Monday 23 April 2018

Daily Market Update: Asian manufacturing PMIs signal contraction


Richard Ramsey

Yesterday’s incoming economic data from the US was somewhat weaker than expected.

However, barring a poor nonfarm payrolls figure this Friday it is not expected to prevent the Federal Reserve from hiking rates this month. The Chicago manufacturing PMI has been oscillating from strong growth to contraction in recent months. Remember with the PMI surveys 50.0 signals the threshold between expansion (>50) and contraction (<50). Manufacturing activity in one of the US’s main industrial heartlands fell from 56.2 in October to 48.7 in November. Meanwhile pending home sales figures for October came in weaker than expected.

The health of the global manufacturing industry is in focus today with manufacturing PMIs coming in thick and fast. The pace of decline amongst Chinese manufacturing firms eased last month. However, at 48.6, the November PMI still represented the 9th successive month of contraction. Meanwhile the Chinese official manufacturing PMI fell to 49.6 in November (below consensus 49.8), the lowest level since August 2012. The official non-manufacturing (mostly services) Chinese PMI fared somewhat better with the pace of growth accelerating to a 4-month high of 53.6.

Looking beyond China, it is noted that Asian manufacturing as a whole stagnated in November. If Japan is excluded Asian manufacturing remained in contraction. Japanese manufacturing bucked the wider trend with its manufacturing PMI hitting a 20-month high of 52.6. The PMIs for Taiwan and South Korea remain in contraction territory with the Malaysian PMI falling to a record low in November. Indonesia’s manufacturing sector deteriorated at its fastest rate in 7-months. India has significantly outperformed its Asian peers in recent months but its manufacturing sector has stalled in November. Meanwhile Russia’s manufacturing PMI remained just above the expansion threshold by the smallest of margins.

Turning to Europe, Ireland’s manufacturing PMI has extended its sequence of growth to 2.5 years. However, the 53.3 reading for November represented the weakest rate of growth in 21 months. The Spanish and Italian manufacturing sectors are clearly benefiting from the weakness of the euro. Both countries saw their manufacturing PMIs accelerate in November. The French and German manufacturing PMIs have been confirmed at 50.6 and 52.9. These were broadly in line with the earlier flash estimates with the French PMI a bit weaker whereas the German survey was slightly better than anticipated.

Meanwhile the UK manufacturing PMI has come in weaker than expected with the pace of activity slowing from 55.2 to 52.7. The consensus opinion amongst economists had been for a 53.6 outcome. EUR/GBP had been heading towards 70p this morning. However the weaker UK PMI has taken it back up to 70.3p. This is still below yesterday’s open of 70.4p. EUR/USD has continued to trade within a tight range over the last 24 hours and is currently hovering just below the $1.06 mark.

Looking at the rest of the releases due today, the unemployment rate for the Eurozone is due shortly. Meanwhile in the US the ISM manufacturing survey is the key release in the US. Financial markets remain relatively subdued ahead of the main event of the week – Thursday’s ECB policy announcement.

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