Mind The Gap; Mid Morning London Trading Session Update

Sep 2 • Mind The Gap • 2448 Views • Comments Off on Mind The Gap; Mid Morning London Trading Session Update

The European manufacturing recovery continues in August by reaching a 26 month high…

Markit economics has published several European manufacturing PMIs this morning, many of which have generated positive market sentiment after reaching recent highs. When analysing the major European economies only France failed to rise to reach such levels. The UK delivered stunning figures by reaching 57.2 as new orders reached a twenty year high. Other manufacturing PMIs that stood out were:

Netherlands: 53.5. A 27-month high
Austria: 52.0. An 18-month high
Ireland: 52.0. A 9-month high
Germany: 51.8. A 25-month high
Italy: 51.3. A 27-month high
Spain: 51.1. A 29-month high
France: 49.7. Unchanged
Greece: 48.7. A 44-month high

The recovery in the eurozone manufacturing sector entered its second month during August. At 51.4, up from a flash reading of 51.3, the seasonally adjusted Markit Eurozone Manufacturing PMI rose for the fourth successive month to reach its highest level since June 2011.

National PMIs improved in all nations bar France, while France and Greece were the only countries to register readings below the 50.0 no-change mark. The Netherlands topped the PMI league table, followed by Austria and then Ireland.

Growth rates for production, new orders and new export business all accelerated to the fastest since May 2011, with back-to-back increases also signalled for each of these variables. Meanwhile, the outlook for output remained on the upside as the new orders-to-inventory ratio hit a 28-month high and backlogs of work rose marginally.

Chris Williamson, Chief Economist at Markit said:

“Manufacturing in the euro area continued to show signs of recovery in August. Although gains are still only modest, companies reported the strongest improvement in business conditions for just over two years, with a pick up in new orders growth suggesting the upturn will be sustained into September.

“What’s especially encouraging is that the upturn is broad-based, with PMIs rising in all countries with the exception of France, where business conditions have at least stabilised after the steep downturn reported earlier in the year. Germany, the Netherlands, Austria, Spain and Italy are now all seeing manufacturing grow at the fastest rates for at least two years, and even Greece saw a marked easing in the rate of manufacturing decline.

“Policymakers will be reassured by the data, which add to growing signs of a building recovery for the eurozone economy. However, the fact that companies remain reluctant to take on staff [due to the need to cut costs to boost competitiveness and offset rising oil prices] suggests that there’s a long way to go before the recovery feeds through to a meaningful job market improvement.”

The UK’s manufacturing growth rises at fastest rate since 1994

Latest data indicated that the UK manufacturing sector maintained its robust start to the third quarter of 2013. After the solid increases in output and new orders registered in July, August saw the momentum continue to build, with growth rates for both variables at their highest since 1994. However, cost inflationary pressures surged higher on the back of rising raw material prices. The seasonally adjusted Markit/CIPS Purchasing Manager’s Index hit a two-and-a-half year high of 57.2 in August, up from a revised reading of 54.8 in July (previously reported as 54.6).

China’s PMI rises above 50 whilst India’s reaches a four year low

Emerging markets’ PMIs were not as positive as those in Europe with India’s reaching a four year low. Markit reported that India’s manufacturing PMI slid to 48.5 in August, a drop from July’s 50.1. This is the first reading below 50, indicating a shrinking output from a country of approx 1.5 billion persons, since March 2009.

China’s factory output rose in August for the first time in four months. HSBC and Markit’s manufacturing PMI survey released this morning rose to 50.1. That suggests a small rise in activity during August, with any reading above 50 indicates growth and is a stronger reading than July’s 47.7.

Market snapshot at 10:15am UK time

European markets have shrugged of any concerns with regards to the USA Fed’s tapering and the escalation of the Syrian crisis, to embrace the extremely positive PMIs published by Markit. At the time of writing all of European market indices have risen in the early part of the trading session. The UK FTSE has risen 1.31%, the CAC by 1.61%, the DAX by 1.58%, the MIB by 1.60%, the Istanbul exchange rose by the most due to the Syrian escalation concerns reducing causing the Istanbul index to rise by 2.44%.

Looking at equity index futures the DJIA equity index future is currently up 0.78%, the SPX 500 is up 0.93% and the NASDAQ is up 1.07% all three indices suggesting that the mood of optimism has extended to USA markets. However, USA markets are closed today for a public holiday.

ICE WTI oil has fallen by 0.93% to $106.65, whilst NYMEX natural has fallen risen by 1.98% to $3.65 per therm. COMEX gold has fallen by 0.21% at $1393.88 per ounce. COMEX silver is up 2.77% at $24.6 per ounce.

Forex focus

The yen fell by 1.2 percent to 99.35 per dollar early in the London session. Japan’s currency weakened by one percent to 131.10 per euro after reaching 129.31 on Aug 30th, the strongest level seen since Aug 20th. The euro was little changed at $1.3211. The Aussie dollar gained 0.9 percent to 89.82 U.S. cents. The yen fell by at least 0.8 percent versus all of its major peers as Japan’s prime minister won backing for a sales-tax increase initiative, suggesting that progress on policies that have helped weaken the currency will continue.

Sterling appreciated by 0.4 percent to 84.96 pence per euro early in the London session after reaching 84.85 pence, the strongest level witnessed since July 3rd. Sterling rose 0.3 percent to $1.5554. Sterling has strengthened by 6.5 percent during the past six months, by far the best performer of the ten most developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The euro has gained 4.3 percent and the dollar has climbed 2.6 percent.