Disappointing Purchasing Managers Reports from China and Euroland

September 20, 2012

Share prices and bond yields are lower, while the dollar has risen in response to continuing concern about Spain and weak preliminary purchasing manager survey data for September.

  • The dollar has climbed 0.7% against the euro and Australian dollar, 0.6% versus the Swiss franc, 0.4% against the loonie, 0.3% relative to the kiwi and 0.2% versus sterling.  The yen and yuan have edged up 0.1% against the greenback. 
  • The euro fell as low as $1.2930 and JPY 100.99 overnight.
  • Equities slumped 2.2% in China, 1.6% in Japan, 1.2% in Hong Kong, 1.3% in Vietnam, 0.9% in South Korea, 0.8% in India, 0.7% in Taiwan, 0.6% in Indonesia and 0.5% in Australia.  In European trading, stocks are down 1.2% in Italy, 0.9% in Spain, 0.7% in France, 0.6% in Britain and 0.4% in Germany.
  • Oil prices dropped another 0.9% to $91.17 per barrel following Wednesday’s difficult session.
  • Gold prices fell 0.6% to $1761.50 per ounce.
  • Yields on 10-year German bunds, British gilts and Japanese JGBs are each down by two basis points.

Although up 0.2 points, China’s HSBC purchasing managers index for manufacturing was again below 48 at 47.8 in September according to a preliminary report.  It averaged 48.2 in 3Q versus 48.7 in 2Q, suggesting a slowdown whose intensity may be stabilizing.

Preliminary Ezone, German, and French PMI reports were also published, and a U.S. index will be released at 12:30 GMT.

  • Euroland’s composite score of 45.9 in September represented a 39-month low after 46.3 in August and 46.5 in July.  These results suggest a larger GDP contraction of 0.6% in 3Q, which would confirm technical recession.  While Germany saw some improvement, the French data were very worrisome, and the downturn in peripheral economies also deepened.
  • Euroland scored 46.0 on both its manufacturing and services PMI releases.  Services had their weakest score since July 2009, but manufacturing hit a 6-month high.  Orders fell at a faster pace.
  • Germany’s readings of 50.6 in services implied a return to very modest growth.  And manufacturing rose 2.6 points to 47.3, exceeding expectations by 2.0 points.  But business sentiment weakened noticeably, and the jobs component was its weakest since May of 2009, suggesting the composite score’s rise of 2.7 points to 49.7 will prove fleeting.
  • The French manufacturing PMI sank to a 41-month low of 42.6 from 46.0 in August.  Services dropped by 3.1 points to a reading of 46.1.  Needless to say, each result was much worse than anticipated, and both also represented the worst scores since April 2009.

Japan’s all-industry index dropped 0.6% in July to a level 0.5% below the 2Q mean and only 0.5% higher than a year earlier.  The all-industry index is a supply-side monthly proxy for GDP growth.  The Bank of Japan released its full monthly assessment, noting weakness in industrial production and exports, some resilience in investment and consumption, and an overall pause in activity.  Governor Shirakawa noted the high level of global uncertainty overhanging the outlook.

Japanese customs clearance trade figures for August were also released.  The seasonally adjusted JPY 473 billion deficit was greater than forecast and embodied a further 2.1% decline in exports from a month earlier.  The unadjusted JPY 754 billion was 3% narrower than in August 2011.  Exports and imports respectively fell 5.8% and 5.4% on year. 

Japanese department store sales were 1.0% lower in August than a year earlier.  Tokyo sales ticked 0.2% higher, however.

Real GDP in New Zealand climbed 0.6% last quarter, led by agriculture and reconstruction.  Growth of 2.0% in the full year ending 2Q12 was the best since early 2008.  Personal consumption remained soft, and quarter-on-quarter expansion was not as buoyant as in 1Q12.

British retail sales dipped 0.2% in August, hampered as shoppers instead watched the Olympics.  Sales were 2.7% greater than a year earlier, nonetheless.  The CBI monthly survey of U.K. industrial trends printed at minus 8, the best score since July and 13 points better than August’s downward spike to negative 21.

Irish GDP was unchanged last quarter following a 1Q drop of 0.7%.  GDP was also 1.1% lower than in the second quarter of 2011.  The Irish current account recorded a surplus of EUR 3.23 billion in 2Q12, which represented a EUR 4.3 billion quarterly improvement on the first quarter deficit.

German producer prices climbed 0.5% on month and 1.6% on year in August.  PPI inflation in the previous year to August 2011 had been at 5.5%.  Energy pressures intensified in the latest month, but non-energy producer prices went up only 0.2% from July and 0.9% on year.

Italian industrial orders were 4.9% lower in June than a year before.  That drop was smaller than the 10.8% deline in the year to May.

Danish retail sales slid by 0.4% in August and posted a 12-month 2.3% decline.  Danish consumer confidence has a weaker-than-anticipated reading of minus 2.2 for September, down from zero in August.   Dutch consumer confidence improved three points but was still well below zero at minus 29 in September.  Dutch unemployment of 6.5% in August was unchanged as expected from the level in July.

The Swiss trade surplus of CHF 1.733 billion in August was smaller than July’s CHF 2.88 billion or the first-half monthly average surplus of CHF 1.93 billion.

South African wholesale turnover rose 0.6% on month and 8.8% on year in July.  Consumer prices in Hong Kong were an as-expected 3.7% above a year earlier in August.

Taiwan’s central bank left its key interest rate unchanged at 1.875%.  The South African Reserve Bank also has an interest rate policy meeting today.

Aside from the aforementioned PMI report for manufacturing, scheduled U.S. data to be released today include the Philly Fed manufacturing index, the index of leading economic indicators, and weekly jobless insurance claims.  Mexico reports retail sales, and a preliminary estimate of Ezone consumer confidence is due.  Five Fed officials — Rosengren, Pianalto, Bullard, Lockhart, and Kocherlakota — will be speaking in public today.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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