Eurozone Downturn Deepens, yet Euro Stoxx Up

The PMI numbers for Europe are out this morning and one word describes them: abysmal. All PMIs are below 50 -- any reading under 50 indicates economic contraction (above 50 = expansion). Here's the tally:

Source: Markit

Ugly indeed. 

With all PMIs below 50, it confirms widespread contraction/recession in the region, and yet the Euro Stoxx 50 is up 10% in the last six months. Huh? As I've discussed in the recent past, equities typically discount recessions by six to nine months, meaning if anything the Stoxx should be -10% not +10%. And in the past stock markets tend to be too alarmist, having more false alarms than false all-clear signals, i.e. the stock market has successfully called 20 of the last 14 recessions....

I suppose the Stoxx could be inferring that this recession(s) will be very short-lived, given that equities likewise discount the end of recessions by surging six to nine months prior to a recession's officially-declared end. The Stoxx did decline by almost 20% during March-June of last year, which is 9-12 months ago, perhaps that was the discounted heads-up for a looming recession. Since June 1st, the Stoxx is up 32%.

It's possible that we see a relatively brief recession in Europe with an imminent recovery just around the corner, but in general I remain befuddled.

Also, note the ECB balance sheet continues to shrink:

Source: Bloomberg