Intraday Market Thoughts

European PMI's May Add to Double Dip Fears in Europe

by Ashraf Laidi
Aug 23, 2011 7:06

French PMIs German and EZone ZEW survey, Swiss exports could show further declines raising prospect of further intervention, Chinese HSBC Manufacturing PMI slides further provoking further concerns about a slowdown, Richmond Fed

Fears of a double dip recession in Europe could gain further traction this morning, if in the wake of recent disappointing growth figures in the core countries, the latest flash PMI data for France, Germany and the Euro zone continue to point to a further slowdown in services and manufacturing.

French manufacturing PMI data for August is expected to slip back to 49.7 from 50.5 in July, while its euro zone equivalent is expected to also contract to 49.5 from 50.4. Even German data is expected to come in weak at around 50.6 from Julys 52 reading.

Economic sentiment in Germany is also expected to weaken further according to the ZEW survey, with expectations of a further slump to -26 from -15.1 in July, further raising questions of the ability of Germany to backstop any euro bond even if it wanted to.

Notwithstanding all of this further disappointing data out of Germany could well sour sentiment further with respect to willingness to bail out the peripheral economies, especially in light of the latest Bundesbank report which questions the democratic legitimacy of the recent bailouts under the current EU treaty.

Concerns about new central bank intervention from the Swiss National Bank are likely to increase if Swiss exports for July show increased declines due to the strength of the franc.

Fears of a slowdown in China have diminished slightly after preliminary HSBC Manufacturing PMI, despite contracting again in August, recovered from last months figure coming in at 49.8. This recovery has raised hopes that China is not heading for a significant slowdown in the wake of last weeks disappointing data from Europe and the US.

After last weeks shocking Philadelphia Fed numbers, attention is expected to turn to this afternoons Richmond Fed for August, where it is hoped that the Philly numbers will be shown to be a one-off. US new home sales for July are also due out.

Gold has continued its recent surge higher again making new highs against the US dollar, euro and the British pound.

Kyle Morison


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