Mar 22 Warning Materializes as Euro Stocks Suffer
4 weeks after we warned in the last edition of the HotChart, today's release of German April flash PMIs confirms our warnings from the decline in the PMI is a more accurate picture of German manufacturing than is reflected in the IFO & ZEW surveys. Now that German flash manufacturing PMI deepened into contraction (the lowest since July 2009), French flash services PMI fell sharply into contraction, while Spain re-enters recession, the catch-down race is on.
The renewed slowdown in Germany could well clash with the ECB's attempts to leave the LTRO behind and return to worrying about inflation as was hinted by Mr. Draghi last week. Meanwhile, the Bundesbank has explicitly stated monetary policy is no solution to the Eurozone problems and that "We shouldnt always proclaim the end of the world if a country's long-term interest rates temporarily go above 6%". Such commentary suggests escalating obstacles to the ECB the next time it mulls a fresh round of asset purchases and/or long term refinancing operations.
Since their peak in mid March, Spain's IBEX is off 19%, Italy's FTSEMIB is off 19%, Germany's Dax is off 9%, while the S&P500 is down 2.9%. At this point, the peripherals' decline may be more likely to extend the pullback in the Dax than is the latter likely to support the peripherals. Looking at the Dax weekly chart, Looking at the Dax weekly chart, the index is now falling below its 100-week moving average, eyeing the next downside target near 6440, which is the combination of 100 WMA and the 7-month trendline support (from Sep low). A weekly close below 6400 risks triggering the return to 6000.
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