Conclusion: European Manufacturing PMI and German retail sales show a negative inflection, in line with our call for European data in August to roll. We expect a decline in consumer consumption across Europe post the exuberance of the World Cup and in response to the enactment of austerity measures that should induce individual belt-tightening and hamper confidence. Also, we continue to favorably view Germany’s fiscal austerity; however we recognize its negative impact on select industries and overall growth.
European PMI – Manufacturing
Of the 16 countries reporting PMI this morning:
- 9 countries fell month-over month: UK, Spain, Italy, Switzerland, Norway, Sweden, Ireland, Hungary, and Turkey
- Germany was flat at 58.2 and the Eurozone average improved only 10bps month-over-month to 55.1
- 5 countries rose month-over-month: Russia, Poland, Czech Republic, France, and Denmark
German Retail Sales
- fell -0.3% in July M/M, versus a decline of -0.3% in June M/M
- Year-over-year, sales were up +0.8%
Today, Chancellor Angela Merkel and her cabinet approved budget cuts and revenue-raising measures worth 80 Billion Euros ($102 Bill.) through 2014, following an initial outline in June. The draft legislation will now go to the lower house of parliament for consideration. (Upper-house approval isn’t needed).
A decision on the controversial issue of the “nuclear tax” or the tax on nuclear-fuel rods was postponed to later this month. The tax remains a contentious issue opposed by utility companies that run the country’s 17 nuclear power plants, but a possible bargaining chip to extend the running life of nuclear power in Germany. Germany’s largest operators include: E.ON AG, RWE AG, EnBW Energie Baden Württemberg AG, and Vattenfall Europe AG.
Expectations of the levy have sent utility stocks plummeting, including for DAX-listed E.ON AG and RWE AG, down -24.3% and -24.8%, respectively, year-to-date.
Germany’s austerity measures include:
-Financial tax on banks of about 2 Bill. EUR per year beginning in 2012
-Air passenger tax
-Reductions in defense spending
-Delay in the rebuilding of Berlin’s royal palace