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Pre-Market Primer: The Eurozone Is Heading for a Recession While the Rest of the World Gets Tipsy


There's plenty of economic gloom and doom in the headlines this morning, with eurozone and Chinese manufacturing declining and initial jobless claims rising.

MINYANVILLE ORIGINAL After the Fed's minutes indicated that it is preparing to take action to spur economic recovery, indicators and stock futures are pointing toward more gloom.

The eurozone's manufacturing sector is in its seventh consecutive month of contraction, according to Markit. The Flash PMI reading for this month came in at 46.6, slightly better than the final reading of 46.5 last month. (A reading above 50 signals improving conditions; readings under 50 indicate a contraction of the sector.) Markit's economists are calling this a fairly sure sign that the eurozone cannot escape recession.

"The August Markit Eurozone Flash PMI reinforces the prevailing view of the economy dropping back into recession during the third quarter of 2012. Taken together, the July and August readings would historically be consistent with GDP falling by around 0.5%-0.6% quarter-on-quarter, so it would take a substantial bounce in September to change this outlook," said Rob Dobson, Markit's senior economist. "Hopes that German economic strength will aid recovery in the broader currency union were dealt a blow by its rate of economic contraction accelerating, and further signs that its export engine has slammed into reverse gear."

Things aren't going much better in China. HSBC's Flash China Manufacturing PMI fell to a 9-month low of 47.8 from 49.3 in July. In the United States, initial claims for unemployment insurance unexpectedly rose last week to 372,000, up from 365,000 in the week prior.

Stock futures fell this morning before a report that is expected to show that new home sales sold at an annualized rate of 362,000 in July, up from 350,000 in June. Dow (^DJI) and Nasdaq (^IXIC) futures both declined by 0.06% to 13,148.00 and 2,779.50, respectively. Futures on the broader S&P 500 (SPY) were down 0.09% at 1,411.00.

Hewlett-Packard (HPQ) reported dwindling revenues and write downs as it swung to its biggest-ever loss in the company's fiscal third quarter. HP lost $8.9 billion, or $4.49 per share. Revenue sank 5% to $29.7 billion. The computer maker earned $1.9 billion on revenues of $31.2 billion in the year-earlier period. Most of the loss came from a write down of the Electronic Data Systems unit. Excluding the one-time write down, which was announced prior to the earnings announcement, the company earned $2 billion. Shares of HP fell 4.43% in after-hours trading.

HP's results come right after a similarly dismal quarter for Dell (DELL), its closest competitor. The two computer makers are contending with a changing landscape in which PCs face competition from smartphones and tablets and fewer people are buying printers. Competition from Asian PC makers like Lenovo and Acer is also impacting HP's and Dell's share of the PC market.

The good news? There is still booze, and people are drinking it. Diageo PLC (DEO), the world's largest distiller, reported a 2% increase in profits, driven mostly by the hard stuff. Revenues for the distiller, which owns brands such as Guiness, Johnny Walker, and Smirnoff, rose 10%. The company's strongest growth wasn't in Europe, a region that's looking like it needs it, but in Latin America, India, and China.

Twitter: @vincent_trivett
No positions in stocks mentioned.
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