staff numbers and stocks of raw materials at the fastest rates for two-and-a-half years.
“Producers’ input costs are now falling at the fastest rate for nearly three years, which should help boost profitability and feed through to lower inflation. However, their biggest fear at the moment is slumping demand rather than rising prices, with demand in home markets and further afield being hit by heightened uncertainty regarding the economic outlook as the region’s economic crisis rolls on.”
Further confirming that there is no easy way out for Europe was the May Eurozone unemployment number which at 11.1% rose to a new record.
From Reuters:
Joblessness in the euro zone rose to a new record high in May, pushed up by lay-offs in France, Spain and even stable Austria, as the 2-1/2 year debt crisis continued to eat away at the currency bloc's fragile economy.
Around 17.56 million people were out of work in the 17-nation euro zone in May, or 11.1 percent of the working population, a new high since euro-area records began in 1995, the EU's statistics office Eurostat said on Monday.
"Unemployment will continue to rise until we see an improvement in the economy, and that may not be until next year," said Steen Jakobsen, chief economist at Saxobank. "The next few months are likely to constitute a low in the growth cycle," he said, predicting the euro zone's economic output to show a contraction in the July-to-September period.
Economists at ING see unemployment reaching as high as 12 percent if European manufacturing does not stage a recovery.
European leaders agreed a growth and jobs pact to inject 120 billion euros ($152 billion) into the European Union's economy at a summit last week, but economists say only economic reforms and resolution of the debt crisis can end the downturn.
"Since the total size of the envelope is small and much of it involves reallocation of existing funds rather than 'new' money, the resulting effect on growth is likely to be very limited," Citigroup wrote in a note to clients on Monday.
Over the past 14 months, the total number of people out of work in the currency area has risen by almost 2 million people, according to Eurostat.
Of course this being a New Normal world, the worse the economy, the higher the prospects for endless bailouts. So the market can only hope and pray that the rate of collapse accelerates as only that can possibly send the world's bourses to new record highs. At least in nominal terms.