Friday brought fresh evidence that the global economy is mired in a broad-based, worsening slump, highlighting deflation fears and underscoring the case for this year’s dovish pivot from central banks.
In Germany, the manufacturing slump deepened, as the flash PMI for March came in at 44.7, well below consensus (48) and missing the lowest estimate (46.5) by a country mile. This was the worst reading in six years and the third consecutive month of contraction.
New orders fell to 40.1 – the lowest read since 2009 and the sixth consecutive month in contraction territory.
This would appear to cast doubt on the notion that the German economic machine is poised for a quick turnaround after skirting a “technical” recession late last year.
Meanwhile, France’s composite PMI fell back into contraction territory in March, printing 48.7, disappointing consensus which reckoned we’d push further into expansion territory after February’s rebound.
This, just a week after reinvigorated Yellow Vest protests raised (more) questions about Macron’s crisis management abilities. New orders contracted for a fourth consecutive month.
Needless to say, all of this is a stark reminder of why Mario Draghi felt the need to slash the euro-area growth outlook at the March ECB meeting. The cut to the 2019 forecast was deep enough to raise eyebrows but as we noted at the time, there wasn’t anything surprising about it – it’s just a reflection of reality.
Bottom line: The euro-area is on the front lines of the synchronized slowdown.
The euro of course dove on Friday’s dour data.
And bund yields pushed below zero for the first time since October 2016.
Speaking of sub-zero territory, 10-year JGB yields dove 3bps on Friday to -0.07%, the lowest since November of 2016.
In addition to catching down to the post-Fed move in Treasury yields, JGBs were also buoyed on Friday by the latest inflation data out of Japan which, not surprisingly, missed estimates as consumer prices ex-fresh food rose 0.7% last month, below estimates. The BoJ can’t even see their target from here.
And so, doom and gloom it is, as the synchronous global slowdown narrative seemingly gathers more adherents with each passing data point.
As for policymakers, this is all just further evidence to support the idea that an exit from post-crisis accommodation is but a pipe dream.
Maybe it always was.
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