Awkward

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Economic research firm Markit said Thursday that a key business index for Europe showed the steepest contraction since June 2009.

The Purchasing Managers Index for September dropped from 46.3 in August to 45.9 in September.

With numbers below 50 indicating a contraction, the index -- in this case a flash estimate -- was already in the red.

Aside from the obvious repercussions and the suggestion that the recession in Europe has yet to hit bottom, let alone turn around, investors showed either spunk or denial Thursday showing strong demand at an auction for Spanish debt.

The government sold $6.2 billion of three- and 10-year bonds, which drove yields for benchmark 10-year notes to 5.666 percent, a vast improvement over the summertime highs near 7 percent.

There's something perhaps too quick in declaring investors thick-headed. When Standard & Poor's downgraded the U.S. credit rating in August 2011, bond yields fell simply because in a panic investors chose the safest place to go. This is precisely like horses running back into a burning barn, except there is the chance that high demand at a bond auction will help put the fire out.

Is panic really good for markets? If so, that's a master's thesis screaming for an author.

At face value, analysts and pundits are now puzzling over the peculiar caveat that the lower Spanish yields go the less likely it is that Prime Minister Mariano Rajoy will apply for international help, which many believe is inevitable.

The question there is more like is panic really damaging to markets? There is a general assumption that anyone who waits to act in financial markets will miss out on the best price. In other words, the longer Rajoy waits, the more suffering he prolongs and the more expensive the fix will be when it is finally called for.

Repeatedly, it is clear that political leaders look at the bottom line, which is the cost of a rescue versus the cost of borrowing in the public market.

The style of denial is irritating. Greece, Ireland, Portugal all waited to ask for help until the cost of the emergency aid became less costly than the cost of very public economic suffering and in Greece's case budget chaos. Greece, meanwhile, rigged its books to avoid looking like it was in trouble and to many that looked like a smoker hiding in a closet to puff away, while asking for medical care.

Spain is more flamboyant about its state of affairs, simply spelling out that the cost of applying for help if it adds to government debt is unacceptable. Again look at Greece. Their budget is decimated, their economy in recession and it is taking on loans that require more budget cuts, because the ratio of debt to economic output is what needs fixing.

Greece is in a lifeboat and the international community keeps loaning the country money, which sends the stern of the boat down and lifts the bow out of the water. Neither end of the boat is functioning properly at this point. To complete the metaphor, the international community insists that Athens cut spending and sell assets, which lifts everything higher, and everyone knows that lifting a boat higher in the water is a risky proposition.

Spain's economy is also floundering and there is no fix for that in sight. What is available is a chance for Spain to loan $130 billion to its banks if it takes money offered by the international community.

That is not a sum that will sink the Spanish government. Knowing the Spanish economy is in trouble, however, it is the terms of the loan that Rajoy does not want.

That doesn't sound quite like denial and while investors buy Spanish bonds politically everyone's hands are tied. Rajoy cannot justify asking for help at this point and the international community cannot change the terms of its lending program on a claim that desperation and Spanish bullheadedness forced their hand.

So everyone waits. To borrow a comedic catch-phrase: Awkward, awkward.

In international markets Thursday, the Nikkei 225 index in Japan fell 1.57 percent, while the Shanghai composite index in China dropped 2.08 percent. The Hang Seng index in Hong Kong shed 1.2 percent, while the Sensex in India gave up 0.79 percent.

The S&P/ASX 200 in Australia lost 0.48 percent.

In midday trading in Europe, the FTSE 100 index in Britain dropped 0.73 percent, while the DAX 30 in Germany lost 0.5 percent. The CAC 40 in France lost 0.89 percent, while the Stoxx Europe 600 dropped 0.36 percent.