miercuri, 7 noiembrie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Dreadful Economic Data in Germany, Italy, Spain France

Posted: 07 Nov 2012 12:03 PM PST

With all the focus (mine included) on the US elections it was easy to overlook some quite a lot of extremely poor economic reports in the Eurozone.

By the way, many people are attributing the stock market decline to the election of Obama. I was up at 3:00AM and the futures were still green. Futures turned red following comments by ECB president Mario Draghi regarding economic weakness in Germany.

Here are some dreadful Eurozone news stories you may have missed.

Sharpest Fall in French Service Sector in a Year

The Markit France Services PMI® shows the sharpest fall in French service sector business activity for a year.
Key Points:

  • Final Markit France Services Activity Index at 44.6 (45.0 in September), 12-month low.
  • Final Markit France Composite Output Index at 43.5 (43.2 in September), 2-month high.



Summary:

Business activity in the French service sector decreased at a substantial rate in October. This primarily reflected a further drop in incoming new business, as weak economic conditions weighed on demand. The rate of job losses accelerated as service providers responded to excess capacity. Output prices continued to be cut at a sharp rate, despite a further (albeit weaker) rise in input costs. Future expectations deteriorated again, slipping to the lowest level since January 2009.

Across the French private sector as a whole, new business fell sharply, albeit at a slightly slower rate than in the previous month.

Employment in the French service sector continued to fall in the latest survey period. The rate of job cutting quickened to the fastest since December 2009, as a number of companies pursued restructuring strategies and chose not to replace voluntary leavers.

Comment:

Jack Kennedy, Senior Economist at Markit and author of the France Services PMI®, said: "The pace of contraction in private sector output during the last two months has been the sharpest since the post-Lehmans slump in early 2009. With ebbing confidence having resulted in widespread belt-tightening among clients, the economy heads towards the end of the year on a decidedly precarious footing."

Spain Business Activity Drops 16th Successive Month

The Markit Spain Services PMI® shows Sixteenth successive reduction in business activity.
Key points:

  • New orders and activity fall sharply
  • Charges decrease at faster pace
  • Companies forecast decline in activity over coming year

Summary:

Further sharp reductions in activity and new orders were recorded in the Spanish service sector during October as the economic crisis in the country persisted. Falling demand led companies to offer discounts in an attempt to stimulate new orders, despite a solid increase in input costs. Meanwhile, the labour market continued to suffer as the rate of job cuts remained marked.

New business has fallen in each month since July 2011. October data pointed to the fastest reduction in outstanding business in 2012 to date. The rate of job cuts remained sharp, and was broadly in line with those seen in previous months.

Comment:

Commenting on the Spanish Services PMI® survey data, Andrew Harker, economist at Markit and author of the report said:

"The latest Spanish services PMI data point to another dreadful month for companies in the sector as the economic crisis showed no signs of letting up. Rates of decline in activity and new business remained substantial, with clients reluctant to spend amid deteriorating economic conditions."

Margin Squeeze in Italy

The Markit/ADACI Italy Services PMI® shows Weakest fall in business activity for 14 months.

Key points:

  • Output, new work and employment all fall at reduced rates
  • Margins squeezed by diverging trends in input and output prices
  • Future expectations remain subdued

Summary:

Trends in business activity, new work and employment in Italy's service sector improved during October, each falling at rates that were weaker than those registered one month before. Future expectations were little-changed since September, however, while developments in input and output prices put further pressure on profit margins.

Comment:

Phil Smith, economist at Markit and author of the Italy Services PMI® said:

"October data showed that Italy's service sector continued to struggle under the weight of austerity as well as economic and political uncertainty. The latest contraction in business activity was considerable overall and pointed to Italy's recession continuing into Q42012. That said, the headline index is clearly moving in the right direction, with the implied rate of decline a far cry from that recorded at the depths of the current downturn in services output back in April. That was in part reflective of the trend in new business, which also fell at a reduced pace over month."

New Business Declines in Germany

The Markit Germany Services PMI® shows Marginal reduction in German services activity amid ongoing new business declines.
Key points:

  • Final Germany Services Business Activity Index(1) at 48.4 in October, down from 49.7 in September.
  • Final Germany Composite Output Index(2) at 47.7 in October, down from 49.2 in September.

Historical Overview:



Summary:

October data indicated a slight reduction in German service sector output, following a near-stabilisation during the previous month. The final seasonally adjusted Markit Germany Composite Output Index – which measures the combined output of the manufacturing and service sectors – posted 47.7 in October, down from 49.2 in September. This was the lowest reading since August and below the neutral 50.0 mark for the sixth successive month.

Service providers suggested that subdued underlying client demand continued in October, as highlighted by a seventh successive monthly decline in new business intakes.

Comment:

Commenting on the final Markit Germany PMI® survey data, Tim Moore, senior economist at Markit and author of the report said:

"October's final German PMI data highlight a lack of momentum in either services or manufacturing at the start of Q4 2012, with both sectors posting slightly sharper output falls than one month previously. At its current level, the composite PMI figure raises the likelihood of an outright GDP contraction during the final quarter of the year."
German Construction Falls at Accelerated Rate

The Markit Germany Construction PMI® shows German construction activity falls at accelerated rate in October.
Key points:

  • Steep decline in civil engineering activity leads downturn
  • Jobs cut amid further weakness in new orders
  • Construction firms pessimistic about the year ahead

Summary:

The downturn in German construction gathered pace in October, with the civil engineering subsector showing particular weakness over the month. Activity fell on the back of another sharp decline in inflows of new orders, and firms responded to reduced workloads by cutting staff numbers. Meanwhile, future expectations were the lowest since the depths of the global financial crisis in late 2008.

Total construction work in Germany decreased at a faster rate in October, as signalled by the seasonally adjusted Germany Construction Purchasing Managers' Index® (PMI®) – a single-figure snapshot of overall activity in the construction economy – dipping from September's mark of 48.6 to 44.6. That was the lowest since July, and the eighth sub-50 reading in the past nine months.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Equities Smashed Following Election; European Growth Estimates Cut; Debt Crisis Hits Germany

Posted: 07 Nov 2012 09:17 AM PST

It's a sea of red in the US and European equity markets following the victory of president Obama and statements made by ECB president Mario Draghi. US equities are now down well over 2% and most of Europe was down between 1 and 2 %.

Things would not be any different if Romney had won.

Regardless of who won, the global headwinds would have been the same, and the global economy is in a recession already (it's not widely recognized yet, but it soon will be).

Bloomberg reports German Stocks Decline After Draghi Says Crisis Hurting.
German stocks fell as European Central Bank President Mario Draghi said the debt crisis is hurting Europe's largest economy and the European Commission cut its growth forecasts for the euro area, offsetting optimism about U.S. President Barack Obama's re-election.

Draghi said the debt crisis is beginning to take its toll on the German economy. "Germany has so far been largely insulated from some of the difficulties elsewhere in the euro area," he said at a conference in Frankfurt today. "But the latest data suggest that these developments are now starting to affect the German economy."

Forecasts Cut

The European Commission cut its growth forecast for the euro zone as the debt crisis ravages southern Europe and gnaws at the economic performance of export-driven Germany.

The 17-nation euro economy will expand 0.1 percent in 2013, down from a May forecast of 1 percent, the Brussels-based commission said today. It cut the forecast for Germany to 0.8 percent from 1.7 percent.
Divergences Resolved to Downside

Economists are just now coming around to position I stated in February and March, that Germany would not be immune from this.

Here is a brief recap.

February 22: Expect German-Periphery Divergence to Resolve to the Downside for Germany
Expect German-Periphery Divergence to Resolve to the Downside for Germany

The idea that Europe can avoid a recession is complete silliness. Europe is clearly in a recession already.

The amazing thing is things have not deteriorated more than they have. Unlike the Chief Economist at Markit, I expect the divergence to resolve to the downside for Germany, not for the divergence to continue for some time. Given conditions in Europe and Asia, the odds that Germany is immune from the global slowdown are essentially zero.
April 4: Eurozone Composite PMI® Signals Recession Says Markit; France in Renewed Decline, German Growth Weakens, Italy and Spain Contract Further
In what should have been expected, but somehow wasn't, Eurozone weakness is across the board except for Ireland bucking the trend for now.

I have been critical of Market analysis for months and this is the worst yet.

First they said Germany would prevent a recession, then Germany would decouple, now they suggest this is only a "technical" recession and the "the recession may be mild and brief".

The European recession will be neither mild nor brief. Spain, Portugal, and Greece are in economic depressions with no end in sight. Spain and Italy (the 3rd and 4th largest eurozone markets) are poised for steeper slides. Germany will not be immune to this as I have stated for months on end.

German manufacturing contracted in March and services sector will soon follow. For some reason, Markit economists cannot figure this out.
Any Growth Too Optimistic

Now the EC economists have finally caught on to the idea this will not be a mild recession and Germany will not be immune. Well sort-of.

The 17-nation euro economy will expand 0.1 percent in 2013, down from a May forecast of 1 percent, the Brussels-based commission said today. It cut the forecast for Germany to 0.8 percent from 1.7 percent.

Both those targets are too optimistic. Germany is going to get hit much harder than these guys think. German exports will collapse.

Q&A

  1. How can German exports not collapse with the rest of Europe in a very deep recession and a massive slowdown in Asia as well? 
  2. Just who is Germany going to export to?

Those are questions (with obvious answers) that I have been asking since late 2011 actually.

Look at that wimpy projection of .1 percent growth. These clowns just cannot predict recession can they? (even when it is perfectly obvious a major recession is underway).

Still, that is quite the downward revision from 1 percent growth to .1 percent growth.

On the betting line, I'll take the under.

Addendum:

Reader "Bam Man" points out the obvious, but in an exceptionally good way. I offer his comment for others to see:  

The European Commission economists are not in the "forecasting business". They are in the "confidence building" business. As such, it is their duty to "forecast" growth, even if it is obvious that their "forecast" is ridiculous.

Indeed!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Far Right Costs Romney the Election; Mitt Romney, Rush Limbaugh, Are the Past; Late Deciders Break for Obama; Rasmussen Blows the Call

Posted: 06 Nov 2012 11:38 PM PST

People Believe What They Want to Believe

Conventional wisdom says late deciders break against the incumbent.

I said otherwise. I based my 90% likelihood of an Obama win on the notion that late deciders break in an unknown manner but in a big way. When the surge in support for Romney ended following the first debate, it was clear, at least in my mind, that the next momentum change, regardless of which way, was going to seal the fate.

The initial move was towards Obama and hurricane Sandy sealed the fate. Obama not only carried Ohio but Virginia as well, just as I stated.

On Monday, with Nate Silver's Five Thirty Eight Political Calculus Blog for the New York Times suggesting an 84% percent likelihood of an Obama victory I wrote 90% Chance of Obama Win.

I upped my forecast on the basis of momentum (Nate upped his forecast to 92% on Tuesday morning, also based on momentum).

However, I received countless emails from people telling me to stick to economics because there was no way Obama would win Virginia. I heard from others telling me how biased  the polls in favor of Obama were.

I also received many taunts that my election forecasting sucks (in spite of calling 49 of 50 states correctly in the last election before Obama was even nominated! Anyone else do that?)

Well it was not my analysis that sucked, it was the clear bias of Romney supports and Rasmussen that sucked.

As I said, "people believe what they want to believe".

Far Right Costs Romney the Election

Even with that massive win in the first debate, Romney could not pull it off. There are many reasons: Flip-flopping, inane Chrysler ads, abortion issues by other Republican candidates, war-mongering, and military spending. Hurricane Sandy may have been the final straw.

Regardless of Sandy, much of the country is sick of war, sick of military spending, sick of idiots who proclaim rape to be God's work. It is actually conceivable that enough moderates in swing states made last minute decisions based on women's right issues rather than hurricane Sandy.

The fact of the matter is Romney dug himself so deep a hole kowtowing to the religious-wrong and war-mongers that even a stunning victory in the first debate coupled with a weak economy and huge unemployment could not carry the day.

Mitt Romney, Rush Limbaugh Are the Past

Romney is the past. So is Rush Limbaugh, so are all the extremists and so are all of the warmongers hell-bent on starting WWIII or a war with Iran.

I could not and would not vote for Romney. I would not have voted for Romney had I lived in Ohio or Virginia either. Nor would I have voted for Obama, but other independents clearly did.

I voted for Libertarian candidate Gary Johnson and I am proud of my vote. Can those voting for the lesser of two evils say the same thing?

I hope the Republican party learned a lesson tonight because as long as Republicans cling to the past, and kowtow to the extreme right they will continue to lose elections.

Rand Paul, Chris Christie, and others are the future of the Republican party. Are they listening? I sure hope so because another 4 years of Obama followed by 8 years of an Obama-clone is certainly not the right answer.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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