No Kidding Around: Many PMIs, Japan’s Tankan, and Interest Rate Decisions in Australia and India

April 1, 2014

Currency markets have hardly reacted to a ton of data on this April Fool’s Day.  The dollar has edged 0.1% higher against the yen, loonie, sterling and Australian dollar and 0.1% lower versus the euro, Swiss franc and yuan.  The Australian dollar is down 0.4% after the RBA’s announcement of an unchanged 2.5% Official Cash rate and reiterated view that the Aussie dollar is still high.

Following the rise in North American equities on Monday, the new calendar quarter began with share prices gaining 2.2% in Indonesia, 1.3% in Hong Kong, 0.8% in China, and 0.3% in Taiwan, South Korea, Indonesia and Singapore.  Small dips of 0.3% in New Zealand, 0.2% in Japan and 0.1% in Australia occurred, too.  In Europe, the direction is broadly up, with stocks rising 0.9% in Spain, 0.8% in France, 0.6% in Germany and Italy, 0.5% in Britain and 0.2% in Switzerland.

Ten-year sovereign debt yields moved two basis points higher in Britain and 1 bp higher in Germany but slipped a basis point in Japan, where the Bank of Japan Tankan quarterly corporate survey showed marginally less strength than forecast in March and expectations of a big slide by June.  Today is the first effective date of Japan’s consumption tax hike to 8.0% from 5.0%.  The last change in that tax rate in April 1997 contributed to a subsequent recession.  There are plans to raise the tax further to 10% in October 2015 that still could be aborted.

Gold is unchanged at $1,283.70 per ounce, while West Texas Intermediate oil has slipped 0.3% to $101.26 per ounce.

The Reserve Bank of India kept its repo rate unchanged at 8.0% and also retained a 7% reverse repo rate and a 4% reserve requirement.  An accompanying statement expressed a predisposition not to tighten further over the next few months while observing the effect of 75 basis points of increase engineered between September 2013 and January 2014.

A parade of manufacturing purchasing managers surveys for March revealed the following:

  • Euroland’s preliminary 53.0 reading was not revised.  Such constitutes a 3-month low but confirms the best quarter for manufacturing in four years and suggests likely first-quarter accelerating in GDP expansion to about 0.5% (2% annualized).  Not surprisingly, price pressures receded further.
  • Individual economies within the euro area had mixed results.  France’s 33-month high of 52.1 is the most encouraging development, being the first indication of positive growth since February 2012.  Spain scored a 47-month high of 52.8, and Ireland’s 55.5 reading was the best since April 2011.  Italy posted a 52.4, a two-month high, but the Greek index of 49.7 was at a 3-month low.  Austria’s 51.0 was an 8-month low.  The Dutch score of 53.7 was at a seven-month low, and Germany’s 53.7 was a 4-month trough. 
  • Britain’s manufacturing PMI reading of 55.3 was the lowest score since July and down from a revised 56.2 in February.
  • The Swiss PMI, which was projected to fall just marginally, instead dropped 3.2 points to 54.4.
  • But Sweden’s 1.9-point rise to 56.6 exceeded expectations, and so did Denmark’s leap to 62.8 from 56.9.  The Norwegian PMI improved to 51.9 from 51.1.
  • In Eastern Europe, Russia’s PMI dipped just 0.2 points, less than one might imagine, but at 48.3 was the fifth sub-50 reading in a row, connoting contraction.  The Czech PMI slipped a point to 55.5, a two-month low.  Poland’s 54.0 reading was down from 55.9 and at a 3-month low, and Hungary’s PMI also dropped, sliding to 53.7 from 54.3 in February and 57.8 in January.
  • Turkey’s PMI fell 1.7 points to 51.7, lowest since August.  South Africa’s 50.3 signified near stagnation and was even weaker than the 1Q average reading of 50.6.
  • In Asia, there were mixed signals about China.  The HSBC-compiled Chinese PMI was revised down 0.1 point further to 48.0, and 8-month low and the third sub-50 result in a row.  But the government-authorized Chinese PMI reading of 50.5 was marginally better than expected and the first month-to-month improvement in the score since November.  Fear of China’s slowdown is hurting conditions in several other key markets in the region.
  • South Korea’s PMI continues to straddle 50, recording 50.4 in March after 49.8 in February, 50.9 in January and 50.8 in December.
  • India’s PMI fell 1.2 points to 51.3 from a one-year high of 52.5 the month before.  It was the fifth reading above 50.0 in a row, however.
  • Indonesia’s PMI for manufacturing declined to a 7-month low of 50.1 from 50.5 in February and 51.0 in January.
  • The Taiwanese PMI of 52.7 was 2.0 points weaker than the February score and at a six-month low.
  • Vietnam’s 51.3 constituted a two-month high.
  • The Australian PMI fell further below 50 to 47.9 in March from 48.6 in February.

The Bank of Japan Tankan survey revealed just a small one-point rise in the diffusion index of large manufacturers to +17 and an expected plunge to a reading of +8 by the next survey in June.  The index for all firms — big and small, manufacturing and non-manufacturing — climbed 4 points to +12 but is projected to be at +1 in June.  All large firms expect to boost investment spending just 0.1% this fiscal year, which started today, following a 4.6% advance last fiscal year.

In other Japanese data, labor cash earnings were unchanged in February from a year earlier.  Wage growth continues to lag the acceleration of prices, putting a squeeze on household real disposable income.  Japanese motor vehicle sales advanced 14.5% in March, similar to February’s result and the seventh on-year increase in a row.

Unemployment in the euro area was at 11.9%, the same level as in November-January, but down from 12.0% in February 2013.

German labor statistics for March were a bit better than expected.  There was a further 12K decline in unemployed workers, and the jobless rate was 6.7% instead of the forecast 6.8%. 

Czech GDP growth in 4Q13 got revised downward by 0.1 percentage point to a quarterly 1.8% increase and an on-year climb of 1.2%.

South Korean CPI inflation accelerated 0.3 percentage points but stayed benign at 1.3% in March.  Indonesian CPI inflation slowed to 7.3% last month from 7.75% in February.

Canadian producer price inflation slowed from 2.3% in January to 1.8% in February.

Investors await the U.S. manufacturing PMI.  Other scheduled U.S. data are auto sales, the IBD/TIPP consumption optimism index and construction spending. 

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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