Service Sector PMIs Out but Many U.S. Cancellations

December 5, 2018

U.S. Treasury market and stock markets are closed for a federal holiday mourning the death of former U.S. PresidentĀ  George H.W. Bush. Fed Chairman Powell’s scheduled testimony before the Joint Economic Committee in Congress was scrapped with no announced make-up date yet set, but the Beige Book analysis of regional conditions will be released at 14:00 EST as scheduled. Some planned U.S. data also got bumped to tomorrow such as the ADP estimate of private employment growth, Labor Dept’s quarterly productivity and unit labor costs, and PMI services. A 2.0% drop in U.S. mortgage applications last week was reported.

Four central bank monetary policy reviews concluded with announcements of no change in benchmark interest rates:

  • The National Bank of Poland’s reference rate was kept at 1.5%. The last rate changes were a pair of 50-basis point cuts in January and March 2015. A released statement observes moderate total inflation, low core inflation, and projects an in-target price path. This enables the low central bank rate to be maintained in spite of relatively buoyant growth.
  • The Bank of Canada’s overnight rate target was maintained at 1.75%, the highest level since late 2008 following 25-basis point increases engineered in July of last year plus January, May, July and October of 2018. A released statement reiterates that in order to secure the 2% inflation target, it will be necessary to enact some additional rate hikes down the road.
  • The Reserve Bank of India‘s policy repo rateĀ  of 6.50% wasn’t changed, either. Nor was the 6.25% reverse repo. This was the second review in a row to leave policy unchanged following 25-bp increases in June and August. Food and oil price pressures have lessened.
  • A unanimous vote at the Central Bank of Chile left the interest rate benchmark at 2.75%, but a released statement hints of rate normalization to come some time later. A 25-basis point increase in October was the first tightening since December 2015 and followed four 25-bp cuts during the first half of 2017.

Market Action: After Tuesday’s U.S. stock market sell-off, share prices fell mostly today in Asia and Europe. Ten-year sovereign debt yields dropped 10 basis points in Italy, 9 bps in Greece and 1 basis pint in Japan but rose 3 bps in the U.K. and 1 basis point in Germany. The dollar has slid 0.2% against sterling and 0.1% versus the euro but shows gains of 1.1% against the Aussie dollar, 0.4% relative to the kiwi, 0.3% vis-a-vis the yuan, peso, and yen, and 0.2% against the loonie. Gold has relinquished 0.3%, but oil is a touch firmer.

Retail sales volume in the euro area rose a tad more than expected, 0.3%, which is the most since June. This produced a 1.7% rise from a year earlier.

Australian real GDP grew only 0.3% last quarter, least in two years, causing the on-year growth pace to settle back to 2.8% from 3.1%. GDP also rose 2.8% in the previous four quarters through 3Q17.

Following a 9-1/2 year high of 6.7% in Filipino CPI inflation in both September and October, such fell back to a 4-month low of 6.0% in November.

Spanish industrial production jumped 1.2% in October, the biggest gain since February, leading to a 12-month increase of 0.8%.

Norway recorded an 18-quarter high current account surplus of NOK 9.178 billion in 3Q18.

Mexican consumer confidence slipped to a 5-month low in November.

Announced PMI Results:

  • Euroland’s composite purchasing managers index in November matched October’s 25-month low and suggests growth of about 0.3% this quarter. The service-sector PMI slid to a 25-month low.
  • Germany’s composite PMI dropped to a 47-month low, while the French and Spanish composite readings rose to 8- and 5-month highs. Italy had a sub-50 score, suggesting that GDP this quarter is contracting.
  • Japan’s composite and service sector PMIs slid to 2-month lows, but a 10-month high in business confidence is encouraging. The data may support the BOJ’s contention that inflation will drift up.
  • China’s service sector PMI bounced from a 13-month low to a 5-month high, but weak manufacturing left the composite reading at a low 51.9.
  • India’s composite and service sector PMIs improved to 4- and 25-month highs.
  • The British services PMI underperformed expectations by a significant margin with a 28-month low of only 50.4. The composite PMI was little better than that at 50.7.
  • Manufacturing PMI readings for the Philippines and Singapore were at 11- and 5-month highs in November.
  • But Hong Kong’s private PMI slummped to a 29-month low of 47.1.
  • Australia’s CBA composite and services PMIs climbed to 6-month highs.
  • Lebanon’s private PMI was again under the 50 line that separates contraction from expansion, but at 46.7, it implied the slowest rate of contraction in 9 months.
  • South Africa’s Standard Bank-compiled PMI rose to a 4-month high but also was below 50 at 48.2.
  • The Russian composite and service sector PMIs were both at 2-month lows but also comfortably within “improving territory.”
  • Brazil’s composite PMI rose 1.1 to 51.6, a 9-month high.
  • Sweden’s service sector PMI jumped 5.8 points to an 11-month high of 62.2.

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



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