Today’s survey data from Italy was worse than expected and a stark contrast to marginally stronger (or, at least, flatish) data out of Germany and France last week. Current consumer confidence readings hover just above where they were prior to the plunge in 2008/2009 while business confidence remains higher:

image

These trends suggest we will see a continued decline in PMI data for August:

image

Declining PMI data would, then, seem to imply increasingly slow (already negative year-over-year) industrial production and, as a consequence, even slower GDP:

image

image

Accounting for ~15% of total Euro area GDP (slightly less than France and considerably more than Greece’s 1-2%), a significant deterioration in Italy’s economy has obvious, very negative implications for the currency bloc as a whole.

If we accept the premise that the stock market is a voting machine in the short-term, it would appear that investors are in agreement with Italian businesses and consumers– everything is not so ‘bene’.

image

image

image

(Banca Monte dei Paschi)

image

 

image

Only defensive, counter-cyclical stocks (Consumer Staples and Health Care) remain remotely constructive as of now.

image

image

image

Sign up for reports from Gavekal Capital