Harsh blow for European industrial sector: Eurozone services/manufacturing PMI gap returns to all-time highs

Alemania industria

Santander Corporate & Investment: China’s imports plunged almost 8% (-0.3%e) in April, consolidating doubts about the evolution of the global manufacturing sector. And, for example, the services/manufacturing PMI gap in the Eurozone has recently returned to record highs.

This is a harsh blow for a European industrial sector that: (1) was expected to benefit from China’s reopening, (2) is already trading at pre-war lows a few months before autumn (albeit with ample gas reserves for the time being) and (3) suffers from the growing risk for brown issuers of a potential active QT programme later in the year given the ECB’s stated desire to decarbonise its portfolio.

In addition, Germany’s March industrial production slump on Monday (-3.4% month-on-month versus -1.5%e, with Autos -6.5%) takes away much of January and February’s gains to close a tough month of March for retail sales, factory orders and exports/imports.

Finally, awaiting next week’s ZEW report, investment confidence declines for the third consecutive month in Germany with the EZ Sentix losing 4.4pt in May (-13.1, -7.5e). The latest blow comes this week from the European real estate market (-2.9% yesterday on the stock market) following the downgrade of Sweden’s SBB to HY on Monday and with shares down another 24% yesterday (-20% the previous day).

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