Thursday, September 1, 2011

World Roundup: Euro Region PMI Contracts for First Time in 2 Years, British Manufacturing Drops at Steepest Pace in 2 Years, Chinese PMI Increases Slightly, while Brazil Surprisingly Cuts Interest Rates

A bevy of news this morning across the globe.  Much of it remains quite poor, but at this point I suppose we are cheering poor news (as speculators, not as people of Main Street) as it means more intervention into markets.

Certainly all those claiming transitory slowdown, including our ever so accurate Fed chief, 4-5 months ago, look a bit wrong again.  U.S. Manufacturing ISM is out at 10 AM - and expectations are very low at

First to the Euro Zone, where we had a preliminary figure last week of 49.7 in PMI; it came in quite a bit worse in the final.  This is the first contraction since latter 2009.  Even Germany is barely expansionary.
  • Markit’s Euro-zone Manufacturing P.M.I. fell to 49.0 in August from 50.4 in July, revised down from a preliminary 49.7. It was the first time since September 2009 that the index for the sector, which drove a large part of the bloc’s recovery, has fallen below the 50 mark that divides growth from contraction. 
  • Markit said new orders fell across all 17 countries in the bloc, while job creation grew at its slowest rate for almost a year.
  • New orders fell for the third straight month. The sub-index fell to 46.0, down from the preliminary 46.9 reading and much lower than July's 47.6.
  • Germany's manufacturing sector was the strongest in the eurozone at 50.9, while Greece's was the weakest, at 43.3.  The French, Italian and Spanish manufacturing sectors all contracted

Britain continues to struggle:
  • A gauge by Markit Economics and the Chartered Institute of Purchasing and Supply fell to 49, the lowest in 26 months, from 49.4 in July.  New orders fell the most in almost 2 1/2 years. Manufacturers said the drop in demand was due to weaker domestic and export sales and “rising global economic uncertainty.”

China had already turned negative but showed some rebound, although essentially their PMI figure it right at the break even between expansion and contraction.  (Remember, Chines has 2 PMI figures, one public sector and one via HSBC)
  • While HSBC’s China P.M.I. rose to 49.9 last month, it still pointed to contraction.  China’s new export orders index dropped to 48.3 from July’s 50.4 and Beijing pinned the blame at least partly on the debt crises in advanced economies. 
The public sector figures, which are more focused on state 'assisted' companies were marginally expansive:
  • China’s official Purchasing Managers’ Index rose to 50.9 in August, up from July’s 50.7, and was roughly in line with expectations for a reading of 51.  The result marked the first increase in activity since March. 
  • New export orders, however, were on the weaker side, easing to 48.3 from 50.4 in July. 
  • “This set of PMI data is slightly better than expected, but does not change the main trend of slowing investment and weakening exports,” wrote Credit Suisse analyst Dong Tao in a note following the release of the manufacturing surveys.

    Even while Brazil has an inflation problem, it seems its central bank is concerned about the slowdown as interest rates were cut by half a percent.  Or at least its politicians demanded a cut...
    • Brazil's central bank has unexpectedly cut the country's key interest rate to 12% from 12.5%, citing a "substantial deterioration" in the outlook for the global economyIt had raised rates five times this year in order to combat rising prices.
    • The surprise cut has raised questions about the independence of the central bank, after a number of politicians called for a rate cut in recent days.  
    • A number of analysts were baffled by its decision to cut rates. "I think it's a huge mistake," said Tony Volpon at Nomura Securities. "They gave in to political pressure. The costs will likely be much higher inflation and a deterioration of central bank credibility... It has damaged the inflation-targeting regime."

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