Markit

All you need to read and some more.

Confirming what we already knew last night, HSBC just announced their final manufacturing PMI (revised slightly higher from the flash PMI) but confirming - via their data - that China is now in its sixth month of manufacturing contraction. Of course this is entirely irrelevant as last night China itself pointed out via its manufacturing PMI data that all was well and in fact the Chinese economy is expanding at its fastest in 14 months. The April HSBC print was modestly higher than the March print (so green shooters will be happy with their second derivatives) but the divergence between HSBC and China on this data point remains vast and digging into the sub-indices we see manufacturing output decreased for the second month in a row, new business fell marginally, but employment was down at the fastest rate in over three years as the need to streamline workforce numbers was cited by many as a response to lower output requirements.

With a Labour Day market holiday across the continent, focus turns to the FTSE-100. The UK market is trading modestly higher with some strong earnings reports overnight lifting the index. Lloyds Group posted stronger than expected profits and reported confidence in the delivery of their financial guidance. The report has boosted Lloyds shares to become one of the top gainers of the day. Despite this, the financials sector is being held back from outperforming as Man Group fail to deliver on their sales figures, pushing their shares lower throughout the session.  The only notable data release of the European session was UK Manufacturing PMI, coming in below expectations with a reading of 50.5 as manufacturing output was dampened across April by Eurozone weakness and contracting new orders. Following the release, GBP weakness was observed, with GBP/USD touching upon session lows.  Pre-market, the RBA cut their cash target rate by 50BPS, a larger cut than expected. The board cited skittish market conditions and below trend output growth as the triggers for the rate cut. As such, AUD weakness is observed across the board and AUD/USD stops just short of breaking through 1.0300 to the downside.  Looking ahead in the session, participants look toward US ISM Manufacturing for March due at 1500BST/0900CDT as the next key data release.

More pain in Spain has been the theme so far in the European morning as poor auction results across three lines has resulted in significant widening in the 10-yr government bond yield spreads over benchmark bunds with the Spanish 10yr yield up some 24bps on the day. In combination with this the latest Germany Factory orders also fell short of analysts’ expectations and as such the lower open in bund futures following yesterday’s less than dovish FOMC minutes has been completed retracted and we now sit above last Friday’s high at 138.58.

Back in February we were quite amused by conflicting internal and external reports of manufacturing growth in China, which according to the HSBC Markit Manufacturing PMI index had contracted for a 4th consecutive month even as the official Chinese PMI data showed 3 consecutive expansions. It just happened again, only this time the spread between the two indices has jumped to the second highest ever, with the official PMI index surging to 53.1, an expansionary number, an eleven month high while according to HSBC it slid to 48.3, indicative of contraction, and paradoxically indicating that in "the first quarter as a whole, the index averaged its lowest reading since Q1 2009." In other words, the Schrödinger paradox - where the economy was doing better and worse at the same time - which was experienced for the past three months in the US (and is now finished with the economy rolling over), has shifted to Shanghai, where it is now the PBOC's turn to baffle all with bullshit. Why? One simple reason: despite what everyone believes, China still has residual and quite strong pockets of inflation. So while the world may be expecting an RRR, or even interest rate, cut any second now (just as China surprised everyone literally house before the November the global FX swap line expansion by the Fed in November 2011), the PBOC is just not sure it can afford the spike in inflation, or even perception thereof.

European markets got off to a bad start following early reports that the Greek PM has not ruled out a further aid package for the country, however European cash equities are now trading higher as US participants come to market. Markets have been reacting to the announcement from EU’s Juncker that the Eurogroup has agreed upon Eurozone bailout funds of EUR 800bln. Elsewhere in the session, FPC member Clark commented that the FPC should not aim to stimulate credit growth in the UK, adding that direct intervention in the mortgage market is too politically volatile, but may be considered in the coming years. Following the reports, GBP/USD spiked lower around 15 pips, however it remains in positive territory, moving above the 1.6000 level in recent trade. In terms of data, the Eurozone CPI estimate for March came in just above expectations at 2.6%, 0.1% above the 2.5% consensus. The market reaction to this data, however, was relatively muted as participants await Eurogroup commentary. Looking ahead in the session, participants await commentary on the Spanish budget, US Personal Spending and Canadian GDP.

Next week will be relatively light in economic reporting, and with no HFT exchange IPOs on deck, and the VVIX hardly large enough to warrant a TVIX type collapse, it may be downright boring. The one thing that will provide excitement is whether or not the US economic decline in March following modestly stronger than expected January and February courtesy of a record warm winter, will accelerate in order to set the stage for the April FOMC meeting in which Bill Gross, quite pregnant with a record amount of MBS, now believes the first QE hint will come. Naturally this can not happen unless the market drops first, but the market will only spike on every drop interpreting it for more QE hints, and so on in a senseless Catch 22 until the FRBNY is forced to crash the market with gusto to unleash the NEW qeasing (remember - the Fed is now officially losing the race to debase). For those looking for a more detailed preview of next week's events, Goldman provides a handy primer.

Remember when the Chinese PMI posted both a contraction an expansion for the month of March, with Markit showing a sub-50 contractionary print, while the Chinese version showed 51, or expansion, in other words China was both stagnating and growing at the same time, merely the latest indication of our modern day Schrodinger-ness macro insanity? Well, we just got the US version of this Heisenberg Economic Uncertainty principle, when as part of the just released Philly Fed index (which also printed better than expected despite a drop in New Orders and Shipments), we saw Priced Paid.... tumble from 38.7 to 18.7!!?? Why the surprise? Because 90 minutes prior to this, we just got The New York Fed telling the world that prices paid in fact soared by virtually the highest amount in real terms on record! In other words, in New York survey respondents are experiencing soaring inflation, while 90 miles Southwest, manufacturing firms were awash in deflation. Do they even try to manipulate the data anymore?

All you need to read.

In 2011 it was Europe's turn to baffle everyone with bullshit. it still is, but now it has added China (whose Services ISM printed both below and above 50 depending on which data one uses, whether Markit or HSBC), and the US, as it is now the turn of the Services ISM to beat expectations and print at 57.3, on expectations of 56.0, and higher than the prior 56.8 - this beat comes just as the market was expecting a major drop in the aftermath of the big manufacturing ISM miss (Goldman was well below the consensus on today's number), and appears to have printed where it did just to keep the confusion about the true state of the US economy in place as Bernanke vacillates whether or not to proceed with QE3 and when. Curiously, the most important subindex ahead of this Friday's NFP data, the employment indicator, showed a decline from 57.4 to 55.7, just to make an NFP beat all that much more 'surprising.' That said, as Bloomberg's Joe Brusuelas notes, this data is stale and does not reflect the recent gasoline price shock, which as of today has regular has at a 2012 high of $3.767, compared to $3.503 this time last year. Elsewhere, and in keeping with the Mfg ISM data, US Factory Orders slid 1.0% on expectations of an unchanged print from last month's 1.4% increase. Finally, stocks are completely unmoved on all of this data.

There are those who recall that not ten days ago, according to the IMF's Greek (un)sustainability analysis, worst case scenario no less, Greek GDP would somehow miraculously post just a 1% drop in 2013. Unfortunately this won't happen. According to the overnight PMI update out of Europe (where was saw the jobless rate at the highest since 1997), the Greek economy just imploded at a record pace. This follows the already horrendous budget revenue data from January which came in down 7% on expectations of a 9% rise. Sure enough, as expected the fact that the entire country has taken the rest of 2012 off with no incentive to actually work, will do miracles for Greece. From Reuters: "The Markit Manufacturing Purchasing Managers' Index (PMI) for Greece fell to a survey low of 37.7 points in February from 41.0 in January, staying below the 50 mark that divides growth in activity from contraction for each of the past 30 months. Production and new order volumes fell at the sharpest pace in the near 13 year history of the survey as austerity sapped demand. New export orders fell for a sixth straight month and at the steepest rate since May 2010." Translated: the situation is hopeless and getting worse. Expect the German, pardon Troika, Kommissar to be shocked, shocked, to find out that not only do banks in Greece have no deposits left, but the entire economy picked up and left.

January's hopium catchphrase of the month was that Europe's recession would be "technical" which is simply a euphemism for our Fed's beloved word - "transitory." Based on the just released Euroarea PMI, we can scratch this Euro-accented "transitory" addition to the lexicon, because contrary to expectations that the Euroarea composite PMI would show expansion at 50.5, instead it came out at 49.7 - the manufacturing PMI was 49.0 on Exp of 49.4, while the Services PMI was 49.4, on hopes of expansion at 50.6, which as Reuters notes suggests that firms are still cutting prices to drum up business and reducing workforces to cut costs. This was accompanied by a overnight contraction in China, where the flash manufacturing PMI rose modestly from 48.8, but was again in contraction at 49.7. We would not be surprised if this is merely the sacrifice the weakest lamb in the pack in an attempt to get crude prices lower. So far this has failed to dent WTI much if at all following rapidly escalating Iran tensions. What is curious is that Germany and France continue to do far better than the rest of the Eurozone - just as America has decoupled from Europe, so apparently have Germany and France. This too is surely "sustainable."

Are we really in an economic recovery or is it a figment of the Fed's quantitative easing? This will be the biggest factor in the 2012 elections.

A one-stop shop summary of bullish and bearish perspectives on this weeks news, data, and markets.

Concerned about European bank deleveraging impacting Emerging Market growth prospects? Worried over Global Trade Volumes dropping and a multi-decade low in the Baltic Dry? Fearsome of record inventories for commodities in China and the potential for a harder landing from credit contraction in the shadow banking system? Concerned that Europe's sovereign and financial insolvency problems are not all gone? Worry no more. It appears, and who are we to argue with the data, that the USA is in fact leading the world out of this global growth slowdown with its Composite PMIs the highest of all the major growth drivers. From Markit Economics, we see that perhaps Goldman's Jim O'Neill will have to change his famous acronym to UBRIC as the decoupling myth (not a lag or inventory cycle) remains firmly in place (and the record-breaking jumps in some of the US Services PMI sub-indices should be treated with all the respect in the world).