New Evidence of Europe Sliding Closer to Recession

September 23, 2019

Preliminary purchasing manager September survey results for the euro area, Germany, and France reflect a further quantum loss of economic momentum, which is most pronounced in manufacturing but spreading also now into the service sectors.

Share prices in response have so far dropped 1.1% in Italy, 1.0% in Germany and Spain, 0.9% in France and 0.5% in Great Britain. Equities earlier lost 1.0% in China, 0.8% in Hong Kong, 0.5% in Singapore, and 0.4% in Indonesia.

Ten-year sovereign debt yields are down 9 basis points in Italy, 8 bps in the U.K. and Spain, 7 bps in France, 6 bps in the Netherlands and Germany and 3 basis points in the United States.

WTI oil has fallen 0.5%, while the price of Comex gold is 0.8% higher.

Japanese markets were closed for the Autumnal Equinox holiday.

The dollar rose overnight by 0.4% against the yuan, 0.3% versus the euro, 0.2% vis-a-vis sterling, and 0.1% relative to the loonie. The dollar also fell 0.3% against the Mexican peso, 0.2% versus the Australian and New Zealand dollars and 0.1% relative to the yen but is unchanged against the Swiss franc.

Germany’s manufacturing purchasing managers index dropped 2.1 points to 41.4 in September, indicating the fastest contraction since mid-2009. Germany’s service sector PMI shows continuing positive growth but a considerable loss of momentum, as such fell 2.3 points to a 9-month low of 52.5. The composite PMI of 49.1 in September and an 81-month low in business expectations suggest that Europe’s largest economy is transitioning into a downward business cycle.

France is managing better than Germany but also losing momentum. The French manufacturing PMI printed at 50.3 in September following readings of 51.1 in August and 49.7 in July. Soft manufacturing has begun to weaken other sectors, with the services PMI dropping 1.8 points to a 4-month low of 51.6 and the composite PMI sliding 1.6 points to 51.3.

Euroland’s composite, manufacturing and service-sector PMI readngs of 50.4, 45.6, and 52.0 in September represent 75-, 83- and 8-month lows. These results are consistent with GDP growth in the third quarter of only 1.0% and a progressive weakening of the economic momentum from mid-year to the end of the quarter. Profit margins have been squeezed, and inflation is shrinking.

Dutch GDP in the second quarter of 0.4% matched the 1Q pace. Year-on-year growth has been revised downward to 1.8% and compares with 3.0% over the four quarters through the spring of 2018.

New York Fed President Williams feels that investor concerns about last week’s spike in money market rates were overblown. St. Louis Fed President Bullard said U.S. manufacturing appears to be contracting.

Spain’s trade deficit of EUR 17.20 billion over the first seven months of 2019 was marginally smaller than that of EUR 17.83 billion a year earlier.

Hong Kong’s current account surplus of HKD 37.77 billion in the second quarter was a bit larger than the first-quarter surplus of HKD 35.11 billion but almost three times the size of the 2Q18 surplus of HKD 15.40 billion.

After a 6-month low of 0.4% in July, CPI inflation in Singapore ticked upward to 0.5% in August.

Brazilian consumer confidence improved to a 6-month high in September. But retail sales in Mexico stagnated in July after dropping 0.5% on month in June.

Still ahead: the Chicago Fed National Activity Index and Canadian wholesale turnover.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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