Chinese PMI signals contraction as Australia’s positive trade balance surprises analysts

Apr 3 • Mind The Gap • 3218 Views • Comments Off on Chinese PMI signals contraction as Australia’s positive trade balance surprises analysts

shutterstock_164024147Overnight there was some key data released in Australia which many analysts believe reaffirms Australia’s place as one of the fastest growing economies, with crucially its foundations for economic growth built on solid ground. Retail sales came in on schedule up 0.2% month on month, but it was the trade balance reading which caught analysts’ eyes as the balance on goods and services was a surplus of $1,229m in February 2014, an increase of $308m (33%) on the surplus in January 2014.

There has been a raft of PMIs published overnight and this morning. Most notably the European services PMI came in below expectation with a reading of 53.2, but still ahead of the median 50 line representing the difference between contraction and expansion. Spain’s reading improved slightly; however, staffing levels have been reduced according to the data which contradicts the information published yesterday regarding jobs growth in Spain.

The Chinese PMI fell for the second month running in March; the rate of contraction was the sharpest since November 2011. The HSBC Composite Output Index posting at 49.3 in March, down from 49.8 in February.

Asia-Pacific stock markets were mixed after many global equities hit post-crisis highs. US stocks rose yesterday after the ADP monthly jobs survey increased expectations for Friday’s key non-farm payrolls report. On Wednesday, Beijing introduced what is being dubbed “a mini-stimulus package” to build new railways and give tax breaks for small businesses; reducing economic reliance on credit-fuelled infrastructure and real estate investment while maintaining rapid growth rates and high employment.

China’s Premier Li Keqiang committed to speed up the construction of railways and housing for the poor this year in order to prop up flagging growth and reassure domestic and international investors that Beijing will not allow the economy to shrink. With growth in the world’s second-largest economy continuing to slow, Mr Li has set a target of “about 7.5 per cent” expansion this year, a goal he is unlikely to achieve without further stimulus in the coming months.

Eurozone recovery broadens out to encompass big-four nations

The recovery prospects for the euro area economy continued to brighten in March. At 53.1, the final Markit Eurozone PMI® Composite Output Index signalled output growth for the ninth successive month, underpinned by improving market conditions and rising levels of new business. Although the headline output index was lower than February’s 53.3 and the earlier flash estimate of 53.2, it remained consistent with a 0.5% increase in GDP for the first quarter as a whole, improving on the 0.3% registered in the final quarter of 2013. The currency union is currently enjoying its strongest growth spell since the first half of 2011.

Further solid improvement in Spanish services activity

March data pointed to a continuation of the recovery in the Spanish service sector, with further solid rises in activity and new business recorded. Growth of new orders led to a second successive monthly build – up of outstanding business, but companies continued to lower their staffing levels slightly. The improvement in new orders was again supported by price discounting, while a slowdown in the rate of cost inflation was recorded. The headline seasonally adjusted Business Activity Index rose slightly to 54.0 in March from 53.7 in February. The reading signalled a fifth successive monthly rise in activity.

HSBC China Services PMI

Services activity growth hits four-month high, but output falls at manufacturers. HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled that business activity in China fell for the second month running in March. Though slight, the rate of contraction was still the sharpest since November 2011, with the HSBC Composite Output Index posting at 49.3 in March, down from 49.8 in February. Data for March signalled that the reduction in overall business activity was driven by the manufacturing sector, which posted its sharpest contraction of output since November 2011.

Australia Retail Trade

FEBRUARY KEY POINTS CURRENT PRICES The trend estimate rose 0.7% in February 2014. This follows a rise of 0.7% in January 2014 and a rise of 0.7% in December 2013. The seasonally adjusted estimate rose 0.2% in February 2014. This follows a rise of 1.2% in January 2014 and a rise of 0.7% in December 2013. In trend terms, Australian turnover rose 5.9% in February 2014 compared with February 2013. The following industries rose in trend terms in February 2014: Food retailing (0.7%), Household goods retailing (1.0%), Cafes, restaurants and takeaway food services (1.2%), other retailing (0.5%) and Clothing, footwear and personal accessory.

Australia International Trade in Goods and Services

FEBRUARY KEY POINTS BALANCE ON GOODS AND SERVICES In trend terms, the balance on goods and services was a surplus of $1,229m in February 2014, an increase of $308m (33%) on the surplus in January 2014. In seasonally adjusted terms, the balance on goods and services was a surplus of $1,200m in February 2014, a decrease of $192m (14%) on the surplus in January 2014. CREDITS (EXPORTS OF GOODS AND SERVICES) In seasonally adjusted terms, goods and services credits rose $120m to $29,970m. Non-rural goods rose $420m (2%). Net exports of goods under merchanting remained steady at $15m. Rural goods fell $157m (4%).

Market snapshot at 10:00 am UK time

The ASX 200 closed up 0.12%, the CSI 300 down 0.72%, the Hang Seng up 0.19%, and the Nikkei closed up 0.84%. Euro STOXX is up 0.21%, the CAC is down 0.03%, DAX down 0.07%, and the UK FTSE up 0.19%. Looking towards New York’s open the DJIA equity index future is up 0.01%, SPX down 0.03%, and the NASDAQ future is down 0.03%.

NYMEX WTI oil is down 0.43% at $99.14 per barrel, NYMEX nat gas is down 0.11% at $4.36 per therm. COMEX gold is up 0.88% at $1291.20 per ounce with silver up 1.81% at $20.04 per ounce.

The dollar was little changed at 103.89 yen early in London, after touching 104.07, the highest since Jan. 23rd. The U.S. currency was little changed at $1.3770 per euro from yesterday, when it gained 0.2 percent. The 18-nation currency was at 143.04 yen. The Australian dollar fell 0.2 percent to 92.27 U.S. cents after reaching 93.04 on April 1, the strongest since Nov. 21.

The Bloomberg Dollar Spot Index was little changed at 1,017.54 from yesterday, set for the highest close since March 21st. The dollar rose to a two-month high against the yen before U.S. data analysts say will show services industries and employment strengthened, supporting the case for the Federal Reserve to reduce its stimulus.

Bonds briefing

U.S. 10-year yields were little changed at 2.79 percent early in London. The 2.75 percent security due in February 2024 traded at a price of 99 5/8. The yield has risen from 1.81 percent a year ago, though it’s still less than the average over the past decade of 3.46 percent. The extra yield 10-year notes pay compared to same-maturity German bunds widened to 1.19 percentage points yesterday, the most since May 2006.
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