Another Stagflationary Indicator: European Industrial Orders Post Steep Decline In March

Following the recent negative Chinese PMI print, the latest confirmation of the global economic slowdown/stagflation comes from Europe where Eurostat reported that EMI Industry Orders declined 1.8% in March, in line with expectations. This was the first M/M decline since September, although the Y/Y number was still a substantial +14.1%. Not surprisingly, previous months were revised lower: February revision: +0.5% m/m (+0.9%) January revision: +1.1% m/m (+1.2%). The momentum of previous months assured a 3.4% average gain in 1Q. As Market News reports: "The drop in March was accentuated by falling demand for heavy transport equipment, which tends to be very volatile with a limited immediate impact on production. Excluding this category, orders fell 1.1% on the month and were 15.2% higher on the year. Intermediate goods orders increased 0.6% on the month and were 19.2% higher on the year, suggesting that the industry recovery will continue for some time. The drop in heavy transport demand helped drag down capital goods orders 4.6% on the month, giving a 14.5% rise on the year. Consumer durable goods orders plunged 6.8% in March and were 2.6% lower on the year. Still-sluggish consumer demand and competition from low-cost producers abroad have undermined capacity in this branch. Non-durables orders fell 3.5% on the month and were 0.5% lower on the year." And for those still wondering why there is a concerted effort at pushing the EUR lower, here it is: "Leading indicators suggest that demand will wane in the months ahead. Manufacturers polled by the European Commission in April expected new orders to lose steam in 2Q. The outlook index fell 5.1 points from the record high in January to return to the level in July. Still, their assessment of order book levels continued to improve, thanks mainly to higher export back orders. They estimated that orders on hand would assure 3.7 months of production, up from 2.6 months in January." In other words: must keep that export dynamo turning or else.

More on the latest stagflationary leg down:

The factory PMI poll also signaled slowing growth in new orders, as the component dropped 3.6 points to 53.8. The ratio of new orders to inventories, a guide to near-term output, fell sharply to the second-lowest level since June 2009.

In Germany, demand surprised on the downside with 3.4% drop in March that still left orders 13.0% higher on the year. National data showed domestic orders down 3.5% on the month and foreign orders off 4.3%. Investment goods demand led the slide with a 7.2% fall, accentuated by a below-average share of bulk orders.

The Ifo institute's survey of German manufacturers this month signalled a further erosion in output prospects at the six-month horizon to the lowest level in more than a year, even though "great opportunities" are expected from export business, Ifo said.

New orders in France slipped 0.7% in March and were 10.6% higher on the year. Excluding heavy transport equipment the monthly downturn was 1.2%, led by pharmaceuticals, autos, high tech and optics, and textiles, national data showed.

French industry firms polled by the Bank of France last month reported a further contraction in order books. The Insee sector survey released earlier today signaled more erosion, mainly in domestic demand.

By contrast, Italy reported a 4.5% surge in orders after a modest upturn in February, giving a 22.2% rise on the year. National data showed a strong boost from foreign demand, especially for metal products and electric appliances. Manufacturers' assessment of orders was stable in April, practically unchanged for the fourth month in a row, according to Istat's survey.

In Spain, orders edged up 0.3% on the month, recovering less than half of the previous downturn to stand 10.1% higher on the year. Producers' assessment of order books remained depressed in April, but less so than in March, according to the Commission survey. Still, orders on hand should assure 2.8 months of production, they estimated.

We are still confused by the formal increase in the EURUSD target by Goldman's Thomas Stolper recently to 1.55, which certainly does not fit in with the G-7 agenda. We expect this to be revised lower shortly.


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