This morning’s high impact news events have been dominated by the PMIs for the UK and Europe. As readers will have noted before we do have reservations with regards to Markit Economics ‘telling it how it is’ given that they do appear to cheer lead the UK’s data in particular, knowing that a positive slant is more likely to get them favourable exposure in the UK’s mainstream media.
For example, the UK ‘posted’ it’s worst PMI for 3 months, it dropped considerably and yet Markit gathered up its Pom-Pom’s and twirked the news like a cheerleader at the Super Bowl. Moreover, with Europe’s PMIs recovering and the UK’s sliding, it could suggest that the UK’s recovery is out of step and unbalanced when compared with and to its continental counter parts. On the basis of the current PMI projections Markit is suggesting that European GDP growth (output) for the first quarter in 2014 could reach one percent.
China’s PMI for non-manufacturing index slipped from from 54.6 in December to a multi-year low of 53.4 last month. Any score above 50 indicates growth. The data is in line with other data showing the economy cooled leading up to Chinese New Year. On Saturday, the official manufacturing index slipped to 50.
Markets returned to “risk off” sentiment after this dual Chinese data released over the weekend showed further weakness in China, pushing Japanese equities to a two and a half month low. The Japanese stock market surged 57 per cent in 2013 on the back of the weak yen that defined the first phase of the country’s ‘Abenomics’ growth policies, is now the world’s worst performing major mainstream market in the year to date.
Eurozone Manufacturing PMI at 32-month high in January
At 54.0 in January, a shade higher than the flash estimate of 53.9, the seasonally adjusted Markit Eurozone Manufacturing PMI confirmed the strongest rate of expansion in the Eurozone manufacturing sector since May 2011. The headline PMI has risen in each of the past four months and has signalled growth since July last year. The improved performance of manufacturing was underpinned by solid expansions in production, new orders and new export orders, all of which rose at the fastest rates since April 2011. At its current level, the Output Index is signalling quarterly growth of at least 1.0%.
Italian Growth of manufacturing output strengthens to fastest since April 2011
Growth in Italy’s manufacturing sector continued into the new year, according to January’s PMI survey. Production levels rose at a solid and accelerated pace, while there was also a further, albeit slightly slower, rise in new orders on the month. Amid this strengthening of demand, businesses raised employment and average output prices. On the cost front, input price inflation dipped to the lowest since September. At 53.1 in January, down only fractionally from December’s 32 – month high of 53.3.
Spanish Output growth quickens to 41 – month high
The Spanish manufacturing sector started 2014 on a positive footing as growth of both output and new orders accelerated. Rising workloads led firms to take on extra staff, marking the first instance of job creation since late – 2010. Meanwhile, input prices decreased for the first time in five months and this enabled manufacturers to lower their output prices as part of attempts to imp rove competitiveness. The seasonally adjusted Markit Purchasing Managers’ Index – a composite indicator designed to measure the performance of the manufacturing economy – rose to 52.2 in January from 50.8 in December.
Strong UK manufacturing rebound continues
The UK manufacturing sector made a positive start to 2014. Rates of expansion in output and new orders remained well above their respective long-run trends, supporting a solid increase in payroll numbers. The seasonally adjusted Markit/CIPS Purchasing Manager’s Index® (PMI®) posted 56.7 in January, down from December’s 57.2. Although the PMI currently stands at its lowest level in three months, it is still well above the series average of 51.3. The headline index has signalled an improvement in operating conditions in each of the past ten months.
Market snapshot at 10:00 am UK time
The ASX 200 closed down 0.05%, whilst the Nikkei sold off significantly by 1.98%. In Europe the STOXX index is down 0.59%, CAC is down 0.38%, DAX is down 0.43% whilst the UK FTSE is down 0.20%.
Looking towards the New York open the DJIA equity index is down 0.03%, SPX down 0.03% with the NASDAQ future down 0.08%.
NYMEX WTI oil is down 0.66% at £96.85 per barrel. NYMEX nat gas is down 2.06% at 4.84 per therm. COMEX gold is up 0.27% at $1234.10 per ounce with silver up 0.21% at $19.16 per ounce.
Forex focus
The euro traded at $1.3493 early in London from $1.3486 in New York on Jan. 31st, when it touched $1.3479, the weakest since Nov. 22nd. The yen was little changed per euro and dollar at 137.76 and 102.11 respectively. Japan’s currency appreciated 3.2 percent versus the greenback in January, the most since April 2012.
Euro-area consumer prices climbed an annual 0.7 percent last month after a 0.8 percent advance in December, the European Union’s statistics office said last week. That’s the fourth consecutive reading of less than 1 percent while the ECB aims to keep inflation at just under 2 percent.
The euro has dropped 0.2 percent this year, according to Bloomberg’s Correlation Weighted Indexes that track 10 developed market currencies. The dollar has climbed 1.9 percent while the yen is up 5.4 percent, the biggest gainer in the index.
The pound weakened 0.1 percent to 82.114 pence per euro early in London after gaining 1.2 percent versus the common currency in January. Sterling traded at $1.6424 having dropped 0.7 percent last month.
The pound has gained 11 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indexes. The euro rose 4.5 percent and the dollar strengthened 5.8 percent. The pound snapped a two-day gain versus the euro before a report economists said will show a gauge of manufacturing expanded for a 10th month in January.
Bonds briefing
The benchmark 10-year yield rose two basis points, or 0.02 percentage points, to 2.67 percent as early in London after dropping to 2.64 percent on Jan. 31, the lowest level since Nov. 8. The 2.75 percent note due in November 2023 fell 6/32, or $1.88 per $1,000 face amount, to 100 23/32.
Thirty-year bond yields increased two basis points to 3.62 percent. The rate dropped to as low as 3.59 percent on Jan. 31st, the least since Oct. 30th. Treasuries declined before reports this week on manufacturing and jobs economists said will show growth is strong enough for the Federal Reserve to keep cutting its debt purchases.
