Oh where to start.
First it was the Treasury department announcing its first major escalation in the crackdown against tax inversions, which has sent European healthcare stocks lower over concerns there will be nobody left to “merge” with them. Then it was the US announcing that the coalition of nations favorably inclined toward a Qatar gas pipeline crossing Syria had commenced bombing the sovereign nation without Assad’s approval, a violation of sovereignty which we are positive the UN will get right on top of, then it was the HSBC China PMI number confirming it is a complete joke, after it beat expectations just in time for Rubber prices to join iron at fresh record lows (some rebound there). A somewhat more realistic number came out of Europe’s PMI which not only missed across the board, with the manufacturing PMI sliding to 50.5 (from 50.7) the lowest since August 2013, but the German number dropping again from 51.4 to 50.3, (below the Estimate 51.2) leading to more triple-dip concerns. It wasn’t just Europe’s manufacturing: while there was no Tesco openly fabricating data, today’s session has also seen negative sentiment stemming from further profit warnings, this time from Raiffeisen Bank (-10.9%) and Tate & Lyle (-16.3%) which have both crashed as two themes, Russia and the tapped out consumer, once again rear their ugly head. Finally, Israel decided to do its own thing and took down a Syrian fighter jet which it said was acting “in a threatening manner” whatever that means. Clearly Israel wants a piece of the Syrian action, now that the US itself is leading the bombing campaign.
In short, a bevy of bad to worse news that any other day would have sent the futures soaring on hopes of even more stimulus, although with the US talking of hiking rates, China pouring cold water over expectations of more easing and Europe unsure what it is doing, today’s plethora of negative news is actually, gasp, bad news!
Most north Asian equity markets are trading lower overnight. Bourses in Korea and Taiwan are down -0.4% and -0.3% respectively. Asian credit markets are also feeling slightly softer this morning, perhaps taking the weaker lead from the US session yesterday. Indeed the S&P 500 (-0.80%) saw its fourth sub-2000 crossing since it first reached the milestone about a month ago. The disappointing US existing home sales (5.05M v 5.20M expected) and Chicago Fed Nat Activity (-0.21 v +0.33 expected) probably didn’t help but in reality the market weakness was fairly broad based largely driven by Consumer Discretionary (-1.45%), Energy (-1.36%) and Industrials (-1.10%). Asian stocks trade mixed with Shenzhen Composite, ASX 200 outperforming and Sensex, Nikkei underperforming. MSCI Asia Pacific up 0.2% to 143.6. Nikkei 225 down 0.7%, Hang Seng down 0.5%, Kospi down 0.5%, Shanghai Composite up 0.9%, ASX up 1%, Sensex down 1.6%. 6 out of 10 sectors rise with telecom, health care outperforming and information technology, energy underperforming.
European stocks, U.S. equity index futures fall after Euro area PMI for Aug. missed ests., while bond yields for German, Spanish, U.K. debt fall. Copper rises with positive Chinese PMI data, while oil gains as OPEC discusses output cut. European health care stocks among largest underperformers as U.S. plans tighter rules on tax inversion M&A. Richmond Fed Manufacturing Index, FHFA House Price Index due later in U.S. 0 out of 19 Stoxx 600 sectors rise; basic resources, chemicals outperform, autos, retail underperform. 6.3% of Stoxx 600 members gain, 93.7% decline. Eurostoxx 50 -1.1%, FTSE 100 -1.2%, CAC 40 -1.5%, DAX -0.9%, IBEX -1%, FTSEMIB -0.8%, SMI -0.4%.
Aside from the Chinese PMI data, which is so fabricated it is hardly even worth talking about, here is what Goldman had to say about Europe’s PMIs:
The Euro area Composite PMI fell from 52.5 to 52.3 in September, slightly below Consensus expectations but marginally above our forecast (Cons: 52.5, GS: 52.2). The Composite PMI declined on the back of a loss in momentum recorded both in the manufacturing and the service sectors. Germany registered a small increase in the Composite PMI while the French PMI posted a small decline.
1. The Manufacturing PMI fell marginally from 50.7 to 50.5 in September, its lowest reading since August 2013. The Service PMI registered a 0.3pt decline and now it stands at 52.8 (Chart 1). The Consensus expectations were for a smaller decline in both the Service and the Manufacturing surveys
2. The breakdown of the aggregate indexes is almost unchanged since the last month. Forward looking indicators in the Services PMI showed some improvements, with the largest increase in ‘Business Expectations’ (up by 1pt). On the other hand, indicators that try to gauge sentiment about future activity in the manufacturing sector were weaker than the previous month.
3. In addition to Euro area aggregate, Flash PMIs were released for Germany and France. The German Composite PMI edged up from 53.7 to 54.0, while the French Composite PMI printed 49.1 in September, 0.4pt below the previous month’s reading. The gap between the surveys in the two countries thus widened by 0.5pt in September, but remains below 6, the average gap recorded since January 2013 (Chart 2). In contrast with the aggregate figure, the Manufacturing PMI eased in Germany, but it was stronger in France.
4. September is the last month of the third quarter of the year, but Eurostat will publish its preliminary estimate of Euro area Q3 GDP growth only on 14 November. We can, nevertheless, extract some information about growth in activity in the current quarter from the release of September Flash PMIs. Based on historical correlations, a reading of 52.3 is associated with +0.2%qoq GDP growth. Our CAI points to similar growth in September (+0.9% annl.). For Q3 as whole, the average Composite PMI is 52.8, indicative of growth of around +0.3%qoq.
