By MoneyMorning.com.au
Recent manufacturing figures out of Europe have been terrible.
Marketwatch reported that…
“Euro-zone manufacturing is clearly undergoing another recession,” said Chris Williamson, chief economist at Markit. “Despite the rate of decline easing slightly in December, production appears to have been collapsing across the single-currency area at a quarterly rate of approximately 1.5% in the final quarter of 2011.”
For the second month in a row, all nations covered by the survey reported a decline in output.
Williamson said it was particularly worrying to see new orders falling at a far faster rate than output. That indicates firms have relied on orders placed earlier in the year to sustain current production levels, he said.
The PMI is a diffusion index with reading below 50 in contraction, above 50 in expansion. The current readings for the PMI manufacturing index across Europe are:
The US may appear to be decoupling at the moment. But rest assured Europe and America will begin to converge in the next few months with the US following Europe into recession.
The austerity measures in Europe will have to bite hard during 2012. Spain has already said they are going to miss their deficit target of 6% by a full 2 percentage points! So expect even more austerity in Spain.
Portuguese car sales are down over 30% in the last year. Spanish car sales are down 18% to 1993 levels. Germany must start to feel the pain of European austerity at some point this year.
When I look at the above I find it very hard to get very bullish about the latest rally in the stock market.
Many market players are still on holidays and the volume trading is very thin. I think the current excitement will be short lived and we will see another swan dive in the market before long.
Keeping an eagle eye on the sovereign debt situation and each bond auction in Europe will be important in the first few months of the year. Any signs of distress could lead to a sharp sell off but that is when you will see Bernanke fly in on his helicopter to save the day.
What a world we live in.
Murray Dawes
Editor, Slipstream Trader
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Why Europe’s PMI Manufacturing Index Indicates a Short-lived Bull