The Table Setter: Global Manufacturing Figures
May ISM Manufacturing fell to 53.5 from last month’s 10-month high of 54.8. The figure is slightly below consensus estimates of 53.8. The internals of the report send a mixed message but confirm that manufacturing growth moderated during the month of May. The 53.5 reading is above the 12-month average of 53.1, equal to the six-month average of 53.5, and slightly below the three-month average of 53.9.
• “Prices Paid Index by Manufacturers for Raw Materials” fell sharply to 47.5 from last month’s 61 – a positive for corporate earnings
• “New Orders Index” rose to 60.1 from 58.2 last month – positive
• “Inventory Index” fell to 46 from 48.5 last month – positive
• “Employment Index” fell to 56.9 from 57.3 last month – negative
• “Production Index” fell to 55.6 from 61.0 last month – negative
• Spain May PMI came in at 42 vs. consensus estimate of 43.0
• Greece May PMI was 43.1
• Italy May PMI rose to 44.8 from last month’s 43.8 and consensus estimate of 43.4
• France May PMI was 44.7 vs. last month’s 44.4 and consensus estimate of 44.4
• Italy unemployment rate rose to 10.2% from 9.8% last month
May PMI Manufacturing came in at 45.2, slightly above both last month’s 45.0 and the consensus estimate for 45.0. German economic figures matter most in Europe. The significant recessionary weakness in the European Union ex-Germany is already known. Next week, further economic data from Germany will be released as follows:
• Tuesday, June 5 – Factory Orders (consensus estimate -3.8% year on year and -1.1% month on month)
• Wednesday, June 6 – Industrial Production (consensus estimate +0.9% year on year and -1.0% month on month)
• Friday, June 8 – Imports/Exports (consensus estimate for Imports -0.1% and Exports -0.7%, both month on month)
Similar to the domestic U.S. argument between the 99% and 1%, Europe’s periphery appears to be the 99% while Germany is the lone 1%. The outcome in Europe appears to center around the EU vs. Germany debate. Although highly unlikely, perhaps the worry shouldn’t be about Greece leaving the euro, but rather Germany if the Germans become frustrated by the calls for them to bail out Europe.
1. I do not expect Greece to vote on June 17 to leave the euro. The absence of political unity logically suggests an absence of a unified plan for them to leave. You don’t just wake up one morning and dust off the drachma for usage. A significant unified plan must be agree upon first.
2. I expect that in order to assuage markets, more money from Germany will have to be pledged for Greece. Further concessions toward the opposing positions of Italy and France must also be drafted. Germany cannot maintain its current position for the euro to stay together.
3. I expect European fiscal unity will be required to guarantee the pan-euro banking region. Otherwise, runs on the bank are possible. Liquidity can be provided by the ECB; solvency protection cannot.
4. Spanish banks have failed to properly write down housing losses, and their capital needs are significant. I expect some form of a bailout for the Spanish banking system will be required from the IMF.
Collectively, this equates to the eurocurrency remaining under significant pressure, and the European economy needing the cheapest currency right now.
Eurocurrency, May 3, 2010 to June 1, 2012