Mind The Gap; mid morning European session update before New York opens
China’s PMI hits a four month high in August, whilst European markets rally on strong PMIs 
China started the encouraging PMI report round-up in the Asian session by printing a better than expected 50.1 reading. The previous month’s reading was 47.7 and the economists polled suggested 48.3 would be this month’s target. The index hit a four-month high in August, New orders rose to 50.5 in August from 46.6.
Hongbin Qu, chief China economist at HSBC, said:
“This is mainly driven by the initial filtering-through of recent fine-tuning measures and companies’ restocking activities, despite the continuous external weakness. We expect further filtering-through, which is likely to deliver some upside surprises to China’s growth in the coming months.”
Next up the principal European PMIs. French numbers disappoint whilst Germany’s rise boosts European indices
The Markit flash PMIs for France indicates that both the services and manufacturing sectors shrank in August. The services index fell to 47.7 from 48.6 in July, a two month low, while the manufacturing PMI was unchanged at 49.7. The composite index fell to a two-month low of 47.9 in August, from 49.1 in July.
Jack Kennedy, senior economist at Markit and author of the French PMI report, said:
“Although output fell at a sharper pace in August, the rate of decline remained much slower than seen earlier in the year. Weakness in activity and employment was broad-based across the services and manufacturing sectors, with moderate falls signalled in each case.
“However, there were encouraging signs from some of the more forward- looking indicators, such as a slight rise in manufacturing new orders for the first time in over two years and service providers’ confidence holding steady on July’s 11-month high.”
Germany’s manufacturing PMI hit the highest level in more than two years, rising to 52 in August from 50.7 in July. The services PMI meanwhile rose to a six-month high of 52.4 from 51.3, pushing the composite index combining the two to 53.4 from 52.1 – a seven-month high.
Tim Moore of Markit stated:
“The survey provides confirmation that Germany’s economy is back on a solid footing and likely to remain in expansion through the third quarter of 2013. Manufacturing was an especially bright spot in August, with the latest figures suggesting that a rebound in export orders helped output growth accelerate to its strongest for over two years.
“Service providers also benefitted from improving business conditions at home and across the euro area, with total activity levels rising for a third month running. Moreover, jobs growth was maintained in the service economy during August, pointing to sustained confidence in the near-term business outlook.”
Eurozone PMIs hit more than two-year highs
The services sector returned to growth, with the PMI rising to a two-year high of 51 from 49.8 in July. Anything above 50 signals expansion. Growth in the manufacturing sector accelerated with the PMI increasing to 51.3 from 50.3, a 26-month high. It pushed the combined, eurozone PMI composite index up to a 26-month high of 51.7 from 50.5 in July.
Chris Williamson, chief economist at Markit, believes the third quarter could be the best the eurozone has seen since early 2011:
“The euro area’s economic recovery gained momentum in August, with manufacturing and service sector companies reporting the strongest pace of expansion for just over two years. The economic picture from the surveys is therefore coming into line with policymakers’ expectations of a modest yet still fragile return to growth.
“The upturn is being led by Germany, where growth accelerated again in August, driven in turn by rising domestic and export demand. A big question mark still hangs over France‟s ability to return to sustained growth. Although the French PMI is well above the lows seen earlier in the year, August saw a slight steepening in the rate of contraction, notably in services – which points to lacklustre domestic demand.”
Market snapshot at 10:30 am UK time
The Asian overnight/early morning session witnessed mixed fortunes, the Nikkei closed down 0.44%, the Hang Seng closed down 0.36%, and the CSI closed down 0.20%. The Aussie main index the ASX 200 closed down 0.48% despite the positive PMI reading from its main export market China.
European markets are all green in the first part of the European session. The STOXX is up 1.14%, the UK FTSE is up 0.84%, the CAC up 1.05%, the DAX up 1.02%, the MIB is up 1.66%.
Looking towards the New York open the DJIA equity index future is up 0.26%, the SPX 200 is up 0.43% and the NASDAQ equity index future is up 0.60% suggesting that USA markets will open in positive territory.
Commodities have arrested their recent slide; ICE WTI oil is up 0.53% at $104.40 per barrel, NYMEX natural is up 0.61% at $3.48 per therm. COMEX gold is up 0.08% at $1371 per ounce, whilst silver on COMEX is up 0.76% per therm.
Forex focus
The dollar rose 0.7 percent to 98.32 yen early in the London session after advancing to 98.41, the strongest level witnessed since Aug 15th. The U.S. currency was little changed at $1.3360 per euro. The euro climbed 0.8 percent to 131.46 yen after reaching 131.47 yen, the highest level seen since Aug 5th. The U.S. Dollar Index advanced 0.1 percent to 1,027.99 after rising to 1,029.62, the highest level since Aug 5th. The greenback rose for a second day versus yen before U.S. data is published that economists believe will show housing and employment levels have improved.
Australia’s currency gained 0.2 percent to 89.87 U.S. cents late in the Sydney session after falling 2.4 percent in the previous three sessions. The Aussie added 0.2 percent to NZ$1.1456 after touching NZ$1.1483, the highest since Aug 5th. New Zealand’s dollar was little changed at 78.43 U.S. cents. Australia’s dollar rallied versus the majority of its 16 major peers after the HSBC PMI report showed China’s manufacturing expanded for the first time in four months.
High impact news events for the afternoon
Retail sales for Canada, unemployment insurance claims and PMIs for the USA are the key high impact news events scheduled for publication during the afternoon New York trading session. The flash manufacturing PMI is predicted to rise to 54.1 from 53.7 whilst unemployment claims are predicted to rise from 320K to 327K.
« Between The Lines Trend Analysis For The Week Beginning August 25th 2013 »
