Market Summary
- New Zealand wage growth seen subdued in Q2
- Eurozone services PMI better than estimated
- UK services PMI contracts. Falls to 47.4
- Atlanta Fed’s Lockhart does not rule out a rate hike in September
- ADP payrolls rise for the second consecutive month
Today’s Economic events
- UK BRC Shop price index y/y -1.60% vs. -2.0% previously
- Australia AIG services index 53.9 vs. 51.3 previously
- BoJ releases monetary policy meeting minutes
- New Zealand ANZ commodity prices m/m 2.0% vs. 3.70% previously
- China Caixin services PMI 51.7 vs. 52.9
- Spain services PMI 54.1 vs. 55.1
- Italy services PMI 52.1 vs. 51.1
- France services PMI 50.5 vs. 50.3
- Germany final services PMI 54.4 vs. 54.6
- Eurozone final services PMI 52.9 vs. 52.8
- UK services PMI 47.4 vs. 47.4
- Eurozone retail sales m/m 0.0% vs. 0.0%
- US ADP Nonfarm employment change 179k vs. 171k
Coming Up
- US final services PMI
- ISM non-manufacturing PMI
- Crude oil inventories
New Zealand: Average hourly earnings rise 0.80% in Q2
Average hourly earnings in New Zealand increased 0.80% in the second quarter, on a quarter over quarter basis, falling short of the 0.90% expected increased. The data from Statistics New Zealand showed that annual wage growth remained subdued on account of low consumer inflation.
Annual wage inflation increased 1.50% in June consistent with the data over the past few years. Sarah Williams, business prices manager, said, “The gap between the labour cost index and inflation was 1.1 percentage points, the smallest gap since the end of 2014.” Consumer inflation grew at a pace of 0.40% in the latest quarter. While wage growth increased as expected, growth in employment was seen to be a lot weaker. Full-time employment grew 0.30% in the second quarter with the first quarter growth revised lower to 1.0% from previously reported 1.20%. New Zealand’s annual employment growth was seen falling to 3.20%.
The subdued economic data continues to keep investors betting on the RBNZ’s rate cut when it meets next week where interest rates are expected to be cut by 25bps.
Kate Hickie from Capital Economics said, “Overall, the lack of inflationary pressure in the labor market supports our view that underlying inflation will remain low for a while yet, which will prompt the RBNZ to cut rates to 2.0% at next Thursday’s meeting, and perhaps eventually to 1.5%.”.
Eurozone final composite PMI rises to a 6-month high
Private sector activity increased its pace, as data from Markit showed on Wednesday that the Eurozone’s final composite PMI index rose to a 6-month higher. In July, the PMI jumped to 53.2 compared to 53.1 in Jun and was seen higher than the previous flash estimate of 52.90. The final composite PMI in the Eurozone has been signaling growth for 37 consecutive months.
However, the impact on the GDP was seen as being limited. Chris Williamson, chief economist at Markit, said on the release, “The survey is still indicating only a modest 0.3 percent quarterly rate of economic growth at the start of the third quarter.”
Eurozone’s services PMI data released today showed that the index increased by one point to 52.9 in July after falling to a 17-month low at 52.8 in June. July’s services PMI managed to beat the flash estimates which showed a print of 52.70. Growth the services sector was driven by an increasing pace of output expansion, primarily from Germany. However, the rate of growth was seen to be moderate in Italy and Spain, while France continued to lag behind with the services PMI hovering near 50.1 after falling to 49.6 a month ago.
The July composite PMI also showed a rising trend in the job creation, pointing to the eurozone employment rising at the fastest pace in 5 and half years. Spain contributed the most in employment, with the pace of expansion steady at an 11-month high, with Germany and Italy also seeing expansion in hiring. The services sector also showed that the average input price in the euro area rose at the fastest pace since July 2015 and was higher than compared to the manufacturing sector which also logged an increase in input prices for the first time this year.
UK services PMI contracts in July
The services sector in the UK, which was previously the biggest contributor to the economy’s GDP showed a contraction in the sector, according to PMI survey reports from Markit/CIPS. Services PMI fell to 47.4 in July, compared to 52.3 in June matching the flash estimates that was released in late July, confirming that the services sector was contracting at the fastest pace since 2012. Markit said that the monthly drop of 4.9 points in the sector was the biggest since the July 1996.
Markit’s Chris Williamson said “The marked service sector downturn follows news from sister PMI surveys showing construction activity suffering its steepest decline since mid-2009 and manufacturing output contracting at the fastest rate since late-2012. At these levels, the PMI data are collectively signalling a 0.4 percent quarterly rate of decline of GDP.”
Earlier this week, the manufacturing PMI from the UK was recorded at 48.2 while construction PMI fell to 45.9. Combined, all three sectors (manufacturing, construction, and services) showed a contraction, signaling that the third quarter GDP was likely to take a strong hit. The declines came as the UK voted to leave the EU on June 24.
Markit’s services PMI report showed that business expectations turned the weakest since February 2009, but employment in the sector was unchanged.
David Noble, Group CEO for CIPS said, “But with business optimism at its most fragile since February 2009, the sector will be looking for strong, significant monetary policy decisions tomorrow, whether it is a change to interest rates or easing bias, to avoid this downward slide becoming the economic landscape for the months and years ahead. This dramatic drop in overall activity will be a reality check as much as it is unsettling, but it is just one month’s worth of data and the next month will be more revealing.”
ADP private payrolls rise 179k, above estimates
Private sector hiring in the US continued to accelerate according to data from private payrolls firm ADP. US private payrolls showed that 179k jobs were added in the month of July, beating estimates of 170k and rising for the second consecutive month. June’s payroll print of 172k remained unchanged.
Looking closer into the report, the data, however, pointed to an unbalanced job growth. Services sector remained at the forefront, adding 185k jobs during the month, while goods-producing sector shed 6k jobs. Construction jobs also contracted, shedding 6k jobs during the month, while manufacturing managed to add 4k jobs, reversing the 15k job losses posted a month ago. The 185k jobs from the services sector were, however, weaker compared to June’s number where the sector reported adding 287k jobs during the month.
In terms of the business sector, job gains came from professional and business services, while trade, transportation, and utilities’ sector saw 27k jobs being added with financial activities sector adding 11k jobs during the month.
Mark Zandi, chief economist for Moody’s said, “Job growth remains strong, but is moderating as the economy approaches full employment. Businesses are having a more difficult time filling open job positions, which are near record highs.”
