German Manufacturing Craters, Sending Bund Yields Negative; Recession Fears Growing

German Manufacturing Craters, Sending Bund Yields Negative; Recession Fears Growing
     As Tyler Druden notes on this morning’s/March 22, 2019 edition of, German manufacturing fell to its lowest level in six years this month/March, declining from an already anemic 47.6 in February, to just 44.6 in March. A number below 50 indicates contraction and declining growth. IHS Markit’s PMI survey published today, showed Germany’s manufacturing sector declined for the third consecutive month. Germany’s federal statistics office, Destatis, in February, showed the country narrowly avoided a recession in the fourth quarter of 2018, with the economy flatlining at 0.0 percentNew orders are also slowing or declining.
     Chloe Taylor, posted an article on this morning’s edition of the financial news website, CNBC, noting that Germany’s Gross Domestic Product (GDP), grew 1.5 percent in January 2019, compared with 2.2 percent in January 2017.
     “The downturn in Germany’s manufacturing sector has become more entrenched,” said Phil Smith, Principal Economist at IHS Markit. “Uncertainty towards Brexit, and U.S.-China trade relations, a slowdown in the car industry, and generally softer global demand — all continue to weigh heavily on the performance of the manufacturing sector, which is now registering the steepest rate of contraction since 2012.”
     “Elsewhere,” Mr. Druden noted, “Manufacturing PMI in France also contracted from 51.5, to 48.7 in February, and the Service Index also fell from 50.2, to 48.7, as the ongoing Yellow Vest protests have continued to sap the economy,” and a negative overhang on economic activity.
     Meanwhile, Italy is already in an economic recession and an alarming debt of 132 percent of GDP.
     As Ambrose Evans-Pritchard wrote in the March 1, 2019 edition of London’s The Telegraph, “The severity of the industrial downturn in Germany and Italy, has echos of mid-2008, when the pair led the Eurozone into recession, months before the 2008 financial crisis,”in the U.S. and the collapse of the financial investment firm, Lehman Brothers. “Ominously,” he added, “Spain’s factory output has also begun to contract after holding up well in 2018, though fiscal loosening is helping France alone among  the big economies to buck the trend.”
     Chris Williamson, from IHS Markit, told The Telegraph that Eurozone manufacturing is in its worst downturn since 2013. There is no light yet at the end of the tunnel. “Orders are falling at a faster rate than output — to a degree not seen for seven years. The new orders to inventory ratio has also fallen to its lowest level since 2012, with many companies reporting excess warehouse stocks.”
       “The risk for Europe,” Mr. Evans-Pritchard fears is, “the world may not come to the rescue this time. The official PMI for China for February fell into deeper contraction, and new orders are the worst since 2009,” a decade.
     China and Japan aren’t exactly helping as Mr. Evans-Pritchard explained in his article; and, the economic indications from South Korea aren’t positive either.
     In conclusion, Mr. Evans-Pritchard warns, “the evidence is mounting that the global economy is close to stall speed. Whenever this occurs, markets can roll over under their own weight. The international financial system becomes vulnerable to the slightest shock.”
     “Europe does not have the luxury of sitting back and waiting to see what happens. It is in the cross-hairs.”
     This latest bad economic news out of Germany and France this morning, sent stocks lower across the pond; and, U.S. stock futures are pointing to a triple digit loss at the opening bell this morning. Clearly the Federal Reserve this week was justified in taking a very dovish stance and indicating that it would not likely raise interest rates for the remainder of this year; and, maybe only once in 2020. We need to get resolution on the U.S./China trade dispute sooner rather than later.  We have to hope the U.S. economy can hold up against declining growth in Europe and China. Otherwise, we may get drug down as well. One reason that gold and precious metals continue to shine in 2019. RCP,

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