Manufacturing PMIs Convey Global Slowdown for the Most Part

February 1, 2019

Shortly ahead of the release of January U.S. labor market statistics, the dollar is mostly marking time, with no net change against the yen or loonie, downticks of 0.2% against the euro and 0.1% versus the Swiss franc and kiwi, and upticks of 0.6% relative to the yuan, 0.4% vis-a-vis sterling, 0.2% against the Aussie dollar, and 0.1% relative to the peso.

The U.S. Labor Dept’s January Labor Force Survey produced a much larger-than-expected 304K surge in non-farm payroll jobs and on-year growth in average hourly earnings for a third straight month, but the data had some seemingly unstable components suggesting possible measurement error due to the shutdown. December’s rise in jobs got revised downward by 90K to 222K, while December’s change in employment was revised upward by 97K. Also, the unemployment rate rose to 4.0% from 3.9% in December and 3.7% in November, and a broad measure of unemployment plus underemployment jumped half a percentage point to 8.1%.

Share prices rose 1.3% in China on talk of progress in trade talks, 0.6% in India, 0.3% in Hong Kong and 0.1% in Japan. Equity markets are down 1.5% in Italy and 1.0% in Spain. But the German DAX is just 0.2% lower, and the British FTSE is up a tad.

There’s been a big 17-basis point jump in Italy’s 10-year sovereign debt yield. Italian GDP contracted in both quarters of last year’s second half, constituting a a recession that is putting strain on public finances. Italy’s manufacturing purchasing managers index in January fell more than a full point to a 68-month low of 47.8, indicating even an even greater rate of contraction than feared at the start of 2019.

Ten-year sovereign debt yields dropped in Asia and Australia and show no net overnight movement in the U.S., Germany, or the UK. Japan’s JGB fell 2 bps.

Gold and oil have been pretty stable, but copper fell 0.7% overnight.

Euroland’s manufacturing purchasing managers index for January matched the flash reading of 50.5, which indicates the slowest rate of positive growth since November 2016. The German and Italian PMIs of 49.7 and 47.8 signaled contraction and were the weakest readings in 50 and 68 months. The PMIs of Austria, Ireland and The Netherlands were their lowest readings in 29, 27 and 28 months. Spain and France with readings of 52.4 and 51.2 saw 2- and 3-month highs, respectively. Greece, with a 53.7 PMI, now has the second highest in the euro area. The measure for output price inflation was at an 18-month low.

Euroland’s flash consumer price index also was released, showing a further dip to a 9-month low in total CPI inflation to 1.4% in January versus 1.6% in December and a recent high of 2.2% in October. Energy price inflation decelerated to 2.6% from 5.4% in December and 10.7% in October, but core CPI edged up 0.1 percentage point to a 12-month 1.1% rate of increase.

Japan’s manufacturing PMI slumped 2.3 points to a 29-month low of 50.3, implying hardly any growth. China’s 48.3 reading was 1.4 points lower than in December and at a 35-month low.

Among other reported Asian PMI surveys, Indonesia’s edged below 50.0 to a one-year low, and South Korea‘s 48.3 constitutes a joint 26-month low. The Filipino manufacturing PMI slipped 0.9 points to a 4-month low, and the Vietnam‘s 51.9 score was also the lowest since September. The Taiwanese PMI (47.5) and Thai PMI of 50.2 were at 40-month and 2-month lows. In contrast, India’s purchasing managers index rose 0.7 points to a 13-month high.

Two Australian PMIs sent conflicting signals: that compiled by AIG was at a 3-month high, but that from CBA fell to a 5-month low. However, their levels (52.5 and 53.9) were not dissimilar.

South Africa’s PMI slid back under 50 to a 2-month low of 49.9 in January.  Brazil’s index edged 0.1 point higher to a 2-month high of 52.7.

Swinging back to Europe, Poland’s PMI rose to a 2-month high but, at 48.2, was below the 50 line between growth and contraction for a third straight month. The Czech reading of 49.0 fell to a six-year low. Turkey’s 44.2 PMI matched December’s level, conveying very sharp contraction but also somewhat softer input price inflation. The Swiss PMI of 54.3 and the Swedish PMI of 51.5 represent 29- and 35-month lows. Russia’s PMI dropped 0.8 points to a 4-month low, and Denmark’s 51.1 was at a 7-month low. But Norway‘s PMI rose 2.4 points to a 5-month high.

Japan’s jobless rate slide back to 2.4% in December after back-to-back upticks in October and November. Employment posted a 1.7% December-on-December increase.

Swiss retail sales in December were 0.3% lower than a year earlier, marking the third year-on-year decline in the last four reported months. But Swiss consumer confidence posted a second straight monthly improvement in January, albeit to a still-depressed reading of minus 4.

Indonesian CPI inflation slowed to a 29-month low of 2.8% in January versus 3.2% just two months earlier.

South Korean CPI inflation dropped to a 29-month low as well of 0.8% in January versus 1.3% in December and 2.0% in November.

Australian producer prices rose 0.5% last quarter, resulting in a year-on-yer 2.0% advance, which is somewhat greater than the 1.7% on-year pace in the final quarter of 2017.

Investors now await the ISM’s U.S. manufacturing purchasing managers survey due later this morning.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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