Various manufacturing PMIs were published by IHS Markit during the Asian and London-European trading sessions on Friday, the majority weren’t listed even as low or medium impact calendar events, as they’re considered unlikely to move FX markets. Countries such as Spain and Poland aren’t major manufacturing destinations, therefore analysts tend to overlook the figures, despite their manufacturing PMIs falling for January. The Eurozone manufacturing PMI beat the Reuters forecast, by coming in at 49.3 for February, but below the 50 level, separating contraction from expansion. Coming in at 51.5, France’s PMI also beat the forecast.
The U.K. manufacturing PMI came in at 52, ahead of the majority of E.U. and E.Z. countries, however, the PMI illustrates the deep fault with PMIs, as U.K. factories have stockpiled at record levels, to attempt to cope with any Brexit related, supply chain, disruption issues, after March 29th. Relying on purchase managers as a thermometer of health in manufacturing, can often be a one dimensional view. In their commentary on U.K. manufacturing, IHS Markit highlighted this fault, as they stated;
“February saw manufacturers continue to implement plans to mitigate potential Brexit-related disruptions. Purchasing activity was scaled-up to stockpile raw materials, leading to a survey-record expansion in input inventories. The uncertain outlook also impacted on business optimism and employment, with confidence at a series-record low and the rate of job losses hitting a six-year high.”
However, there’s a pattern of reduced manufacturing developing in the E.U. and Eurozone, which could be cause for concern and globally evidence is also emerging of a slowdown. Japan’s latest PMI came in at 48.9 for February, it’s weakest level for thirty two months and falling from 50.3 in January. China’s manufacturing performance has improved marginally, as the PMI came in at 49.9, up from 48.3 in January. Japan’s reduction could be indirectly impacted by China’s trade performance, falling as a consequence of the trade and tariff wars versus the USA.
Alternatively, in a global economic environment, supported by emergency interest rates and quantitative easing, as part of coordinated central bank stimuli since 2008-2009, the current cycle of expansion may be coming to a natural end. Yen fell versus its peers after inflation figures beat expectations and the manufacturing PMI missed the Reuters forecast; USD/JPY breached R2, trading at 111.9, trading above the 200 DMA sited at 111.3, whilst threatening to reclaim the 112.00 handle, a level not reached since December. The major pair traded 0.53% at 9:30am U.K. time. Versus EUR, GBP and CHF yen also lost ground.
Germany’s retail sector has bounced back, according to the latest Destatis data, after both the monthly and yearly figures were negative in December. January came in at 3.30% causing the year on year reading to rise to 2.60%. Unemployment fell by -21k in February, whilst the unemployment rate remained at 5%. Unemployment fell to 7.8% in the Eurozone from 7.9%, whilst CPI inflation came in at 1.5%. The effect on the value of the euro versus its peers, after the latest: PMIs, inflation and unemployment data was published, was benign; EUR/USD traded close to flat at 10:15am U.K. time at 1.136. EUR/GBP traded up 0.10% at 0.858, still close to the recent twenty one month low posted earlier in the trading week and down 1.12% on the week. GBP/USD traded down after reaching multi month highs earlier in the week; 1.324 cable was trading down 0.17% but still up 1.28% monthly.
Focus will now turn to North America in the afternoon trading session, as Canada’s latest GDP growth figures are published at 13:30pm. Annualised Q4 growth is forecast to fall to 1.00% from 1.4%. With year on year growth up to December forecast to come in at 1.40%, from 1.70%. Canada’s dollar could come under intense scrutiny as (and after) the data is published, if FX traders and analysts are caught off guard by a reduction in GDP growth, if the Reuters forecast is met. For the USA, the latest Markit manufacturing PMI for America will be published, although USA based analysts tend to overlook the data, favouring the ISM reading for manufacturing. The ISM reading is due at 15:00pm, the forecast is for a small fall; to 56.0 from 56.6.
