It wasn’t just Japan’s PMI which overnight printed at a disappointing 47.6, missing expectations and signaling the sharpest decline in operating conditions since December 2012. Overnight Markit showed that the Chinese credit-induced global slowdown is coming far faster than most (if not Morgan Stanley) expected, when the Eurozone flash PMI printed at 52.9, down from 53.0 in April, below the 53.2 expected, and the lowest in 16 months. As Reuters put it, this offers “the latest evidence that a strong acceleration in growth in the first three months of the year was only temporary” and likely
Curiously this happened on the back of stronger than expected PMIs from France and Germany which as Goldman notes, suggests weaker prints in Italy and Spain which are yet to be published.
Goldman’s full breakdown of the Markit report:
The breakdown revealed a 0.2pt fall in the manufacturing output component drove the decline in the composite figure. The services PMI component was unchanged at 53.1.
The Euro area manufacturing PMI fell by 0.2pt in May. The manufacturing breakdown showed a 0.2pt fall in manufacturing output, a 0.2pt fall in employment, and a 0.1pt fall in new orders. Within the services PMI, the forward-looking subcomponents (which are not part of the headline services PMI figure) were particularly weak, with ‘incoming new business’ falling 1.0pt, and business expectations decreasing by 2.8pt.
On a country basis, the German composite PMI was strong, rising 1.1pt, while the French composite figure rose by 0.9pt. The strength in Germany and France combined with a relatively unchanged area-wide figure suggests weaker prints in Italy and Spain, which are due to be released next week.
Based on historical correlations, a composite PMI of 52.9 is consistent with growth of in the Euro area of +0.3%qoq, just below our judgemental forecast of +0.4%qoq for Q2. That said, the PMIs throughout Q1 were consistent with GDP growth of around +0.3%qoq, yet growth accelerated to +0.5%qoq (initially estimated at +0.6%qoq) on Eurostat’s estimates, and as such we remain wary of drawing conclusions too early in Q2 based on the PMI data alone.
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