Fourth Quarter Opens with Japanese Tankan Survey and a Slew of Manufacturing PMI Surveys

October 1, 2018

China will be closed all week, commemorating the communist revolution of 1949. Hong Kong’s market was similarly shut, and so was Australia’s due to Labour Day and the Queen’s Birthday observance there.

A three-country Nafta remake including Canada as well as Mexico was fashioned at the last minute. Changes from the original deal were less drastic than once pursued. The Canadian dollar and Mexican peso are respectively trading 0.9% and 0.7% higher versus the U.S. dollar compared to Friday’s close.

British Prime Minister May will be pitching a new plan to the European Union for handling Britain’s relationship after it leaves the union, which is scheduled to happen just six months from now. Sterling has firmed 0.2% against the dollar.

The FBI has only until Friday to complete its investigation into sexual assault allegations against Supreme Court nominee Kavanaugh.

The dollar has up 0.3% relative to the kiwi, 0.2% versus the Swiss franc and yen and by 0.1% relative to the Australian dollar and euro.

Share prices rose 0.5% in Japan, where BOJ’s quarterly Tankan survey revealed very modest erosion in business conditions and upwardly planned capital spending plans this fiscal year. All large firms collectively plan to spend 13.4% more than last fiscal year, and the increase for all firms, large and small, that participated in the survey was bumped up 0.6 percentage points to 8.5% in the new survey.

In other Pacific Rim markets, share prices went up 0.4% in Taiwan but closed down 0.5% in Indonesia and 0.2% in New Zealand  and South Korea. Stocks in Europe have thus far traded up 0.9% in Germany and Italy, 0.6% in Spain, 0.4% in France and Greece, and 0.3% in Switzerland. The British Ftse is 0.1% softer.

Ten-year sovereign debt yields rose 2 basis points in the U.K. and Germany and a basis point in Japan and the United States.

WTI oil rose 0.2%, and copper fell 1.1%.

An article in the New York Times over the past weekend reports on a little-realized mini-recession in 2015-16¬†in the United States that manifested itself in a sharply abrupt slowdown in business spending and was concentrated in the agricultural and energy sectors. The article asserts that an overall decline in real GDP was averted only because of the FOMC’s wise decision to put interest rate normalization temporarily on hold in 2016. After an initial rate hike in December 2015 and guidance suggesting a likely couple of follow-up moves in 2016, Fed officials waited a whole year before implementing a second rate hike in December 2016.

Euroland’s manufacturing purchasing managers index for September was revised 0.1 point lower to a 24-month low of 53.7. The PMIs for Italy, Spain, and Germany were at 25-month lows. That for Austria fell to a 23-month low, and Italy’s reading of 50.0 indicates no growth at all. In these economies, export-led slowdowns related to global trade concerns have been a driving factor. Business sentiment toward the future in Germany, for instance, was at its lowest level in over 5 years. In The Netherlands where the 59.8 PMI hit a 3-month high and Ireland (a 2-month low of 56.3), exports remained comparatively resilient.

In other manufacturing PMI reports released today,

  • Switzerland’s index slumped 5.1 points to a 16-month low of 59.7, well below market expectations.
  • South Africa’s PMI dropped 0.2 to a very depressed 14-month low of 43.2, and Turkey’s PMI score of 42.7 was 3.7 points below August’s and signaling the fastest rate of contraction since March 2009.
  • The Swedish PMI firmed 0.3 points to a 2-month high, and Norway’s PMI of 55.7 was at a 2-month low.
  • Britain’s PMI rebounded from a 25-month low of 53.0 in August to a 2-month high of 53.8.
  • The Polish and Czech readings of 50.5 and 53.4 represent 23-month and 22-month lows.
  • Russia’s PMI increased 1.1 points to a 5-month high of 50.0.
  • Turning to the Pacific Rim, three Chinese purchasing manager surveys were reported. The government-authorized manufacturing and non-manufacturing PMIs were respectively at a 7-month low of 50.8 and a 3-month high of 54.9. The Caixin-compiled manufacturing PMI fell to 50.0, meaning neither improvement nor contraction. The hasn’t been that low since May 2017.
  • Japan’s manufacturing PMI of 52.5 matched August’s 2-month high but was 0.4 points lower than the preliminary estimate for September.
  • Vietnam’s PMI fell 2.2 points to a 10-month low of 51.5.
  • The Taiwanese PMI for manufacturing of 50.8 was at a 27-month low.
  • But South Korea’s 51.3 score was more than a 1-year high.
  • The Filipino PMI, 52.0, represents a 3-month high, and Malaysia saw a 10-month high of 51.5.
  • Indonesia’s 50.7 was 1.2 points lower than in August but only a 2-month low.
  • India’s PMI rose 0.5 points to a 2-month high of 52.2.
  • The AIG-compiled Australian Performance of Manufacturing index rebounded 2.3 points to a 6-month high of 59.0.

Euroland’s unemployment rate unexpectedly slid 0.1 to 8.1% in August after three straight readings of 8.2%. National data in Italy showed unemployment of 9.7%, lowest since January 2012.

German retail sales volume edged down 0.1% on month after a revised 1.1% drop in July. This was associated with a 1.6% increase from a year earlier.

Swiss retail sales volume and Spanish retail sales were each 0.3% greater in August than a year earlier.

Indonesian consumer price inflation slowed to 2.88% in September from 3.20% in August.

New Zealand business sentiment improved from a reading in August of negative 50.3 to a 4-month high of minus 38.1 in September.

Japanese motor vehicle sales in September were 3.1% weaker than a year earlier. That’s the worst outcome since June when they were down 7.3% on year.

The U.S. ISM-compiled manufacturing purchasing managers index in September sank back 1.5 points to a 2-month low of 59.8. Orders (down 3.3 to 61.8) and prices (down 5.2 to 66.9) had particularly pronounced decelerations last month.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribuiton without express permission.

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