Wednesday, September 1, 2010

Chinese PMI Figures Remain Slightly Expansionary but Good Enough to Encourage Markets; European Manufacturing Slowing as Well

As mentioned in the weekly summary, we would be experiencing gap up or downs on Wednesday and Friday of this week due to premarket data.  The two Chinese PMI reports (one private, one public) were reported overnight and they remained slightly expansionary [over 50].  Still the second worst reading since spring 2009, but better than last month and in a market grasping for any good news, this is being taken as a beacon of light as shown by the surge in U.S. futures.  Amazing what +0.5 in PMI can do for you.  Even more ironic, is that the Chinese market reacted to the number as a disappointment with Shanghai falling 0.6% overnight.  While in a logical sense a manufacturing economy in China that is barely expansionary should not be be so celebrated, it shows how bad sentiment has become that readings in the 51s are delivering such action in the U.S. - how the tables have turned when a report thousands of miles away that does not even encourage the home market drives U.S. futures to such a degree.  Whatever the case there is no arguing with the market in the near term.

Of course this mostly will be forgotten by 10 AM when the domestic ISM data is released, and we knee jerk react to that, and then by Friday when the labor data comes out it will be completely forgotten.  And so we go in a market with no memory from day to day.

Via Bloomberg:

  • Manufacturing in China grew at a faster pace in August after the weakest performance since early 2009 in July, signaling that the economy’s slowdown is stabilizing.  The purchasing managers' index rose to 51.7 from 51.2, exceeding forecasts of 51.5, a government backed report showed. A separate PMI released by HSBC Holdings Plc and Markit Economics gained to 51.9 from 49.4.  Fifty is the dividing line between expansion and contraction.
  • Stocks in Asia advanced after the release offered reassurance that China’s moderation in growth isn’t deepening; any steeper slowdown in China would hurt a global recovery already hindered by elevated American unemployment.   “China’s economic activity is decelerating, albeit gradually, on the way to realizing a soft landing,” said Shen Jianguang, an economist at Mizuho in Hong Kong. “Investment and production are decelerating less than feared.”
  • "The slight recovery will not change the economy from slowing down, if you look at it both from external and internal demands," said Zhang Xiang, an analyst for Guodu Securities in Beijing.
  • The HSBC PMI for July had showed the first shrinking in manufacturing in 16 months, and the government gauge, published by the Federation of Logistics and Purchasing, was the weakest since February 2009.
  • The PMI, released by the logistics federation and the Beijing-based National Bureau of Statistics, covers more than 820 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics.

Meanwhile, Europe is also showing slowing but from a higher level of expansion - Germany is especially important to watch since it's one the world's most dominant manufacturers.   [May 21, 2008: Who is the World's Largest Merchandise Exporter? Not China. Or the US]  [Jan 6, 2010: China Passes Germany as World's Largest Merchandise Exporter]  It has benefited tremendously from the weakness in the Euro.
  • Growth in Europe’s manufacturing industry slowed in August and export demand fell to the lowest in seven months, adding to signs the economy is cooling after the second-quarter surge.
  • A gauge of manufacturing in the 16-nation euro region declined to 55.1 from 56.7 in the previous month, London-based Markit Economics said today.  It’s the 11th straight month with a reading above 50, indicating expansion.  A measure of manufacturers’ new orders fell to the lowest this year, while the gauge of export orders declined for a fifth month, Markit said.
  • Germany's manufacturing index slipped to 58.2 in August from 61.2 in July.
  • U.K. manufacturing growth slowed to the weakest in nine months in August in a sign the economic recovery may be moderating.   A gauge based on a survey of companies by Markit Economics and the Chartered Institute of Purchasing and Supply fell to 54.3 from a revised 56.9 in July.  The median estimate was for a reading of 57.

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