Notable quotables/Eurozone now contracting

Here are some notable quotables from earnings press releases and/or conference calls yesterday:

AT&T: “Last quarter, I shared that we’re seeing inflationary pressures, and we estimate those to be more than $1 billion above the elevated cost expectations embedded into our outlook…On the consumer side of our business, we’re seeing an increase in bad debt to slightly higher than pre-pandemic levels, as well as extended cash collection cycles…We view this cycle no differently and still expect consumers will pay their bills, albeit a little less timely.”

Dow: “Recent economic indicators show continued growth in global economic and industrial activity, albeit at a slower pace…we expect inflation to continue impacting global consumer durables demand, including furniture and bedding and appliance end markets…All of our debt is fixed rate…Auto’s, even though auto’s have had issues with chip supply, we still are looking at y/o/y unit build and improvements in the 2023 forecast on auto. So I think as we get through chip supplies, we’ll see that move.”

PPG: “Our strong selling price realization fully offset persistent cost inflation during the second quarter, leading to higher sequential operating margins compared to the first quarter. Although still somewhat challenging, raw material and logistics availability improved throughout the quarter, and we are already experiencing further improvement in the third quarter…We anticipate strong sequential growth in Asia due to higher industrial production compared to the second quarter. Positive growth trends are generally expected to continue in North America. In Europe, we expect economic conditions to remain soft, including normal seasonal demand trends. We have already begun to implement cost mitigation actions in Europe and have contingency plans ready to deploy in the event of a broader economic slowdown.”

Snap: “The combination of macroeconomic headwinds, platform policy changes and increased competition have limted the growth of campaign budgets.”

A day after the Bank of Japan said they are going to keep on keeping on with policy, the country reported June CPI up 2.4% headline, 2.2% ex food and 1% ex food and energy. All about as expected but that core/core rate of 1% is the highest since 2015 after the VAT tax was introduced. Take that away and it’s the quickest since 2008.

Japanese CPI

Let’s shift to the global July PMI’s. Australia’s manufacturing and services composite index fell 2 pts m/o/m to just above 50 at 50.6 with the former outperforming the latter. Japan’s PMI fell to the same level of 50.6 with both components lower. As for the outlook, “Positive sentiment was the weakest for three months amid concerns regarding inflationary pressures amid sustained material shortages, we well as the prolonged impact of the Russia-Ukraine war.”

The Eurozone PMI has fallen into contraction with its composite index at 49.4 vs 52 in June. Manufacturing fell to 49.6 from 52.1 and services declined by 2.4 pts to 50.6. Germany saw below 50 reads for both components. French manufacturing is also below 50 but services hung in above at 52.1. The bottom line is that a recession is here in Europe and according to Markit’s opinion, “forward looking indicators hint at worse to come in the months ahead…Of greatest concern is the plight of manufacturing, where producers are reporting that weaker than expected sales have led to an unprecedented rise in unsold stock…In services, the boost to demand from the reopening of the economy has faded and growth is now at a near-standstill, with customers often deterred by the increased cost of living and concerns about the outlook…Business expectations for the year ahead have meanwhile fallen to a level rarely seen over the past decade as concerns growth about the economic outlook, fueled in part by rising worries over energy supply and inflation but also reflecting tighter financial conditions.”

The positive within the data, “was a further marked cooling of inflationary pressures from the survey gauges of both input costs and selling prices” but, “these gauges remain higher than at any time prior to the pandemic, underscoring the unenviable challenge facing policymakers of taming inflation while avoiding a hard landing for the economy.” Yep.

In response to the below 50 reads European bonds are rallying sharply across the region, including Italy and the euro is weaker. In turn, US Treasuries continue to bounce with yields lower. I’ll reiterate my belief that a recession is here as it’s now being confirmed that its started in Europe.

Eurozone PMI

The UK economy held in better than its European peers as its PMI fell just .9 pts m/o/m to 52.8 with manufacturing at 52.2 and services at 53.3. Markit said “Although not yet in decline, with pent up demand for vehicles and consumer oriented services such as travel and tourism helping to sustain growth in July, the PMI is now at a level consistent with just .2% GDP growth. Forward looking indicators suggest worse is to come. Manufacturing order books are now deteriorating for the first time in one and a half years as inflows of new work are insufficient to keep workforces busy, which is usually a precursor to output and jobs being cut in coming months.”

With respect to pricing, “On a brighter note, inflationary pressures have cooled markedly, stemming from fewer supply shortages and more discounting in response to the weakened demand environment.” Gilt yields are falling too and the pound is weaker on the same growth worries.