While manufacturing PMIs slump to 45pt (48.8p) in the EZ, with Germany at 42.4 and France at 43.9, Spain unexpectedly rebounds to May highs: up to 53 (50.5 in August). Italy starts to feel the German cold given its industrial links and falls back (48.3, 49.4p). Time will tell how much European slippage the Spanish economy can withstand but for the time being, this geography, and beta (tier 2 names), continue to gain attractiveness in relative terms. This should come as no surprise judging by the recent trickle of profit warnings from the industrial sector, especially Autos. But, in the longer term, the broader picture of the EZ manufacturing sector is rather worrying as our economists remind us, with final demand showing clear signs of weakness (except in Spain), with falling backlogs and the consequent impact on employment. In short, the visible correction in prices that our economists show in the graphs below and in their report seems to be happening for the wrong reasons.
