Tuesday, August 23, 2011

Chinese Preliminary Manufacturing Index Rebounds a Bit, While European Mfg PMI Contracts

While today's economic data from overseas is not very good, the bar has been lowered significantly the past month or two so 'ok' data is good enough for the market.  '

First, in China we receive a preliminary HSBC manufacturing number a week or so ahead of the actual data which comes in at the turn of the month.   The prelim number has come in at 49.8 versus 49.3 in July.  While still contractionary - and a number that would have created a massive fuss a few months ago - it's an improvement from the previous month and near the 50 reading which is the line in the sand between contraction and expansion.

  • A preliminary reading of 49.8 for a manufacturing index released by HSBC Holdings Plc and Markit Economics today compares with a final reading of 49.3 for July. The final August number is due Sept. 1. A reading below 50 indicates a contraction.
  • The data suggests that growth in China is moderating rather than collapsing and the slide in the index in July may have been a one-off “blip,” HSBC said. “This should help lower fears of a hard landing akin to 2008 autumn’s sharp slowdown,” said Qu Hongbin, a Hong Kong- based economist for HSBC. “Inflation, not growth, remains the top near-term macro risk.”
  • China’s commerce ministry cautioned today that exporters face weak demand and rising costs.
  • HSBC’s preliminary index, known as the Flash PMI, is based on 85 percent to 90 percent of responses to a survey of executives in more than 400 companies.
  • The final reading fell below 50 in July for the first time in a year. The official manufacturing index released by the statistics bureau and the China Federation of Logistics and Purchasing had a reading of 50.7 in July.
  • Morgan Stanley and Deutsche Bank AG last week cut estimates for China’s expansion as the debt burdens and elevated unemployment of developed nations threaten demand for exports. 

Second, European data was not very good but generally came 'in line', which again - with a lowered market expectation - is 'good enough' for now.  German manufacturing PMI was flat with July but ahead of expectations.  I am not sure why we are getting this data today rather than the turn of the month as usual, perhaps the European holidays in August.

  • Manufacturing activity in the eurozone shrank in August for the first time in two years, a survey has indicated.  The Markit Manufacturing PMI measure for the eurozone fell to 49.7 from 50.4 in July. A reading below 50 indicates contraction in the sector.
  • Markit also said that the service sector in the eurozone grew only modestly.  Its service sector PMI measure fell to a 23-month low of 51.5 in August from 51.6 in July.
  • In Germany, Europe's biggest economy, output grew across both manufacturing and services but showed the weakest rate of expansion for almost two years.
  • The French service sector saw growth pick up in August but manufacturing output fell for the first time since June 2009.
  • Outside the eurozone's two largest economies, output fell for the third month in a row.
  • "The eurozone economy grew only marginally again in August, suggesting that recent months have seen the weakest expansion for two years," said Chris Williamson, Markit's chief economist. "The data raise the prospect that economic growth in the third quarter could be even slower than the disappointing 0.2% rise seen in the three months to June. Most worrying is the near-stagnation in Germany, which suggests that the region's main engine of growth has stalled."

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