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Asleep at the Wheel

I agree with the line of thought by @Halsrethink and @JoshFriedlander. Let's look at the data to see why.

Soft Data France

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The IHS Markit France Service PMI shows the Sharpest Decline in Business Activity for Nearly Five Years.

Commenting on the PMI data, Eliot Kerr, Economist at IHS Markit said:

“January data pointed to an even faster decline in service sector activity than in protest-hit December. Output fell at the quickest pace since February 2014, despite the intensity of the 'gilets jaunes' protests easing throughout January. It seems the key driver of the latest contraction was on the demand-side, with panellists reporting a slowdown in orders from clients."

"The results are worrying for a French economy that was propped-up by service sector strength for the majority of 2018. Although the fall in manufacturing production eased in January, a rebound in that sector would not necessarily be enough to support economic growth if the downward momentum in services continued."

Soft Data Germany

The IHS Markit France Service PMI shows Business Activity Growth Ticks up But Inflows of New Work Ease Closer to Stagnation

Commenting on the PMI data, Phil Smith, Principal Economist at IHS Markit said:

"The first acceleration in service sector business activity for four months was good news, although the indication that inflows of new business eased closer to stagnation at the start of the year took some of the shine off the latest results. A steep and accelerated fall in the level of new work from abroad provided evidence of the weakening international demand environment affecting not only manufacturing but also services.

"January's services survey showed conditions in Germany's labour market continuing to improve, with employment rising solidly on the month and many firms linking increasing costs to wage growth. The pace of job creation did continue to ease, however, with back-to-back reductions in backlogs of work indicating that pressure has started to come off capacity.

"Despite the firmer increase in service sector business activity counteracting a further slowdown in manufacturing, the Composite PMI recovered only slightly from December's five-and-a-half year low and continued to point to only a modest rate of underlying growth across Germany's private sector at the start of the year."

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Hard Data

Yield Curve

Italy in Recession

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Italy is in serious trouble:​

  1. Too Big to Bail, Too Big to Jail: Italy in Recession With Very Troubled Banks
  2. Italy Heads for 2nd Lost Decade, Entire Eurozone on Verge of Contraction


Please note that Brexit Fears Lead to Record UK Stockpiling

Think of the implications. UK stockpiling of EU goods is at record levels out of Brexit fears, yet Italy is in recession, and the hard and soft data in Germany and France is negative.

German auto production and diesel in general is under attack from the Greens. Trump threatens trade wars.

It will take a miracle for the Eurozone to avoid recession with Germany, France, and Italy struggling, the latter in a known recession.

That assumes, of course, the EU is not already in recession.

Mike "Mish" Shedlock