European PMI Hits Sub-50

Today’s data around the horn.


Positions in Europe: Short EUR-USD (FXE); Short Italy (EWI); Short UK (EWU)


The numbers speak for themselves, but today’s initial August Manufacturing and Services PMI figures from the Eurozone, Germany, and France, show not only a slide versus July, but French and Eurozone Manufacturing fell below the 50 mark, indicating contraction, and Services held just above the mark for the Eurozone and Germany. This move however isn’t new—we indicated a downward inflection in the high frequency data from Germany beginning in March—and we expect more downside on the intermediate term as Europe fumbles with facilities/solutions to address sovereign debt contagion.   


European PMI Hits Sub-50 - a. pmi


ZEW Confidence

The current of declining sentiment was confirmed by today’s ZEW survey results. Germany’s Current Situation fell a monster 37 points to 53.5 AUG vs 90.6 JUL and the 6-month forward looking Economic Sentiment gauge dropped to -37.6 AUG vs -15.1 JUL, the lowest level since December 2008 and the biggest drop since July 2006. Eurozone Economic Sentiment also plunged, to -40 AUG vs -7 JUL.


European PMI Hits Sub-50 - a. zew


Swiss Miss

Over recent months we’ve discussed how strong Swiss exports figures defied the strength in the CHF versus the EUR and USD.  Swiss Export and Import data out today for the month of July showed a negative inflection of -3.0% month-over-month versus +3.8% in May. We’d expect a tail off in the months ahead from the currency impact (though perhaps a pop in August on easy comps) as the SNB struggles to make much of a dent in the value of the CHF versus major currencies since it indicated it would intervene on 8/10. Imports rose 0.1% in July M/M versus 1.0% in June, pushing the Trade Balance to 2.83B CHF in July.


Calendar Events

(8/24) France will unveil austerity measures that will include budget cuts and higher taxes on the highest income earners. HE: Could the terms arrest the threats on France’s AAA credit rating? Both government bond yields and sovereign CDS have moved higher in recent weeks.

(8/26) Spain is expected to unveil further austerity measures estimated to produce savings of 5B EUR. HE: The heat is on Spanish lending institutions and economic fundamentals remain bleak. More uncertainty may surround political transition as PM Jose Zapatero has called for early elections on  November 20th, four months early, and made clear that he will not seek a third term as Socialist Party head.  So long as the ECB’s SMP is buying Spanish bonds, yields should come in. This however, will not last in perpetuity.  Last week the ECB bought €14.3B vs €22B two weeks ago—two huge sums considering that before two weeks ago the SMP had only purchased €74B since May 2010.

(9/7) Germany’s constitutional court will hear cases against the constitutionality of the country’s previous bailout packages to Greece, Ireland, and Portugal. HE: While the German government insists that it has not broken any laws, and the case should be overturned, we’ll be watching for any tangential implications for the EFSF or European Stability Mechanism (beg. in 2013).


For more on our risk management outlook on Europe, see yesterday’s post titled “European Risk Monitor:  Summer’s Uncertainty”.


Matthew Hedrick

Senior Analyst

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more