Daily Market Digest: Global manufacturing PMI’s mixed

1 36

Market Summary

  • China official manufacturing PMI slips into contraction, Caixin manufacturing PMI beats estimates
  • China’s non-manufacturing PMI rises for the third consecutive month
  • Eurozone manufacturing PMI falls to 52.0 in July, better than UK manufacturing PMI
  • UK manufacturing PMI falls to 48.2 in July
  • Markit manufacturing PMI steady at 8-month high
  • ISM manufacturing PMI falls to 52.6

Today’s Economic events

  • China manufacturing PMI 49.9 vs. 50.0
  • China non-manufacturing PMI 53.9 vs. 53.7 previously
  • China Caixin manufacturing PMI 50.6 vs. 48.7
  • Japan manufacturing PMI 49.3 vs. 49.0 previously
  • Spain manufacturing PMI 51.0 vs. 51.6
  • Italy manufacturing PMI 51.2 vs. 52.5
  • France manufacturing PMI 48.6 vs. 48.6
  • Germany manufacturing PMI 53.8 vs. 53.7
  • Eurozone manufacturing PMI 52.0 vs. 51.9
  • UK manufacturing PMI 48.2 vs. 49.1
  • US (Markit) manufacturing PMI 52.9 vs. 52.9
  • ISM manufacturing PMI 52.6 vs. 53.1
  • ISM prices paid 55.0 vs. 60.9
  • US construction spending m/m -0.60% vs. 0.40%

China manufacturing and services PMI sends mixed signals

Official data from China’s National Bureau of Statistics released on Monday showed that China’s manufacturing sector slipped to 49.90 in July missing expectations of an unchanged print at 50. In June, China’s official manufacturing PMI was recorded at 50. However, the data was in contrast to the Caixin manufacturing PMI which showed an expansion in the sector with July’s activity in the sector recorded at 50.6, beating estimates of 48.7 and up from June’s 48.6. The data from Caixin showed that news orders and buying activity expanded during the month, but employment in the manufacturing sector continued to decline. Output costs also increased as a result of higher input costs.

China Official Manufacturing PMI, July 2016 – 49.9
China Official Manufacturing PMI, July 2016 – 49.9

The data showed that growth picked up largely on account of stronger domestic demand as export sales fell marginally at the start of the third quarter.

Commenting on the release, Zhong Zhengsheng, director of Macroeconomic Analysis at CEBM Group, said: “The Chinese economy has begun to show signs of stabilizing due to the gradual implementation of proactive fiscal policy, but the pressure on economic growth remains, and supportive fiscal and monetary policies must be continued.”

The NBS also released the non-manufacturing PMI data which showed a continued improvement. In July, China’s NMI was seen higher at 53.9, up from 53.7 recorded in June.

The mixed data has stoked the debate on whether the PBoC will ease monetary policy further. It has been long speculated that after staying on the sidelines for the first two-quarters this year, the PBoC is likely to ease monetary policy in the third quarter. Citigroup’s chief economist for China, Liu Li-Gang, in an interview with CNBC said: “the Chinese central bank was likely to cut the reserve ratio requirement (RRR), which is the amount of cash banks are required to hold.” Liu said that an RRR cut could permanently inject liquidity into the economy and said that pressures on China’s economic growth remain which would support the continuation of fiscal and monetary policies.

UK Manufacturing PMI plunges to 48.2 in July

The manufacturing sector in the UK turned for the worse in July after monthly PMI survey reports from Markit showed that that PMI index fell to 48.2 in July, down from 52.4 in June. The data was also lower than the flash estimates which showed a decline in the index to 49.1, suggesting that the manufacturing sector moved into contraction.

UK Manufacturing PMI (Markit) – 48.2, July 2016
UK Manufacturing PMI (Markit) – 48.2, July 2016

UK’s manufacturing PMI has been volatile over the past couple of months. In April, the manufacturing PMI fell to 49.2 from 50.7 previously but managed to recover in May to 50.1 and then rose to 52.1 in June.

The PMI report showed that production contracted at the sharpest rate since October 2012. Domestic demand was hurt by the Brexit outcome, but export orders managed to rise for a second straight month. The rise in export orders was attributed to a weaker exchange rate for the sterling. Despite the increase in new orders, hiring remained weak. Employment in the manufacturing sector fell for the seventh straight month, while job losses posted a sharp increase. Markit said that weak inflows of a new word and falling volumes suggest that further weakness in hiring could follow.

Price inflation on the input side surged to a 5-year high in July on imports and commodity prices leading to an increase in selling price which increased as the sharpest pace since two years. Markit Sr. economist, Rob Dobson said “The weakening order book trend and upswing in cost inflation point to further near-term pain for manufacturers. On that score, the weak numbers provide powerful arguments for swift policy action to avert the downturn becoming more embedded and help to hopefully play a part in restoring confidence and driving a swift recovery.”

Eurozone manufacturing falls to 52.0 in July

Manufacturing activity in the Eurozone grew at a slower than expected pace, but the sector continued to show an expansion, data from Markit shows on Monday. The manufacturing PMI fell to 52.0 in July, after rising to a 6-month high at 52.8 in June. July’s PMI reading was slightly better than the flash estimates of 51.90.

EU Manufacturing PMI (Markit) – 52.0, July 2016
EU Manufacturing PMI (Markit) – 52.0, July 2016

Contributing to the decline in manufacturing was a smaller contribution from new orders. While hiring was weaker in July, the pace of growth was seen to be the highest in the past 5-years. Import costs were seen rising on account of a weaker currency, leading to the first time increase in average purchase prices in over a year, but output charges fell in July. Among the major economies in the Eurozone, Germany, Italy and Spain registered growth in the manufacturing sector while France continued to struggle. Manufacturing activity in France rose to a modest 48.6 in July compared to 483. This was in contrast to the data from Germany, where manufacturing PMI fell to 53.8 in July, down from 54.5 in June which was a 28-month higher.

Despite the modest hiccup, manufacturing activity fared better in the Eurozone compared to that of the UK’s.

On Friday, preliminary data released by Eurostat showed the euro area economic growth was likely to see a slowdown in the second quarter, rising at a rate of 0.30% in the three months ending June after Q1’s GDP of 0.60%. On a year over year basis, Eurostat estimates that GDP growth in the euro area would grow at a pace of 1.60%, down from Q1’s growth rate of 1.70%.

Markit manufacturing PMI at 8-month high

The US manufacturing PMI survey from Markit showed that manufacturing activity remained unchanged at 52.9 in July, the same level seen in June and marks an 8-month high. Contributing to the PMI was the faster growth of output and news orders with an increase in employment in the sector as well. Markit said that the data for July showed a sustained rebound in production in the sector with higher levels of output recorded for a second month, marking the fastest pace of expansion since November 2015. New business growth showed a continued recovery with the new orders staying the strongest in nine months. Manufacturing payrolls also showed an increase in July with the rate of job creation picking up at the fastest pace since July of 2015.

Chris Williamson, chief economist at Markit, said, “the  stronger manufacturing  PMI  survey  data  for July  fuel  hopes  that  the  sector  will  act  as  less  of drag  on  the  economy  in  the  third  quarter  after  a disappointing first half of the year.” On the hiring in the sector, he said: “Job creation has also picked up, hopefully in a sign that producers are seeing a brighter picture, coping with a strong dollar and having put the worst of the energy sector’s restructuring behind them.”

ISM Manufacturing PMI, July 2016 - 52.6
ISM Manufacturing PMI – 52.6, July 2016

In a separate report, the Institute of Supply Management’s manufacturing PMI showed that manufacturing activity measured by the PMI index fell to 52.6, falling more than the forecast of 53.1 and down from June’s 53.2. The ISM’s report showed that new orders were growing at a slower pace than previously expected with July falling to 56.9 from June’s 57.0. Production continued to grow at a faster pace, rising to 55.4 from 54.7 previously. Employment, on the other hand, showed a contraction, falling to 49.4 from 50.4 in June.


or practice on DEMO ACCOUNT

Trading CFDs Involves high risk of loss

Leave A Reply

Your email address will not be published.