Today the focus switches to the Euro area and of course it is bracing itself for the imposition of a wave of Trump Tariffs tomorrow. We are in a phase where being a net exporter is not working out as well as it once did. However this morning attempts to get ahead of the tariffs look to have provided a boost for the manufacturing sector.
HCOB PMI® data, compiled by S&P Global, showed the first signs of meaningful recovery in the eurozone manufacturing sector at the end of the first quarter, with the final survey results signalling a monthly rise in factory output for the first time in two years.
The expansion was the fastest in almost three years, but only marginal overall and trailing the historical average.
We only have the formal trade data for the US for January but it was already looking like importers were getting their retaliation in early.
Imports of goods increased $36.2 billion to $329.5 billion in January.
Imports of goods on a Census basis increased $36.2 billion. ( US BEA)
Sadly the improvement is made to also look like a blip as we try to look ahead.
Notably, production growth was accomplished despite a further monthly fall in volumes of incoming new business. New factory orders fell in March, as they have done continuously for almost three years, but the rate of decline was the weakest over this period. Export* markets
remained a drag on sales performances, with demand from foreign clients decreasing further. ( S&P Global)
Over the years we have had so much bad news from Greece let us have some better news.
Just two of the euro area nations covered by the PMI surveys posted expansionary Manufacturing PMI readings in March – Greece and Ireland. Greece’s upturn was strong overall and the fastest in almost a year.
On the other side of the coin is Italy
Italy’s manufacturing sector remains in the grip of crisis, showing no signs of improvement in March, as the latest HCOB PMIs reveal. The bad situation persists, with a further downturn in new orders linked to weakness across the production sector. The economic environment remains unstable for the manufacturers, as reciprocal US-tariffs need to be expected, starting April 2nd.
Switching back to the overall Euro area we saw an issue in an area that the ECB has previously presented as a strength.
. Eurozone factories made further cuts to their workforce numbers at the end of the first quarter amid signs of excess
capacity. That said, the rate of job shedding cooled from February’s four-and-a-half-year record and was the softest in seven months.
Adding to the worries was a dash of inflation.
“Inflation in manufacturing remains subdued. However, it is remarkable that input prices increased a touch stronger, even
though oil and gas prices fell significantly in March. This might indicate that prices of other input factors rose.
ECB President Lagarde
On a day when you might think that Christine Lagarde might run a low profile as these days the sort of corruption allegations she was convicted of would lead her to be removed from office was in fact interviewed by France Inter.
In this particularly uncertain context, ” inflation is a daily battle ,” emphasizes the ECB president. With a forecast of 2.3% in Europe this year, “we are almost on target, but we must stay there .”;
That is a rather different emphasis to the time she dismissed what became the cost of living crisis as a “hump”. Although she then describes a rather different policy to the one she and her colleagues have been applying with their recent interest-rate cuts.
Our absolute imperative is to maintain price stability ,” she recalls. “We are all determined to reach this 2% target. To achieve this, some want to gallop, to go very quickly. Others say ‘let’s go at a slow trot, let’s see what obstacles there are,’” she emphasizes, calling for not ” anticipating ” but “recording all the data ” and having ” a serious analysis of the outlook for price stability .”
This is a frequent situation when looking at her words which often describe a different reality. However we did get an estimate of what will happen to the Euro area economy should the pre announced Trump Tariffs be applied for any sustained period.
The start of a trade war which ” would lead to a drop in eurozone growth of -0.3% ,” and of ” -0.5% ” if Europe applies a policy of reciprocity. ” Every trade war creates losers. No one wins ,” she emphasizes.
That is why Euro area leaders are so worried because let’s face it there has not been much economic growth and now another contraction is possibly on the cards. Such is their concern that they fall back onto Plan A or more Europe.
In this context, the ECB president calls for a rethink about how Europeans invest their savings. “
Is it rude to point out that someone convicted of both negligence and corruption should be nowhere near other people’s savings? Plus even if that were not true she was deeply involved in one of the worst investment trades of all time buying Euro area bonds at negative yields and record high prices. Again that should debar her from giving investment advice but instead we get this.
Today, Europeans save considerably more than Americans. These savings are mainly going into deposit accounts, which don’t yield much return, and this money is largely invested in US Treasury bonds. So our European savings are financing the American economy ,” says Christine Lagarde. “Perhaps we need to question the financing that is necessary here in Europe and how we can organize it. “
How dare people decide for themselves what to do?! There is no questioning of why the US might be preferred such as its far superior record on economic growth. Also a basic deposit account does not go into US Treasury Bonds.It is all rather confused from her as I am reminded that she also chose to make the biggest ever IMF loan to Argentina just before things collapsed there.
We have heard calls for Eurobonds before but this is the first call for a War Bond. Or at least it would be if they were at war.
Regarding investments in rearmament policies, she indicates that “security is never risky, it is an imperative.” “Savings products must be designed ” to ” finance defense spending ,” she demands, also calling for ” simplification ” of the circulation of money in Europe.
Next up we have something that is really rather extraordinary even for President Lagarde. We have looked before at the French situation where the fiscal deficit could go as high as 9% of GDP should they implement their plans in full ( which is why they want your savings).
Finally, when asked about France’s deficit, Christine Lagarde reiterated that it was “imperative to restore stability to public finances and to have sustainable debt over the medium and long term.” She called for a ” reprioritization of public spending.” “If we want to finance a defense effort, it is imperative to reprioritize. Spending will have to be reduced ,” said the ECB president.
Reducing spending in France? Best of luck with that.
Comment
The most chilling element here is the way that Christine Lagarde has plans for Euro area savings. This completely ignores her own awful track record in this area leaving the IMF with record losses and then leaving the ECB with even larger ones. But we can clearly see the way that the Digital Euro is in the background as a way of gaining even more complete control and next time around taking interest-rates even more negative.