Party Pooper

Europe's economy's weak

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What's going on?

The eurozone ruined the economic recovery party major investment banks recently threw for it: new data on Friday showed that March manufacturing activity in the region was worse than expected.

What does this mean?

A monthly survey of industrial businesses suggested manufacturing activity in the eurozone fell at its fastest rate in six years led by Germany, which also set new records for the speed at which its manufacturing sector shrank. Germanys largely export-reliant economy is still reeling from disruptions to its important autos sector and lower demand from a weakening Chinese economy (although that might soon change).


A similar survey of the services industry (i.e. everything that happens outside factories) showed that it picked up the months slack, so the eurozone economy probably grew in March. But economic growth for the quarter will likely be lower than forecast.

Why should I care?

For markets: Not what investors hoped for.


Data last month suggested the eurozone economy had turned a corner and was on its way to resuming higher growth. Fridays revelation that it might be a false dawn likely led investors to sell off the regions stocks they fell and turn instead to safer government bonds. Despite Germanys current woes, its government bonds are considered Europes safest. Investor demand pushed German government bond prices higher and yields lower (since the two move inversely). For bonds due to be repaid in a decade, demand was so high that yields actually fell below zero for the first time since 2016. For some investors, a potentially small negative return is better than the large one that might come from owning stocks.



The bigger picture: Brexits delayed


The European Union agreed to temporarily delay the UKs departure from the bloc in order for the country to get its ducks in a row. An exit with a deal in place for trading goods (that avoids expensive tariffs) would likely help restore some investor confidence in the eurozones economic prospects.

Originally posted as part of the Finimize daily email.

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