Tag Archives: Markit

Export worries.

cameron and osborne

David Cameron and George Osborne both appear to think that meeting other politicians somehow creates international trade. The fact is that politicians have very little influence on commerce and none at all on corporate trade-related decision-making.

The three months to September 2015 saw British exporters experience the weakest growth in orders since the second quarter of 2009 when the country was in the grip of recession.

Admittedly, manufacturing represents only about 10% of GDP but nevertheless it is worrying to see the UK’s export drive going into reverse at exactly the time when the government is dispensing such positive economic mood-music.

Yes, we understand that the UK economy is in better shape than most other European countries but then again, in the land of the blind, the one-eyed man IS king!

Our overall economic growth has slowed to 0.5% per quarter but it is most likely that almost all of that growth is as a result of domestic demand – which is certainly not particularly encouraging within the global economy.

A Markit survey published yesterday shows that  in spite of the rhetoric, the construction sector also slowed in October.

Equity Euphoria. Why?

The Markets are in the wrong place. For about two years, I have been suggesting that market sentiment bears absolutely no relation to what is really happening in the real economy.

Yesterday’s Markit manufacturing figures clearly show that Europe’s manufacturing sector is in a mess. At 12% , Eurozone unemployment is at an all time high with further austerity measures to follow.

In spite of all that and with increasing hand-wringing from economists, the markets are buoyant at near-record and record highs, the euro is showing only modest losses and for Bond investors it’s business as usual!

19 million Eurozone unemployed with Germany’s PMI at 49.0,  France’s at  a three-month low of 44.0 ….which is even below Italy’s at 44.5 and Spain’s at 44.2! But the Markets grind on regardless.

What is going on?

One thing that we can see from the manufacturing figures is that there is quite a marked divergence between Germany and the rest. Although manufacturing activity is shrinking to 5-6 month lows, the so-called “financial fragmentation” across the Eurozone has become increasingly obvious. The Eurozone does NOT have a uniform monetary policy which means that Italian and Spanish banks, for instance, pay much higher funding costs than Germany. That means that certain manufacturers are paying much more than German ones for their cash. On the face of it, that seems to be anti-competitive – but that unfortunately is just one of the many anomalies of the Eurozone – in fact of the entire European Union.

The poorer you are, the more you pay for your heating fuel.”

This is the backdrop to a largely blinkered , almost “autistic” equities market where we appear to have reached the stage of self-amplification where , because of the abysmally low bank rates, EQUITIES is the only game in town. Self-amplifying? Yes – as more and more investors pile into stocks – mainly because they don’t want to lose out on a rally which they themselves are now fuelling.

The only cautionary note should be for investors who are only just coming into the market to ask themselves “What is the real likelihood of me making a profit?”

When will it stop? History shows us that rallies such as the current one can stop pretty suddenly!

There will come a point at which traders, especially those with short positions will decide “Enough!” – in spite of the fact that currently, there is no obvious level at which to climb out and possibly take a loss.

Once one jumps, the rest are sure to follow.

Europe’s economic fractures widen in February

By Andy Bruce

LONDON | Tue Mar 5, 2013 11:46am GMT (Reuters) –

France, Spain and Italy dragged the euro zone into a deeper downturn in February, according to business surveys that showed the chasm between these countries and prosperous Germany widening yet again.

While British services companies had a slightly better month than expected, Tuesday’s purchasing managers’ indexes (PMIs) showed deepening fractures running through the European economy.

The divide Between Germany and France, the euro zone’s two biggest economies, grew to its widest since the currency union’s inception in 1999.

The PMIs reflected how euro zone businesses were faring mostly before the inconclusive outcome of Italy’s general election, which unsettled international financial markets.

“Two months into 2013, we’ve been somewhat disappointed with the Eurozone’s economy’s progress. The PMIs again reaffirm that,” said Victoria Clarke, economist at Investec in London.

“Germany’s doing a bit better than the rest of the pack, but in general, there’s no real sign there of stabilisation, or of the contraction at least bottoming out.”

Markit’s Eurozone Composite PMI, a broad gauge of activity at thousands of companies across the 17-nation bloc, fell to 47.9 in February from 48.6 in January. Although that was a little better than a preliminary reading of 47.3, it was still well below the 50 mark dividing growth from contraction – as the index has been for just over a year.

Euro zone retail sales for January, showing a 1.2 percent rise, were much better than expected, although economists cautioned that the underlying picture was still very weak.

British retail sales also grew at their strongest annual rate in almost two years last month.

The euro rose slightly against the dollar in response to the data. European stock markets also rallied on Tuesday, although led by strong bank results.

Britain’s services PMI, which accounts for the bulk of its economy, hit a five month-high of 51.8 last month from 51.5 in January, beating the median forecast of 51.0 in a Reuters poll.

Economists expect comparable data from the United States will show its non-manufacturing economy maintained a moderate rate of growth, slowing only slightly since January.

Growth among Chinese services companies, which comprise a smaller proportion of its economy compared with Western peers, slowed from a four-month high in February.

BETTING ON THE BANK

For the euro zone, the outlook depends largely on whether Germany can keep up its economic growth and offset struggling France, Italy and Spain, according to Chris Williamson, chief economist at PMI compiler Markit. “(That) seems a tall order, meaning hopes of a return to growth for the region by mid-2013 are now looking too optimistic,” he said.

Williamson said the latest surveys were consistent with the euro zone economy shrinking around 0.2 percent this quarter, with only German strength saving the bloc from a downturn as bad as the 0.6 percent decline at the end of last year.

The European Central Bank meets to decide monetary policy this week, although few economists expect any major announcements this month.

Whether the Bank of England will act this month to help boost the economy is a tougher call, despite Tuesday’s unexpectedly strong services PMI.

Before the data, economists polled by Reuters put a 40 percent median chance on the Bank of England adding to the 375 billion pounds it has spent so far on its asset purchasing programme.

However, the upbeat services number follows dire construction and manufacturing PMIs from the last few days. “Maybe a small glimmer of hope is showing through for the UK services sector amidst deepening gloom for the UK economy,” said David Brown from New View Economics.

He said it was far too tenuous to suggest the services PMI means there was some uplift in economic activity this quarter, taken together with the poor manufacturing data.

(Graphic by Vincent Flasseur. Editing by Jeremy Gaunt)