New Overnight Developments Abroad: Better-Than-Expected Euro Area PMI Readings

August 21, 2009

Three main themes today:

  1. Sharply improved French, German, and Euroland PMI scores in August according to preliminary reports.
  2. Reports that Beijing officials plan tighter capital reserve requirements for banks to curb lending spree and rise of stock prices.
  3. Investors awaiting Bernanke speech KC Fed Symposium in Jackson Hole, Wy.  Also the release of U.S. existing home sales data.

Stocks closed mixed in Asia.  Such fell 1.4% in Japan, 1.9% in China, 1.2% in Taiwan, 2.0% in Australia and 1.5% in the Philippines, but markets closed up 1.0% in Vietnam, 1.4% in India, 0.6% in Thailand and 0.3% in South Korea.  European stocks lifted by PMI reports, with gains of 1.3% in Germany and France and 1.0% in Britain.

The dollar firmed 0.2% against the Australian dollar and 0.1% versus the kiwi but fell otherwise by 0.4% against the euro and Canadian dollar, 0.3% against the Swiss franc and yen and 0.1% relative to sterling.

The 10-year JGB yield dipped 3 basis point to 1.32% and lost six basis points for the week.

Oil and gold firmed 0.3% and 0.2% to $73.14 per barrel and $943.50 per ounce.  Oil has shot up nearly 10% since Monday.

Euroland (50.0), Germany (54.2) and France (50.9) each had PMI readings of at least 50 in August and showed spectacular gains from July of 3 points, 5.2 points, and 3.6 points.  The rapid pace of improvement suggests a V-shaped business cycle.  Analysts had expected a composite PMI around 48.

  • Factory output in Euroland printed at 50.8, best since May 2008.  The overall manufacturing and services readings of 47.9 and 49.5 were the best readings in 14 months and 15 months.  The ratio of orders to inventories was the highest in over 2.5 years.  The jobs index was below 50 but at a 10-month high.
  • The German services index of 54.1 was more than ten points above the April reading.  Manufacturing (49.0) compared to an April print of 35.4.  Export orders show solid improvement.  Employment reached a 10-month high but remained in sub-50 contraction territory.
  • The French manufacturing and services were at 50.2 and 48.9, and factory production surpassed 50 for a second consecutive time.

Reinforcing the brightening outlook in Euroland, Dutch consumer confidence improved seven points to minus 17.  Belgian consumer sentiment was six points better in August and improved for a fifth straight month.

British household financing worsened again in August but the outlook improved.

A Chinese think tank projects on-year Chinese GDP growth in 3Q09 of 8.5% with consumer prices down 1.3%.

Swiss M3 expanded 7.7% in the year to July, a pick-up from 5.9% in June.

British Labour government officials again said that criticism from the Tories regarding policies may hurt the economic recovery.

Russian foreign direct investment in the first half of 2009 was 45% lower than a year earlier.

Bini Smaghi, an ECB Council member, said that although inflation will remain low for now, central bank officials are determined to prevent such from rising excessively later.

Fed Chairman Bernanke speaks today in Jackson Hole.  The U.S. releases existing home sales, and the Bank of Mexico announces its latest interest rate decision.  That bank is not expected to change rates.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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