A smattering of analyst reactions courtesy of the WSJ:
The euro zone’s private-sector output stabilized in August, marking the end of 14 months of contraction. The rebound was driven by the euro zone’s two biggest economies, Germany and France. Below, economists react.
The flash Purchasing Managers indices rose much more than expected in August, suggesting that growth is likely to have returned to the euro-area economy in Q3. Although the overall composite index for the euro area only rose to 50.0 – which marks the dividing level between growth and contraction – the output index for manufacturing rose to 50.8, indicating expansion. New orders also grew outright (50.9). Business activity in the services sector was only fractionally below the 50 level, at 49.5. The overshoot compared to expectations was even greater in the two member country reports that are published at this stage: in Germany, the composite index jumped to 54.2 from 49.0 … In France, too, conditions improved well beyond expectations. — Klaus Baader, Societe Generale
The speed of recovery in survey data including today’s PMI challenges our view of a protracted period of subpar growth. An important development in today’s report is the first sign that corporates are also scaling back their restructuring plans (decline in the pace of layoffs). … We have revised up our Q3 forecast to +0.2% q/q (from -0.2% q/q). — RBS European Economics
The big picture is that the underlying picture in the economy is improving and probably more quickly than many expected. The PMIs are, however, still consistent with stagnation i.e. the composite reading at 50. That said, we expect growth to be positive in Q3 … . This leads us to think that growth in the next quarter or so may look reasonably robust, but at the start of 2010 actual activity may not look so good. The reason being that factors that are supporting growth at present, such as negative headline inflation, car purchase incentives and a range of other fiscal measures will begin to fade. –– BNP Paribas
[T]he strength of the French and German economies relative to the eurozone as a whole indicate that there is a significant divide forming between the economies which make up the eurozone. If this divide continues to build, it will put added pressure on the euro, which is already being seen in the differing yields for the euro-denominated government debt from the various eurozone nations. — Centre for Economics and Business Research[O]ur view is that the euro area economy may well now be at a trough. However, the key issue is still whether external demand will recover quickly enough to stimulate growth before the temporary fiscal packages – most notably the car scrappage schemes – expire. With any recovery in the euro area’s largest export markets – the U.K. and the U.S. – likely to be subdued, it is had to see where strong growth will come from in 2010. As such, we agree with [ECB board member] Bini Smaghi – inflation is likely to remain weak next year, and rates will probably be on hold at 1% for some time. – Colin Ellis, Daiwa Securities SMBC Europe
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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