PMIs have taken centre stage in the morning’s scheduled high impact news events. Both Italy, Spain, the UK and wider Europe published prints, courtesy of Markit Economics, suggesting that the recent manufacturing improvement is continuing albeit at a very modest pace of growth. Overnight the PMI for China’s manufacturing was published revealing a deterioration in many of the data entries. Chinese manufacturers signalled reductions of both output and new business in February, leading to a moderate deterioration of overall operating conditions.
Tensions in the Ukraine have weighed on equities, lifted commodities whilst motivating investors to seek shelter in safer havens. USA equity index futures pointed to a circa 1 per cent drop at the open of trading in New York, after the benchmark USA index finished last month at a record high. In Asia, several equity losses were severe.
Russia might be willing to use its gas exports to its neighbour to apply pressure on the interim government in Kiev. Gazprom hinted it might raise gas prices for Ukraine in the next quarter, as Ukraine’s unpaid debts to the company meant it may not keep the current discount on gas.
The renminbi, is set for a 10th consecutive daily loss. The move is minor, just 0.1 per cent suggesting that the People’s Bank of China is still keen to show traders that two-way volatility, rather than just currency appreciation, will be the norm. The cumulative fall over the 10 sessions is 1.4 per cent. Since a 2014 peak in mid-January, the currency has lost 1.8 per cent.
US stocks are being propelled to fresh highs by investors borrowing record amounts of money that is raising concerns over the potential for a sharp correction in the five-year bull run. With the S&P 500 registering a new closing peak of 1,859.45 last week, margin debt, money borrowed to buy stocks, hit record levels in January, according to data from the New York Stock Exchange.
Markit/CIPS UK Manufacturing PMI
The strong upswing in the UK manufacturing sector was maintained during February, as levels of production and new business continued to rise at robust and above-trend rates. The solid performance of the sector again filtered through to the labour market, with jobs added at the fastest pace since May 2011. At 56.9 in February, from a revised reading of 56.6 in January, the seasonally adjusted Markit/CIPS Purchasing Manager’s Index® (PMI®) ticked higher and signalled improved operating conditions for the eleventh straight month. The strengthening domestic market remained the primary driver.
Upturn in Italian Manufacturing sector remains solid
The recent robust growth observed in Italy’s manufacturing sector continued into February. Solid increases in output and new orders were recorded, the latter partly reflecting a sharp intake of new work from abroad. Job creation eased to only a modest pace, however. Meanwhile, February saw only slight increases in both input and output prices. The headline Markit/ADACI Italy Manufacturing Purchasing Managers’ Index ® (PMI ®) – a seasonally adjusted composite indicator designed to provide a single – figure snapshot of operating conditions in the manufacturing economy – posted 52.3 in February.
Growth of Spanish manufacturing output sustained in February
The Spanish manufacturing sector recorded another month of improvement in February as further solid rises in output and new orders were registered. Rising workloads led to a second successive monthly increase in employment. Meanwhile, cost inflation was only marginal and companies lowered their output prices in order to support sales growth. The seasonally adjusted Markit Purchasing Managers’ Index (PMI) – a composite indicator designed to measure the performance of the manufacturing economy – rose to 52.5 in February from 52.2 at the start of the year.
HSBC China Manufacturing PMI
PMI signals modest deterioration of business conditions in February. Chinese manufacturers signalled reductions of both output and new business in February, leading to a moderate deterioration of overall operating conditions. As a result, firms cut their staffing levels again in February and at the quickest pace in nearly five years. Meanwhile, input costs and output charges both declined at their fastest rates in eight months. After adjusting for seasonal factors, such as the recent Chinese New Year festival, the HSBC Purchasing Managers’ Index (PMI) posted at 48.5 in February, up fractionally from the earlier flash reading.
Eurozone manufacturing recovery continues
At 53.2 in February, the final seasonally adjusted Markit Eurozone Manufacturing PMI® came in above the earlier flash estimate of 53.0. Although indicating a modest slowdown in the rate of expansion from January’s 32-month high, this still confirmed that the manufacturing recovery had completed its eighth successive month. Growth was broad-based in February, with PMI readings for six out of the seven nations for which data were available signalling expansion (the Greek Manufacturing PMI is released on 4th March).
Market snapshot at 10:00 am UK time
The ASX 200 closed down 0.38%, the CSI 300 up 0.52%. The Hang Seng down 1.47%, the Nikkei down 1.27%. Euro STOXX is down 1.67%, CAC down 1.49%, DAX down 2.09%, FTSE is down 1%. Looking towards equity index futures the DJIA is down 0.72%, SPX down 0.88%, NASDAQ future is down 0.81%. NYMEX WTI oil is up 1.25% at $103.87 per barrel with NYMEX nat gas up 2.47% at $4.72 per therm. Gold is up 2% on COMEX at $1347.90 per ounce with silver at $21.96 per ounce up 1.95%.
Forex focus
Russia’s central bank raised its main interest rate to 7 percent from 5.5 percent after the ruble fell 2.5 percent over the past five days. It was the biggest loss of 31 major currencies against the dollar.
The yen climbed 0.5 percent to 101.34 per dollar early in London, after earlier reaching 101.26, the strongest level since Feb. 6th. It jumped 0.6 percent to 139.69 per euro. The 18-nation currency slid 0.1 percent to $1.3785.
The Swiss franc advanced 0.2 percent to 1.2124 per euro and gained 0.1 percent to 87.94 centimes per dollar. The yen gained against all of its 16 major peers as Russian President Vladimir Putin’s threat to invade Ukraine intensified one of the most serious standoffs since the Cold War, boosting demand for haven assets.
Bonds briefing
U.S.A. 10-year yields declined five basis points, or 0.05 percentage point, to 2.60 percent early in London. It touched 2.59 percent earlier, the lowest level since Feb. 4th. The price of the 2.75 percent note maturing in February 2024 rose 3/8, or $3.75 per $1,000 face amount, to 101 9/32.
Australia’s 10-year yield slid four basis points to 3.98 percent. It was the sixth straight decline, the longest run since October 2012. Japan’s 10-year yield slid to as low as to 0.57 percent, a level not seen since May. U.S., Australian and Japanese bonds rose as Secretary of State John Kerry travels to Kiev after Russia seized part of Ukraine, spurring demand for haven assets.
