The first of the global manufacturing PMI reports confirmed what we already suspected – a slowing global marketplace.
At the weekend, China released its August manufacturing PMI and it was as gloomy as feared. The index slid to 49.2 from 50.1, the first time it has been below the 50 threshold since November 2011, with only one component (output) that held above the 50 mark. The HSBC reading released this morning was not much better with further slippage to 47.6 from 49.3 (flash estimate 10 days ago was 47.8). Optimists might look at the non-manufacturing PMI which rose to 56.3 from 55.6 with a better performance from the construction and retail services sectors.
Aside from a slight improvement in Australia’s manufacturing PMI (to 45.3 from 40.3, though from a very low base last month) the rest of the Australia data was riddled with weakness/concerns. July retail sales fell a hefty 0.8 percent on the month, giving back most of the 1.2 percent gains seen the previous month and lower than the +0.2 percent consensus. The percentage drop was the largest since October 2010 and reflected the worst month for department store sales in seven years amid increasing concerns about job security.
With the RBA meeting scheduled tomorrow, one might have thought that the emphasis would be on rate cuts after those data points (T-bills were 5-6 points higher on the day). However, the latest gauge of Australian inflation, as measured by TD Securities, rose by the most in 17 months as a result of higher fruit, vegetable and fuel price increases. Inflation in August rose 0.6 percent from a month ago and 2.2 percent from a year ago and is another factor that may stay the RBA’s hand in announcing further rate cuts tomorrow.
Amid all the weak data points, AUD held up well with the 1.0240 level versus the US dollar surviving two tests. Sentiment was helped by a bid tone in equities, led by the Shanghai Composite posting its first major up day in a week.
All eyes and ears were on the Jackson Hole speech by Fed chief Bernanke on Friday and there was mild disappointment afterwards, though expectations had been scaled back in the latter stages of the week. Bernanke in effect failed to deliver new news, but increased his dovishness slightly, keeping the expectations for the next QE phase brewing. Attention now switches to the next FOMC meeting on September 13.
Month-end flows ahead of Jackson Hole kept the US Dollar pinned back and EURUSD touched its highest point since the start of July. This wasn’t sustained however as Bernanke disappointed and we closed the week just below 1.26. Latest IMM data shows the recent EUR rally has caused a few casualties with net short EUR positions scaled back to levels last seen in April, as at the snapshot taken last Tuesday.
In other US news, the Chicago PMI was broadly in line with expectations, missing forecasts by a whisker at 53.0 instead of 53.2 and weaker than July’s 53.7 (often a more positive reading than the national ISM reading). Final Michigan confidence was adjusted slightly higher to 74.3 from 73.6 while factory orders increased a firmer 2.8 percent in July following a 0.5 percent decline in June. Wall Street was encouraged by Bernanke leaving the QE door wide open with month-end gains of 0.69 percent for the DJIA, 0.51 percent for the S&P and 0.6 percent for the Nasdaq.
Labour Day holidays today in US and Canada.
Data Highlights
CA Jun. GDP out at +0.2% m/m, +2.4% y/y vs. 0.1%/2.2% expected and 0.1%/2.4% prior resp.
CA Q2 GDP out at +1.8% q/q vs. 1.6% expected and revised 1.8% prior
US Aug Chicago PMI out at 53.0 vs. 53.2 expected and 53.7 prior
US Aug. Final Michigan Confidence out at 74.3 vs. 73.6 expected and 73.6 prior
US Jul. Factory Orders out at +2.8% m/m vs. 2.0% expected and -0.5% prior
China Aug. Manufacturing PMI out at 49.2 vs. 50.0 expected and 50.1 prior
NZ Q2 Terms of Trade out at -2.6% q/q vs. -2.0% expected and -2.3% prior
UK Aug. Lloyds Business Barometer out at +10 vs. -8 prior
AU AiG Performance of Manufacturing Index out at 45.3 vs. 40.3 prior
JP Q2 Capital Spending out at +7.7% y/y vs. 8.9% expected and 3.3% prior
AU Aug. RPData-Rismark House Prices out at flat m/m vs. +0.6% prior
AU Aug. TD Securities Inflation out at +0.6% m/m, +2.2% y/y vs. 0.2%/1.5% prior resp.
China Aug. Non-manufacturing PMI out at 56.3 vs. 55.6 prior
AU Jul. Retail Sales out at -0.8% m/m vs. +0.2% expected and revised 1.2% prior
AU Q2 Inventories out at +0.6%q/q vs. 0.2% expected and revised 1.3% prior
AU Aug. ANZ Job Advertisements out at -2.3% m/m vs. -0.8% prior
China Aug. HSBC Manufacturing PMI out at 47.6 vs. 49.3 prior
Upcoming Economic Calendar Highlights
(All Times GMT)
Sweden PMI Survey (0630)
Swiss Retail Sales (0715)
Swiss PMI Manufacturing (0730)
GE PMI Manufacturing (0755)
Norway Credit Indicator growth (0800)
EU PMI Manufacturing (0800)
UK PMI Manufacturing (0830)
US Labour Day Holiday
EU ECB’s Nowotny to speak (1700)
Andrew Robinson,
SAXO BANK