If the European triple-dip alert was barely glowing a muted red until this morning, then following the latest German PMI data [16], which tumbled to 49.9 from 50.3, below the 50.3 consensus, and is the first contractionary print in 15 months, then they are now screaming a bright burgundy. And while the European recession has now clearly made its way to the core, it wasn't just Germany: French PMI continued to be solidly in a contracting phase, at 48.8, unchanged from the previous month, the overall European Manufacturing PMI also missed and declined, dropping from a flash reading 50.5 to only 50.3, which was a 14 month low, with the average PMI reading for Q3 the lowest since a year ago, and as MarkIt summarized, "Eurozone manufacturing edges closer to stagnation [17]." Have no fear, though, Mario Draghi and his monetization of Greek Junk Bonds will fix everything!
Finally, not helping matters was the UK PMI which too tumbled from 52.5 (revised lower to 52.2) to 51.6, far below the 52.7 expected increase, and the lowest print since April 2013.
In other words, the world's central bankers, except the Fed for now of course, have been given the MarkIt green stamp of approval to do what has so far failed to do anything to boost the global economy on a sustained basis: CTRL-P.
The full breakdown of today's European manufacturing data:
[18]
Here is what a German triple dip looks like:
[19]
And a European triple-dip:
[20]
[21]
Not even PMI could spin the data in a favorable light. Here is what Oliver Kolodseike said:
“September’s manufacturing PMI results paint a worrying picture of the health of Germany’s goods-producing sector. The headline PMI fell to its lowest level in 15 months, heavily weighed down by the sharpest drop in new orders since the end of 2012. Surveyed companies reported that a weakening economic environment, Russian sanctions and subdued growth in key export destinations were reasons behind the disappointing reading.
“Moreover, deflationary pressures persisted into September, with both input and output prices falling since the previous month. This was the first time since March that both price indices registered below the neutral 50.0 mark.
“On a positive note, September marked an end to a three-month period of job cuts, and despite declining order intakes, companies reported further (albeit weaker) production growth and a marginal rise in buying activity.”
And Europe in general, from MarkIt's Chris Williamson. Sorry, recovery fanatics. Not this time (again).
“September’s eurozone PMI makes for gloomy reading. The euro area’s manufacturing economy has lost the growth momentum seen earlier in the year, lurching closer to stagnation. The near-term outlook also looks worrying. Order books are now deteriorating for the first time since June of last year, suggesting output could start to fall as we move into the final quarter of the year.
“Not surprisingly, firms are focusing on cost-cutting, resulting in an ongoing lack of job creation and sending a depressing signal of little hope for any reduction in the region’s near-record unemployment rate.
“Companies are also cutting prices at the expense of profit margins as they strive to boost sales. In a sign of spreading deflationary pressures, prices fell in all countries surveyed for the first time in over a year.
“In a sign of spreading economic malaise, Germany, Austria and Greece all joined France in reporting manufacturing downturns in September. What’s especially perturbing is that Germany’s PMI fell into contraction for the first time since June of last year, suggesting the region’s northern industrial heartland has succumbed to the various headwinds of weak demand within the euro area, falling business and consumer confidence, waning exports due to the Ukraine crisis and Russian sanctions.
“The weakening manufacturing sector will intensify pressure on the ECB to do more to revive the economy and no doubt strengthen calls for full-scale quantitative easing. Many will hope that this week’s policy meeting will at least show a determination to address the slowdown with details of an aggressive ABS and covered bond purchase programme.”
So, one would think this is bad news for Europe right? Well, moments ago Germany just priced it first ever 10 year Bund Auction at a yield of below 1.0%, or 0.93% on average. This happened even as the Bit To Cover was 1.1, well below 1.4, and meaning the auction was once again technically uncovered, meaning that the Bundesbank had to step in and make sure there is enough demand. Which at a record low yield and an economy entering a triple-dip, almost makes sense.
