Evidence of Intensifying Price Pressure Around the World

February 1, 2018

The dominant theme of manufacturing PMIs for January was a further significant pickup in cost pressure related to a variety of factors such as more elevated oil prices, faster growth in demand than capacity, and the falling value of the dollar. U.S. unit labor costs jumped 2.0% between the third and fourth quarters of last year and swung to a 1.3% on-year advance from four-quarter declines of 0.6% in both the second and third quarters. In part, this reflected a 0.1% on-quarter dip in non-farm labor productivity in 4Q.

In other U.S. data released today, new jobless insurance claims last were remained very subdued at 231K, weekly consumer comfort was the strongest in nearly 17 years, construction spending increased 0.7% in December, and the ISM’s manufacturing purchasing mangers index dipped 0.2 points to 59.1 despite a 4.4-point advance in the prices component. Yesterday’s FOMC statement was upbeat on the economy and reinforced market expectations that all systems are go for a further normalization of U.S. monetary policy under the incoming chairman, Jerome Powell.

The dollar fell overnight by 0.8% against the Mexican peso, 0.4% relative to the euro, 0.3% vis-a-vis the Swiss franc, New Zealand dollar and sterling, and 0.2% against the Canadian dollar. The U.S. currency rose 0.5% against the Aussie dollar and by 0.1% each relative to the yen and yuan.

Share prices lost 1.0% in China and 0.8% in New Zealand and Hong Kong but rebounded 1.7% in Japan, 0.9% in Australia, and 0.5% in Taiwan. The German Dax is 1.1% lower, and stocks have slipped 0.5% in Spain, 0.4% in France and 0.3% in Britain.

The 10-year Treasury yield touched a new high for the move intra-day of 2.75% but has settled back to a net two-basis point overnight rise to 2.73%. Ten-year Japanese JGB and British gilt yields are one basis point firmer.

West Texas Intermediate crude oil leaped 1.1% to $65.46 per barrel to start the new month. Gold is little changed.

Monetary officials at the Czech National Bank implemented their third rate hike in five months. The 2-week repo rate was lifted 20 basis points to 0.25% last August, then by 25 bps in November and now another 25 basis points to 0.75%. It had been at 0.05% for several years prior to last August. The Lombard Rate now becomes 1.50% versus 0.25% prior to last August.

Euroland’s purchasing managers survey confirmed the flash manufacturing sector estimate of 59.6. That’s a 3-month low but was accompanied by record high business sentiment in this data series going back to 1997.

Among members of the euro area, manufacturing PMI readings were at a record high in The Netherlands of 62.5, a 123-month peak in Greece of 55.2, an 83-month high in Italy of 59.0, a 4-month low of 55.2 in Spain, 3-month lows in Ireland (57.6), Germany (61.1) and Austria (61.3), and a 2-month low in France of 58.4.

Britain’s manufacturing purchasing managers index dropped 0.9 points to a 7-month low of 55.3.

The Swiss PMI, still very elevated at 65.3, was 0.3 points lower than December’s high. In other Swiss data reported today, consumer confidence rose 7 points last quarter to a reading of +5, and retail sales volume posted a 0.6% on-year increase.

Australia’s Performance of Manufacturing index rose 1.4 points to a 5-month high of 57.6, indicated a significantly faster rate of improvement. Other Australian data showed a much larger-than-forecast 20% monthly contraction of building permits in December, which also were 5.5% smaller than at end-2016. Australian import prices and export prices respectively increased 2.0% and 2.8% last quarter.

Japan’s manufacturing PMI went up 0.8 points to a 47-month high of 54.8 but also showed higher input costs and strengthening business confidence. Japanese motor vehicle sales fell 5.7% on year in January.

The Norwegian PMI reading of 59.0 was 0.9 points better in January than December and represents a 123-month high. But Sweden’s manufacturing PMI fell 3.4 points to a 5-month low of 57.0.

Poland’s PMI of 54.6 in January followed a 34-month high of 55.0 in December.

Russia’s PMI score of 52.1 signaled the fastest rate  of  improvement in 7 months.

The Czech PMI matched December’s 83-month high of 59.8.

Vietnam’s PMI rose 0.9 points to a 9-month high of 53.4. Thailand’s 50.6 reading was the best in 11 months. South Korea’s 50.7 moved back above the 50-level that separates improving from weakening conditions in manufacturing. But the Filipino PMI dropped back closer to 50 with a score of 51.7 in January after 54.2 in December. Indonesia’s PMI of 49.9 was at a 2-month  high.

Brazil’s 51.2 PMI in manufacturing was 1.2 points lower than  in December.

Last but hardly least, the manufacturing Caixin-compiled PMI for China remained steady at December’s 4-month high of 51.5.

In the year to January, consumer prices rose 0.9% in South Korea and 3.25% in Indonesia.

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





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