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Euro Dives as German Data Prompts Recession Fear, 10-Year Bund Yield Turned Negative

Fears of global recession intensify after shockingly poor German manufacturing data. Major European indices are all trading in red while DOW is down more than 100 pts at initial trading. More importantly, German 10-year bund yield turns negative for the first time since 2016. The most accurate indicator of US recession, 3-month to 10-year US yield curve, inverts, as 10-year yield drops through 2.5 handle. Risk aversion will likely be a major theme before weekly close.

In the currency markets, Euro is the weakest one today as selloff accelerates after German data. Canadian Dollar is the second weakest, suffering some pressure after poor retail sales data. Swiss Franc is the third weakest, as dragged down by Euro. Yen is the strongest one today so far on risk aversion naturally. Sterling is the second strongest for today, as supported by the two extra week of Brexit lifeline granted by EU. Dollar is the third strongest, mainly thanks to weakness elsewhere.

In Europe, FTSE is down -1.26%. DAX is down -0.81%. CAC is down -1.34%. German 10-year bund yield is down -0.050 at -0.006. It hit as high as 1.2 just earlier this week. Earlier in Asia, Nikkei rose 0.09%. Hong Kong HSI rose 0.14%. Singapore Strait Times dropped -0.05%. Japan 10-year JGB yield dropped -0.037 to -0.072.

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Eurozone PMI manufacturing dropped to 47.6, 71-month low with sharp contraction in trade flows

In March, Eurozone PMI manufacturing dropped to 47.6, down from 49.3 and missed expectation of 49.5. That’s also the lowest level in 71 months. PMI services dropped slightly to 52.7, down from 52.8, matched expectations. PMI composite dropped to 51.3, down from 51.9.

Chris Williamson, Chief Business Economist at IHS Markit said: “The survey indicates that GDP likely rose by a modest 0.2% in the opening quarter, with a decline in manufacturing output in the region of 0.5% being offset by an expansion of service sector output of approximately 0.3%… Most worrying is the plight of the manufacturing sector, which is now in its deepest downturn since 2013 as trade flows contracted at the sharpest rate since the debt crisis-ridden days of 2012.

Also: “Forward-looking indicators such as business optimism and backlogs of work suggest that growth could be even weaker in the second quarter… Any such further loss of growth momentum in the second quarter compared to the 0.2% GDP rise signalled for the first three months of the year would raise doubts on the economy’s ability to grow by more than 1% in 2019.”

Germany PMI manufacturing dived to 44.7, entrenched downturn with steepest contraction since 2012

In March, Germany PMI manufacturing dropped sharply to 44.7, down from 47.6 and missed expectation of 48.0. That’s also the lowest level in 79 months. PMI services dropped to 54.9, down from 55.3 but beat expectation of 54.8. PMI composite dropped to 51.5, down from 52.8, hit a 69-month low.

Phil Smith, Principal Economist at IHS Markit said: “The downturn in Germany’s manufacturing sector has become more entrenched, with March’s flash data showing accelerated declines in output, new orders and exports. Uncertainty towards Brexit and US-China trade relations, a slowdown in the car industry and generally softer global demand all continue to weigh heavily on the performance of the manufacturing sector, which is now registering the steepest rate of contraction since 2012.

France PMIs: Contraction in both manufacturing and services

In March, France PMI manufacturing dropped to 49.8, down from 51.5 and missed expectation of 51.4. PMI services dropped to 48.7, down from 50.2 and missed expectation of 50.6. PMI composite dropped to 48.6, down from 50.4.

Eliot Kerr, Economist at IHS Markit said: “At the end of the first quarter, the French