Congress to Vote on Debt Deal… PMIs Show Flagging Global Manufacturing

August 1, 2011

The first week of August opened with two big stories.

  • Even while details remain murky, critics already are finding fault with the U.S. debt deal announced Sunday.  Military spending cuts are said to be too large, for instance.  The size of proposed cuts, $2.4 billion, is less than hoped and would occur far into the future.  It could still be voted down in Congress, and there’s still a good chance that one or more ratings agencies will downgrade the U.S. sovereign AAA rating.
  • July manufacturing purchasing manager indices are mostly weaker, with several countries reporting that activity contracted.

Markets show less risk aversion, nonetheless.

  • The dollar firmed 0.3% against the yen and 0.1% versus the Swiss franc, but the U.S. currency weakened against commodity currencies (by 0.8% against the loonie, 0.6% versus the Aussie dollar and 0.3% against the kiwi) as well as the euro (0.3%), sterling (0.1%) and the yuan (0.1%).
  • Stocks rose 1.8% in South Korea, 1.5% in Indonesia, 1.7% in Australia, 1.3% in Japan, 1.0% in Hong Kong, 0.9% in Thailand, 0.8% in Singapore, 0.7% in Taiwan, and 0.6% in Malaysia and Pakistan.  The British Ftse has traded 1.3% higher, and the Paris Cac and German Dax show gains of 0.8% and 0.7%.
  • Ten-year German bund and British gilt yields rose by four basis points each.  Peripheral bonds in the euro area show less strain than Friday.
  • Gold retreated 0.8% to $1618.50 per ounce, while oil rose 1.4% to $97.01 per barrel.

Swiss and Canadian markets are closed today for the Swiss National Holiday and Provincial Day.

Euroland reported a manufacturing purchasing managers index of 50.4 in July, a 22-month low and same as the flash indication reported on July 21.  Such was down from a reading of 52.0 in June and 58.0 in April, and it signals a near-stall.  The orders components showed outright contraction in the new business in Germany, France, Italy, and Spain.

  • The French PMI scored a 50.5, its worst reading in 24 months with the weakest orders since mid-2009.  The French PMI had crested at 57.5 in April.
  • Germany’s manufacturing PMI was revised down a tenth to 52.0 in July.  This was its lowest reading since October 2009 and 10.7 points below February’s score.
  • The Italian reading of 50.1 was 0.3 better than in June but signaled very scant growth.  Input price pressures were the weakest in 20 months.
  • Spain’s index moved further below 50 to 45.6 from 47.3.  That connotes the fastest rate of contraction since January 2010 in the euro area’s fourth largest economy.  Factory production hasn’t sunk more rapidly since mid-2009.  Spanish elections are set for mid-November.
  • The Dutch PMI fell to 51.4 in July from 52.1 in June and 59.2 in April.  Only in The Netherlands among euro area members did orders expand last month.
  • The Greek PMI regressed to a two-month low of 45.2 in July from 45.5 in June.
  • Austria’s reading of 50.8 was the lowest since December 2009 and connotes little momentum.
  • Ireland had a sub-50 reading for the second straight month, falling to an 18-month low of 48.2 from 49.8 in June and 56.7 in February.

Britain’s purchasing managers reading for manufacturers moved under 50 to its worst score since mid-2009.  The reading of 49.1 compared with 51.4 in June and was below forecasts of 51.0.

Other European PMI reports showed

  • A drop to 55.3 from 62.0 in June for Denmark.
  • A 2.2-point decline in Hungary to 52.2.
  • A 1.8-point decline in the Swedish index to a 26-month low of 50.1.
  • A 1.7-point decrease of the Czech index to 53.4.  Such had set a record high of 60.5 six months earlier.
  • A sub-50 Russian score of 49.8, lowest since May 2009 after 50.6 in June and a 55-month high of 55.6 in March.

There are two Chinese manufacturing PMIs, and both weakened.  The HSBC purchasing managers index slid to 49.3 from 50.1, and the CFLP’s PMI was 50.7 after 50.9.  These reading suggest industrial production growth of about 12.5% on year.

India’s 53.6 reading after 55.3 in June constituted a 20-month low.  The strength of orders weakened sharply.

Turkey’s PMI score of 52.3 was unchanged from the reading in June. 

The Australian PCI manufacturing gauge slumped to 43.4 in July from 52.9 in June and a 2Q mean score of 49.7.

South Africa’s PMI dived to a two-year low of 44.2 from 53.9 in June.

The South Korean PMI ticked up two-tenths to 51.3 in July and matched the average score in the second quarter. No Asian currency has appreciated faster this year than the won.  Nonetheless, South Korea also reported higher-than-forecast consumer price inflation in July.  The CPI rose 0.7% that month and accelerated to a 4.7% on-year pace from 4.4%.

Taiwan’s factory PMI dropped to 46.1, signaling contraction, from 49.9 in June, 54.9 in May, and 58.2 in April. 

Indonesian consumer prices rose 0.7% in July and by 4.6% on year.  The 12-month rate of increase has trended downward from 6.0% in May and 7.0% in January.

Retail sales in Hong Kong were 22.2% higher in June than a year earlier.  Analysts were looking for a slightly bigger increase.

India’s trade deficit of USD 7.7 billion in June was smaller than May’s $15.0 billion shortfall but 29.2% wider than than the deficit in June 2010.

Euroland reported a 9.9% unemployment rate for a fourth straight month in June.  Such compares with 9.2% in the United States that month and 10.2% in the euro area in June 2010.

Danish retail sales slid 0.2% in June and fell by 2.2% from a year earlier.

Scheduled U.S. data today include construction spending and the manufacturing purchasing managers index.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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