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Daily Market Digest: UK manufacturing rises to a 10-month high

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Market Summary

  • China manufacturing PMI eases in August
  • Japan final manufacturing PMI at 49.5, lower than flash estimates
  • Australia capital expenditure falls 5.40%, marks a second consecutive quarterly decline
  • Eurozone manufacturing PMI slows to a 3-month low
  • UK manufacturing PMI rebounds to a 10-month high in August
  • US ISM manufacturing falls below 50 in August

Today’s Economic events

  • Australia AIG Manufacturing Index 46.9 vs. 56.4 previously
  • Japan capital spending q/y 3.10% vs. 5.60%
  • Japan final manufacturing PMI 49.5 vs. 49.6
  • China manufacturing PMI 50.4 vs. 49.9
  • Australia private capital expenditure q/q -5.40% vs. -4.0%
  • Australia retail sales m/m 0.0% vs. 0.30%
  • China Caixin manufacturing PMI 50.0 vs. 50.1
  • Switzerland retail sales y/y -2.20% vs. -3.10%
  • Switzerland manufacturing PMI 51.0 vs. 50.5
  • French final manufacturing PMI 48.3 vs. 48.5
  • Germany final manufacturing PMI 53.6 vs. 53.6
  • Eurozone final manufacturing PMI 51.7 vs. 51.8
  • UK manufacturing PMI 53.3 vs. 49.1
  • Weekly unemployment claims 263k vs. 265k
  • Revised nonfarm productivity q/q -0.60% vs. -0.60%
  • Revised unit labor costs q/q 4.30% vs. 2.0%
  • Canada RBC manufacturing PMI 51.1 vs. 51.9 previously
  • US final manufacturing PMI 52.0 vs. 52.1
  • ISM manufacturing PMI 49.4 vs. 52.0
  • US construction spending m/m 0.0% vs. 0.60%
  • ISM manufacturing prices 53.0 vs. 54.5

China Caixin Manufacturing PMI falls to 50.0 in August

China’s manufacturing sector activity expanded at a slower pace in August after posting a strong rebound in July. Caixin manufacturing PMI fell to 50.0 in August, down from 50.6 in July according to official records.

China General Manufacturing PMI, August 2016: 50.0 (prev. 50.6, July 2016)
China General Manufacturing PMI, August 2016: 50.0 (prev. 50.6, July 2016)

“Manufacturing production rose for the second successive month in August, though the rate of expansion waned from July’s two-year high and was moderate…total new business increased at a softer pace in August, and rose marginally overall,” Caixin said in its PMI report. The report also noted that within small and mid-size manufacturers, production and new orders increased at a slower than expected pace while exports continue to decline in August.

The dip to 50.0 marks a break-even level for the manufacturing sector and shows a moderation following July’s gains where the Caixin manufacturing PMI jumped to 50.6 from June’s 48.6. However, the Caixin manufacturing PMI data contrasted with official records. China’s official PMI, released by the National Bureau of Statistics on Thursday showed that manufacturing increased to 50.4 in August, marking a strong level last since October 2014.

Brian Jackson, from IHS Global insight, called the report ‘encouraging but with caveats.’ He pointed out that while light manufacturing improved, heavy manufacturing continued to remain in contraction. “Given the latter is slightly larger in industrial output, it mutes the potential upside from the most recent improvement,” Jackson said.

Eurozone manufacturing activity eases to a 3-month low

Manufacturing PMI data for the Eurozone expanded at the slowest pace in three months, data from Markit showed on Thursday. The manufacturing PMI fell to 51.7 in August, compared to 52.0 in July. It was slightly lower than the preliminary estimates of 51.7. The data showed that the rate of expansion slowed in production, new orders and new export business leading to a weaker pace of job creation in the sector. August job creation in the sector was also the weakest since March this year. The outlook for staffing levels was mildly positive on increasing backlogs of work.

Eurozone Manufacturing PMI August 2016: 51.7 (Prev.: 51.8, July 2016)
Eurozone Manufacturing PMI August 2016: 51.7 (Prev.: 51.8, July 2016)

At a regional level, Germany and Netherlands recorded the strong rates of expansion while French manufacturing activity continued to slip.

Input prices increased for the second month after falling for the most part of the year. However, the rate of inflation was seen to be marginal.

Chris Williamson, from IHS Markit, said, “Eurozone manufacturers reported a wavering performance in August, with signs that growth could slow further in coming months. The rate of expansion dipped to a three-month low but is at least holding up in the face of the uncertainty caused by the UK’s vote to leave the EU. The survey indicates that factory production is growing at a steady though the unexciting annual rate of just under 2%.”

UK manufacturing sector bounces back from a 41-month low

UK’s manufacturing PMI released by CIPS/Markit showed that activity in the manufacturing sector posted a strong recovery with upward trends seen in production and new orders. Most of the gains in the sector were primarily driven by a weaker exchange rate.

UK Manufacturing PMI August 2016: 53.3 (Prev. 48.3, July 2016)
UK Manufacturing PMI August 2016: 53.3 (Prev. 48.3, July 2016)

Data from Markit showed the PMI index rising to 53.3 in August after the PMI fell to a 41-month low to 48.3 in July after the UK’s decision to leave the EU. August manufacturing PMI hit a 10-month high as solid rebounds in the manufacturing output and new orders increased. Companies reported solid inflows of new work from both domestic and overseas clients with export orders driven due to a weaker sterling. Employment in the manufacturing sector also increased for the first time on a year to date basis.

The 5 point jump in the manufacturing PMI was the biggest monthly gain in nearly 25 years with manufacturing production increasing at the fastest pace in seven months during August. Sales volumes also increased with the rate of growth accelerating to a 26-month high. However, while the weaker exchange rate drove exports, it also increased input prices. Input price inflation surged to a 5-year high with nearly 44% of the firms reporting an increase in purchasing costs.

Rob Dobson from IHS Markit said, “The August PMI data indicate a solid rebound in the performance of the UK manufacturing sector from the steep downturn that followed the EU referendum. Companies reported that work that had been postponed during July had now been restarted, as manufacturers and their clients started to regain a sense of returning to business as usual. The domestic market showed a marked recovery, especially for consumer products, while the recent depreciation of sterling drove higher inflows of new business.”

Dollar volatile on US data dump

The ISM manufacturing gauge fell to 49.4 unexpectedly in August, data from ISM showed, indicating a contraction from 52.6 in July. The ISM data was worse than the forecasts of 52.0. The ISM’s report showed new orders, production, and employment, inventories contracting while supplier deliveries were slowing.

ISM manufacturing contracted for the first time since February this year with only 6 out of 18 industries reporting an increase in new orders for August.

In a separate report, the weekly unemployment claims data rose 263k, less than the forecasts of 264k. Other data from the US included labor productivity numbers which showed a slight decline from initial estimates. The labor department showed that productivity fell 0.60% in the second quarter, more than the 0.50% decline noted previously. The report also showed that unit labor costs jumped to a revised 4.30% during the quarter.

Construction spending data was also released which showed that spending was flat in July from the previous month, failing to match forecasts of 0.60% increase. However, the previous months of May and June were revised higher to show 0.10% and 0.90% gains respectively.

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