6/5/20: Eurozone Composite PMI: Covid Horror Show

Final Eurozone Composite Output Index came in at 13.6 (Flash: 13.5, against March Final: 29.7). March was bad. April is worse. Final Eurozone Services Business Activity Index was at 12.0 (Flash: 11.7, March Final: 26.4), final Manufacturing PMI covered here: https://trueeconomics.blogspot.com/2020/05/4520-eurozone-manufacturing-pmis-crater.html.

1Q 2020 implied decline in Euro area GDP is at around 3.5%. 2Q 2020 start is now worse than 1Q 2020.

6/2/2014: Euro Area Economic Conditions and Expectations: Ifo

The Ifo Indicator for the economic climate in the euro area for Q1 2014 is out today. Some positives, some negatives.

Overall index of Economic Climate in the  Euro Area rose from 114.7 in Q4 2013 to 119.9 in Q1 2014. Which is good - we are at the highest levels since Q3 2007. 

All improvement is due to improved assessment of the current situation: Present Situation index is up at 120.3 from 106.3 in Q4 2013. This is the highest reading for the index since Q4 2011. But if you think this is 'as good as it gets' we have some room to climb up, then, since the sub-index historical average is 126.9. With Germanic precision, the Ifo characterised the latest development as "far less unfavourable assessments of the current economic situation". Not a 'positive' or a 'favourable', but 'less unfavourable'.

Meanwhile, "the economic outlook for the next six months remains unchanged at the highest level for around three years. The economic recovery should become more marked in the months ahead." This references the fact that Expectations for the Next 6 months index is stuck at 119.7 in Q1 2014, same as in Q4 2013. Which is significantly above historical average of 94.7. 

But expectations mean little. One bizarre quirk is that crisis-period average for the series is 95.9, which is above the historical average. Which, obviously, begs a question: Just how much does the forward optimism track the future outcomes? Apparently, not much. There is a negative historical correlation of -0.18 between expectations and current conditions assessments, so in a sense expectations just tell us that, on average, business leaders expect improvement in the future when conditions are poor today. I showed before that once you check for lags, 6mo forward expectations do not do much to forecast outcomes registered for current conditions 6 months after the expectations are issued. And I have tested not just point lags, but also 6mo averages. The result is still the same: all expectations are telling us is that when things are terrible today, businesses expect them to improve tomorrow. This is like telling us that growth conditions are mean-reverting. Which is, of course, the case. Even in North Korea.

Expectations gap to current conditions has fallen, as current conditions improved. The gap now stands at 99.5 down from 112.6 in Q4 2013. The gap confirms what we learned from expectations series. Average expectations gap during the crisis is 153.8 and historically it is 88.5, which shows that businesses form much more optimistic forward expectations during the crisis period than in other periods. 

Some charts:

Few more points, this time straight from the Ifo release: 

"Germany, where the very positive economic situation continued to improve, received the best assessment. More economic experts were also positive about the current economic situation in Austria. Latvia, which introduced the euro as a currency at the beginning of the year, and Estonia are also among the few countries in the euro area where the current economic situation is deemed satisfactory overall. The present economic situation in Greece, Italy, Portugal, Spain and Cyprus, by contrast, barely changed compared to the last quarter and remains at a crisis level. In Belgium, Ireland and The Netherlands the economic situation improved somewhat compared to last quarter, according to WES experts, but remains "unfavourable" as in Finland and France.

Expectations for the next six months remain at a high level in almost all euro area countries apart from Greece and France, where the experts surveyed were less positive than three months ago. Cyprus is the only country in which experts expect the economic situation to deteriorate further.

The forecast inflation rate for the euro area for 2014 of 1.5% is slightly below the estimated rate for 2013 (1.7%). While experts expect the short-term interest rates to remain stable for the next six months, a greater number of survey participants expect long-term interest rates to rise. The majority of economic experts believe that the euro is overvalued against the US dollar and the Japanese yen. They expect the US dollar to appreciate against the euro over the next six months."

So good news: the incoming freight train of rising rates is yet to reach the tunnel. The bad news is that the 'periphery' is still stuck in the said tunnel, while the 'soft core' of Belgium, Ireland (welcome to the club) and the Netherlands is barely clawing its way toward the exit. The other good news is that the incoming commuter train of exchange rates (effect on exports) is slightly delayed (we can expect some depreciation of the euro before interest rates hikes hammer us back into the FX corner).

10/1/2014: Ifo forecast for Euro area economic growth Q1-Q2 2014

German Ifo institute published its projections for euro area economic outlook for 2014. Here are the details:

• "As projected, GDP in the Eurozone expanded by a meagre 0.1% in Q3 2013, as export growth fell sharply."
• "Economic activity is expected to accelerate modestly over the forecast horizon (+0.2% in Q4 2013, +0.2% in Q1 2014 and +0.3% in Q2 2014) with a gradual shift in growth engines from external to domestic demand."
• "Continued tight fiscal policy in many member states together with persistent labour-market slack conducing to a stagnant real disposable income will lead to limited private consumption growth."
• "Investment is forecast to increase thanks to the gradual acceleration in activity and the need to renew production capacity after a marked phase of adjustment."
• Under the assumptions that the oil price stabilizes at USD 110 per barrel and that the euro/dollar exchange rate fluctuates around 1.36, headline inflation is expected to remain well below 2% (0.9% in Q1 2014 and 1.1% in Q2 2014)."
• "The major upside risk to this scenario is a stronger than expected investment growth, led by improved access to credit."
• "A stagnation in private consumption triggered by continued labour market weakness and weaker external demand in emerging economies are key downside risks."

Full details available here: http://www.cesifo-group.de/ifoHome/facts/Forecasts/Euro-zone-Economic-Outlook/Archive/2014/eeo-20140110

Some charts.

First, for unimpressive growth outlook for the recovery forward, compared to the past, both pre-crisis and 2010-2011 period:

Summary of forecasts:

Inflation outlook, as a bonus offering the reflection on just how poorly the monetary policy in the euro area been performing: remember the ECB mandate is to keep inflation at below but close to 2%...

Core inflation above is matching the target solely in 2007-2008, off-target or close to being off-target in parts of 2006 and 2012, significantly off-target in H2 2009-Q1 2011 and Q2 2013-on. ECB updated forecasts for inflation are at 1.4 percent in 2013, 1.1 percent in 2014 and 1.3 percent in 2015, which means ECB is expecting inflation to miss its target for the next 2 years at least.

Here's a chart of the latest survey indicators for economic conditions in the euro area - current and forward looking from the Ifo network and the EU Commission:

20/3/2012: There is nothing new about Europe's growth crisis

EU's latest catch phrase is 'growth'. The Commission is banging on about subsidies along with an old tune of EU2020 'plan' for subsidies, picking of winners and rewarding the whiners. The IMF is whinging about 'structural reforms' which is all about extracting some sort of a surplus from something other than domestic consumers demand and investment. National authorities are singing the diverse songs - calling for subsidies and more borrowing from the North in the Periphery, calling for less transfers to the Periphery in the North. Belgium, as ever stuck in-between, has all of the above to the detriment of national dis-unity, which by now is a second-stage show, given all the dis-unity in the European Union.

And the reality is - EU and especially the Euro area are falling out of the world's economic orbit, with speeds that are accelerating - from the modest declines of the 1980s to faster rates in the 1990s and to acceleration in 2000s followed by speedier 2010s.

Note, all data below is sourced from the IMFWEO database with my calculations based on the same.

Here's how the mighty have fallen:

And no, the above charts do not show us performing any better than the US or G7. They show us performing as badly as Italy and worse than Japan:

• Between 1980 and 2010, Italy's share of world GDP fell 46.7%, Euro area's share declined 47.1%, Japan's dropped only 32.8%.
• Between 2010 and 2016, based on IMF projections, Euro area's share of world GDP will decline 15.2%, US' share will drop 9.7%, Germany's 15.0%, France's 13.6%, Italy's 19%, Japan's 15.7%
• In the Decade of the Euro, Euro area's share of world GDP declined 20.7%, while during the decade of the 1990s it fell 15.0% and in the decade of the 1980s it declined just 7.5%

No matter how you spin it - Euro area is going down in world rankings of growth areas and it is moving at the speed worse than the one attained by Japan. 

The last chart above clearly shows that the rate of Euro area's might decline has accelerated dramatically since 2001 and that this rate is invariant to the current crisis.

More subsidies, Brussels, please! More 5-year plans for 'Knowledge, Green, Social, Whatnotwellhaveit Economy', Commission, please! They all have been working so well so far.

12/1/2012: Q4 2011 Sovereign Bonds performance

Four charts covering Q4 2011 sovereign bonds (CDS) performance:

Data sourced from CMA Global Sovereign Risk Report Q4 2011

16/08/2011: Euro area and German growth Q2 2011

Two quick updates on some economic data released today.

Germany posted virtually zero rate of growth with GDP in Q2 2011 adjusted for seasonal effects up just 0.1 percent on Q1 2011. Q1 2011 quarterly growth rate was revised to 1.3 percent. German GDP growth was 2.6% yoy in Q2 2011, down from 4.6% in Q1 2011.

France data released last week showed economy stagnated in the three months through June with zero growth rate qoq and 1.6% growth rate yoy in Q2 2011, down from 2.1% expansion in Q1 2011. Italy reported data on August 5th showing its GDP growing 0.3% qoq in Q2 2011, 0.8% yoy, down from 1.0% yoy growth in Q1 2011. Spain’s economy expanded by just 0.2 percent in Q2 2011 (qoq) and 0.7% yoy, against 0.8% expansion in Q1.

And so on... until eurostat posted euro area-wide growth rate of 0.2% qoq in Q2 2011, down from 0.8% qoq in Q1 2011. Year on year growth rate fell to 1.7% in Q2 2011 from 2.5% in Q1 2011. Exactly the same growth rates were recorded in EU27, showing that the ongoing slowdown is now spreading across non-euro area member states as well. The EU27 and the euro area growth rates are now below those in the US (+0.3% qoq).

Summary table courtesy of the eurostat:

The overall disappointing growth in the euro area was entirely predictable, given that the leading indicators were pointing to it for some time now (see here), the industrial output data (here), etc.

However, here's an interesting chart suggesting that months ahead are not going to be easy for German economy:
Pay especially close attention to the yellow line showing business expectations for economic activity in months ahead. The data above is through July 2011, the latest we have and it firmly shows that business expectations have now dropped to the lowest level since January 2010, marking as fifth month of consecutive declines. The index stood at 105.0 in July 2011, down from the Q1 2011 average of 110.1 and Q2 2011 average of 107.1.

Euroarea leading economic indicator is now slipping since the beginning of July and this confirms continued weakness in the growth series.

05/01/2011: Eurozone growth - January

For the first post of 2011. So a slightly belated wish to all of the readers: May 2011 be (in no particular order of importance):

• A prosperous and a fruitful one
• A healthy and a happy one
• A year for me to write better research and for you to comment more on it
  
• A year of renewing the political and economic strengths of the countries we call our homes.

Oh, and may the 30-year bull market in fixed income finally come to an end in 2011. Why you may ask? Because I, for one, am sick and tired of watching the sovereigns from the US to the EU to Japan borrowing beyond any control to underwrite unsustainable status quo of our bankrupt social democratic models. Leveraging our children and ourselves to pay for the dubious 'benefits' of redistributive 'justice' is unlikely to end with anything but tears. And the latter stage of history is uncomfortably close for all of us to continue ignoring the facts of our economic sickness.


Now, to the top of the newsflow from the EU-wide perspective.

The latest Eurocoin leading indicator for Eurozone growth was out recently and hence the updated details:
December performance was above November, reaching 0.49 - 4bps above November reading of 0.45. As of the beginning of January, Eurozone economy signals expansion that is yoy some 28% weaker than in January 2010 (December 2009 reading was 0.68).

Historically, Eurocoin is a pretty decent longer-term leading indicator (70%+ RSq) for the trend in the Eurozone GDP growth:
The new reading is consistent with growth of ca 2.0% and is driven primarily by industrial production and producer confidence. However, Eurozone industrial production growth has been declining persistently from the annual peak achieved back in May. Per latest (October) data, Germany continues to power ahead with strong positive growth, France and Italy remain at near zero growth and Spain's industrial output growth sticky in negative territory.

Composite PMIs for Germany (through December) powering ahead, while staying in contraction territory in France, Italy and Spain. Consumer confidence is at 2007 levels in Germany, while staying below the water line in other three economies (see chart):
Source: CEPR

I will be blogging on Ireland's PMIs in few hours tonight, so stay tuned for comparatives to the homeland.

Economics 25/06/2010: eurozone leading indicators down

Eurocoin, CEPR-Bank of Italy leading economic indicator of economic activity in the Eurozone is down for the fourth month in a row, signaling continued pressure on economic growth:
As the result, I am revising my forecast for Eurozone growth for Q2 2010 to between 0.2% and 0% with the risk to the downside from that.

Negative weights coming from declining industrial production activity and composite PMIs, falling consumer sentiment in Germany, France, Italy and Spain, and equity markets declines. Robust growth in exports provides sole positive support.

Economics 27/02/2010: Double dipping

As of recent days, the media has become finally aware of the serious risk of double dip recession - here in Ireland (qualified below) and in the rest of the world. The reason for this awareness is most likely the ongoing crisis in the Euro area debt markets. But the real cause for concern should be the overall markets dynamics.

First, let me qualify what I mean by the double dip recession in Ireland. Officially, to have a double dip you must exist the first recession - which can only happen if Irish economy were to post at least a quarter of positive growth. There is an inherent asymmetry in the way we term the business cycle. While going into a recession requires two consecutive quarters of negative growth, recovery set in after just one quarter of positive growth. The second dip for a recession, however, requires again consecutive two quarters of negative growth.

Which, of course, means that were recoveries distributed following the same probability distribution as recessions, the risk of a double dip recession will be lower than the risk of a single quarter negative adjustment post-recovery. And lower still than a recovery. Statistics bear this out, with double dip recessions being relatively rare.

Of course, for Ireland, a double dip recession in current environment will simply mean that instead of turning first positive, then negative again, our GDP (or as I would prefer to measure it - GNP) growth turns more negative than it currently stands.

Definitions aside, what we do currently know points to a strong probability of a double dip recession in the US. Here is why.

As I pointed out in a recent article in the Sunday Times (here) I argued that residential investment is the leading indicator for both recessions and expansions. What we are now seeing the US and the UK are the first signs of renewed problems in this sector, as stimulus and tax breaks wear out.

• Resales of U.S. homes and condos fell 7.2% in January to the lowest seasonally adjusted levels in seven months. This marks two consecutive months of falls that ended an H2 2009 rise. Sales of existing homes have fallen two consecutive months after rising steadily through the fall on the back of a federal subsidy for first-time home buyers. Inventories of unsold homes fell 0.5% to 3.265 million, or 7.8 months of supply at the current sales pace. And this does not bode well with Irish data, where declines in inventories (see Daft.ie latest reports) were seen as an 'improvement' on the overall trends.
• Sales of new homes in the U.S. fell in January to the lowest level on record. Sales were projected to climb to a 354,000 from an originally reported 342,000 rate in December, according to the median estimate in a Bloomberg survey of 72 economists. The supply of homes at the current sales rate increased to 9.1 months, the highest since May 2009. Purchases of new homes reached an all-time high of 1.39 million in July 2005. January 2010 sales dropped 11.2 percent to a seasonally adjusted annual sales pace of 309,000 units, the lowest level on records going back nearly a half century.
• Foreclosures are continuing to rise and with them - banks failures (see a good post on US banks weaknesses here).

So overall, the US lead indicators are pointing to a double dip.

Ditto for the UK, where home prices are now hitting the reversals of recent gains. Average house prices in the UK fell 1% in February after nine consecutive monthly increases. Although average prices in February were 9.2% higher than in February 2009, according to the Nationwide Building Society, it is the dynamic, not the levels that matter.

And EU economies are now in the reversal as well:

• Confidence among German corporates contracted unexpectedly in February, according to the sentiment index released by the Ifo Institute - winter weather is being blamed, but there is little evidence this is really what is happening on the ground with exports tracing consumer demand downward;
• Italy's state-financed ISAE published a new survey showing that Italian consumer confidence is now in a free fall once again;
• Exactly the same is happening in France, where consumer spending is falling as the state cash-for-clunkers program ended, causing decline in car sales;
• Bank of France data shows that credit to the private sector have slowed down even further in January, while credit to companies was actually falling once again.

Since France and Germany led the Euro area out of recession last summer . That recovery was driven by government stimulus programs and a pickup in global trade. Domestic consumers, meanwhile, were left holding the bag - as usual - in the block which prides itself on selling premium stuff to foreigners and keep its own citizens as savings-generating serfs of the exports-driven economies. Net result? Q4 2009 Germany's GDP growth was flat in quarter-on-quarter terms.

This, of course, is bad news for Ireland. There are three major problems that lay ahead of our recovery and none are being helped by the weakening global economic climate.

First, there is a problem of fiscal deficits financing. Slowdown in the EU and US means that there will be no easing in the glut of new bonds issuances this year. Euro area alone is expected to raise its debt issues to roughly $2 trillion worth of bonds since the beginning of the crisis. A minnow, like Ireland, is bound to see its yields shooting straight up if we are to finance our deficits through open market placements. And there is no hope for placing these bonds elsewhere, as the ECB is hell-bound on clawing back on its quantitative easing programmes of 2009.

The ECB can do so in two ways - hike the rates, or reverse collateral inflows back into the banks. Alas, the former is out of question for now, with economic situation deteriorating. This leaves the latter as the only option. Irish banks - the most dependent on ECB lending throughout the crisis - will suffer heavily through such an exercise.

Second, EU growth reversal spells the end of our exports buoyancy and the hopes for foreign investment boost from the US MNCs aiming for EU presence expansion.

Third, absent growth in the Euro area, the markets will continue scrutinizing closely public finances of the member states. I will post on this issue later today/tomorrow, but the core message here is that Ireland is simply not in a very good position to escape severe downgrades from the markets, given the fact that our policies to-date have been heavy on squeezing all liquidity out of the households.

Economics 25/02/2010: European economy and EU Commission

"Curiously enough, the only thing that went through the mind of the bowl of petunias as it fell was Oh no, not again. Many people have speculated that if we knew exactly why the bowl of petunias had thought that we would know a lot more about the nature of the Universe than we do now." The Hitchhiker's Guide to the Galaxy.

Indeed. Today's ECFIN weekly newsletter said it all. Titled cheerfully "ECFIN e-news 8 - EU interim economic forecast: fragile recovery has begun" it featured the revised interim forecast for EU economy from the EU Commission. It turns out, per forecast that (unbeknown to most of us in the real world) "the longest and deepest recession in EU history came to an end as real GDP in the EU started to grow again in the third quarter of 2009." This comes despite the fact that growth actually fell (and almost reached back into negative territory) in Q4 2009. Thus, in line with Commission optimism, Brussels now expects "seven largest EU Member States, ...to expand by an anaemic 0.7%".

"Weaker housing investments and continuing balance-sheet adjustment across sectors are expected to restrain EU growth in 2010. Unemployment remains on the rise and would thus dampen private consumption as well. Inflation projections remain largely unchanged at 1.4% and 1.1% in the EU and the euro area respectively".

I am not sure if this rather gloomy prospect matches the headline, but the same issue of the newsletter contains another piece titled "Rebound in economic sentiment slows in February". So can someone explain to me, please - is it that the recovery has begun, or is that the recovery is running out of steam? Clearly, I would tend to believe the second one, since it is based not on projections by the Commission (which famously predicted, and actually planned for overtaking the US in terms of productivity, economic growth and economic wellbeing by 2010, moved to 2012 and later to 2015), but on hard data.


In February 2010, the EU's Economic Sentiment Indicator (ESI) rose by statistically insignificant 0.2% to a still-recessionary 97.4. ESI was down to 95.9 (-0.1% on January) in the euro area. The latter correction follows an unterrupted climb up over 10 months, suggesting that the growth momentum might have been exhausted.

February reading of the Business Climate Indicator (BCI) for the euro area rose for the eleventh month in a row. Happy times? Not really - the relatively low level of the indicator suggests that year-on-year industrial production in January 2010 was still contracting, not expanding.

Drilling deeper into data: all sub-components of the confidence indicators remained below growth levels in January and February 2010. And one - retail trade confidence indicator actually reversed back into contraction territory after December when it crossed over the growth line. Employment conditions in services have turned negative again in January, as did construction confidence indicator.

Which part is showing that the recovery has begun, I wonder?

May be, just may be - the business climate is improving somehow? Well, not really:
EU Commission own BCI is still stuck at -1 - below expansion levels.

Consumers picking up, then? Nope: "In February 2010, the DG ECFIN flash estimate1 of the consumer confidence indicator2 for the euro area signals the first fall after 10 months of improvement (down to -17.4 from -15.8 in January). Confidence declined also among EU consumers, but to a lesser extent (down to -13.6 from -13.1 in January)."


So: consumers are down, producers are in the red and overall economic indicators are turning South again... yet 'recovery has begun'.

A bowl of petunias signalling the nature of the Universe from its Brussels windowsill.

Economics 05/02/2010: Prepare for a new slide

Fasten your seat belts and prepare for a new round of bad news. Globally this time around.

All data for January-February is showing that the pressures of jobless recoveries around the world, coupled with continued weaknesses in financial sector and money supply (despite unprecedented stimulus deployment and helicopter drops - more like blanket bombings - of liquidity) are over-powering the weak positive momentum in growth.


December retail season was, officially, a disappointment – down 1.6% on 2008 season across the euro area. The headline Eurozone Manufacturing PMI reached 52.4 in January, highest reading for two years. The index stood at 51.6 in December, so the rise was marginal.

There were noticeable disparities in performance between national manufacturing economies. Countries reporting an increase in output were Germany, France, Italy, Austria and the Netherlands. All improved on December. Spain, Ireland and Greece all recorded lower output and faster rates of contraction.

Sector data indicated that capital and intermediate goods fared best in January. Growth consumer goods production is falling below that achieved in the previous month.

Growth of new orders was the strongest since June 2007 and faster than the earlier flash estimate. The gain in the index between its flash and final releases was the greatest since flash PMI data were first compiled at the start of 2006. New export orders rose at an above flash estimate pace that was the quickest since August 2007. See Ireland PMI in my Sunday Times article this week.

Despite rise in core PMI, manufacturing continued to shed jobs during January, across the Eurozone.

Core retail sales (ex-motors) in Germany were weaker in November than previously reported (down 1.7% mom) but rose 0.8% mom in December. Car sales are down 40% quarter on quarter –driven by the end of the scrappage scheme. Which, of course, shows that Irish experiment with temporary programmes of subsidies is unlikely to work. Interestingly, in Germany, scrappage scheme has benefited primarily foreign manufacturers. Of course, the reason for this is that German car makers are primarily at the top of the price proposition distribution and in a recession, subsidy or none, they will suffer. Foreign care makers sales rose 26% in December and 38% in January, before the scrappage scheme shut down. Domestic car sales were flat.

Sign of troubles ahead for exports growth – German manufacturing orders are down 2.3% in December while output contracted 2.6%.

Greece and Portugal are clearly in the news flow. Both have no market credibility when it comes to their deficits. And the reports from the ground are even worse with virtually all vox-pop reporting suggesting that populations of both countries are in deep denial of the reality. People are talking about ‘fat cat managers earning hundreds of thousand euros’ while ‘ordinary people are suffering’. Long legacy of communist and socialist politics in both countries is clearly evident in the popular unwillingness to face the music.

The next points of pressure will be Ireland and Spain.

On Ireland’s fiscal position and PMIs – read my Sunday Times article this weekend.

On Spain: the country is about 3 times bigger in economic terms than Greece and Portugal – accounting for roughly 11.8% of the euro area GDP. Troubles here will be a much bigger problem for the Eurozone than all the rest of the PIIGS (less Italy) combined. Meanwhile, Spain’s unemployment is rising (just as Ireland's), adding some 125,000 to the dole counts in January. 19% of Spaniards are now officially unemployed, as opposed to Ireland’s 12.7%. In terms of hidden unemployment, Spains problems are also much tougher than Ireland’s especially since grey markets for construction workers which sustained unofficial employment during the boom are now shut in Spain.


Credit is still tight in the euro area and the FX valuations are still around $/€1.36 – way too high for an exports recovery.

It is now painfully clear that the only thing that can resolve euro area’s problem would be a massive one-off emission of liquidity directly into the government budgets. To do this, the ECB can set a target of, say, €1,000 per capita for the eurozone economies, disbursed to each country based on their population. Anything else simply won’t do.

But even such a measure will not provide sufficient support for Greece, Portugal, Ireland and Spain – only a temporary reprieve.


UK’s economy is also in stagnation pattern with full-time employment still falling, individual, insolvencies up to record highs. The uptick in house prices in late 2009 is likely to have been temporary and driven by speculative ‘testing the water’ by international investors. Manufacturing PMI is up robustly January to 56.7, its highest level since October 1994, and from 54.6 in December. The increase was driven by new orders, which rose at the fastest pace in six years, as well as companies' efforts to clear backlogs of existent orders. It remains to be seen if this pace of improvements is sustainable. Services sector PMI meanwhile contracted rapidly from 56.8 in December to 54.5 in January, marking the slowest activity in five months.

Here is a little fact to put things into perspective – manufacturing accounts for less than 20% of the UK economy, while services account for 76%.


Overall, this recovery is coming along with more stress and strain on the labour markets. All global indicators are now appearing to have peaked back in Q4 2009, with the new year starting on downward trajectory. Inventory cuts passed in previous quarters are now being worked out and there is little sign this process will be picked up by a structural increase in new orders. All in, jobs growth is now severely lagging that achieved in the end of the previous recessions. In this environment, growth favours the US where jobs cuts were much more significant and early, allowing firms to rebuild their margins before the onset of any demand improvements. Eurozone is, in contrast, toast. Indicative of this is the volume of global trade – with Baltic Dry Goods index down to 2704 today as contrasted by 3335 reading 3 months ago.


Strategically – I would short Europe as an index, but look for low cost medium margin operations for a long position.