European March Purchasing Manager Surveys Show Healthier Growth than Expected but Perhaps Outdated Due to Worsening Covid There

March 24, 2021

The dollar strengthened in Asian trading, reaching its strongest trade-weighted level since Thanksgiving, but it has subsequently trimmed those gains. Compared to Tuesday closings, the dollar is up 0.3% relative to the Turkish lira and sterling and by 0.1% versus the euro, Swiss franc and DXY effective value. Dollar/yen is unchanged, and so are the dollar’s values against the Australian and New Zealand currencies.

In a difficult Wednesday session with U.S.-Sino tensions heating up, share prices tumbled 2.0% in Japan and Hong Kong, 1.5% in Indonesia, 1.7% in India, and 1.3% in China. European stock markets are fractionally lower, but U.S. futures indices point to a rise at the open.

Ten-year German bund and British gilt yields slipped two basis points, and the JGB yield is off one basis point. But the 10-year Treasury yield remains unchanged in futures trading at 1.62%.

After Tuesday’s drop, West Texas Intermediate crude oil‘s price rose 2.4% in response to a grounded tanker in the Suez Canal, but the blockage is not expected to persist long. The price of gold is 0.2% firmer.

According to preliminary and incomplete information, Euroland’s composite purchasing managers index printed 3.7 points higher in March at 52.5, marking its first reading above 50 since February and its best score in eight months. Reading above 50 reflect improving business conditions. The manufacturing PMI climbed 4.5 points to a record high (meaning since at least early 2007), and the service sector index of 48.8 reflects the slowest rate of deterioration in 7 months. Aside from last July, the composite index was the second best in over two years. Analysts were not expecting a reading above 50, and the report includes some grounds for concern.

  1. Supply chains have become more strained, putting a squeeze on profit margins.
  2. Manufacturing and services continue to function at vastly different speeds.
  3. Input inflation picked up to a 10-year high.
  4. Services and business optimism regarding the one-year prognosis were aided by a relaxation of lockdown restrictions. But that process has reversed. Cases are up, and the roll-out of vaccines has encountered a number of snags.

Germany’s composite PMI jumped 5.7 index points to a 37-month high of 56.8, with manufacturing (66.6) at a record peak and services (50.8) reaching a 7-month high.

The French composite PMI remained below 50 for a 7th straight time but rose 2.5 index points to a 3-month high and included a 39-month high of 58.8 in manufacturing. Services printed at a sub-50 47.8 but still a 3-month high.

The British composite PMI advanced 7 whole index points to a 7-month high of 56.7. Growth was more balanced than in Euroland, with PMI readings of 57.9 in manufacturing and 56.8 in services.

Unlike Europe, Japan’s composite PMI barely changed in March according to the “flash” estimate of 48.3 versus 48.2 in the prior month. The manufacturing sector (52.0) experienced its fastest rate of improvement in 27 months, but a 3-month high in services of 46.5 still signified a deteriorating sub-50 trend.

Meanwhile, Japanese corporate service price inflation remained negative in February but just barely. Analysts were looking for a more negative reading than January’s -0.4%, but the actual on-year dip was only 0.1%.

Australia’s composite purchasing managers index rose 2.5 index points to a 3-month high of 56.2. The March readings for manufacturing (57.0) and services (56.2) were similar.

U.S. durable goods orders, which fell 1.1% on month and rose 2.3% on year, were weaker than anticipated in February following increases of 1.2% in December and 3.5% in January.

Turkish consumer confidence improved this month to a 31-month high, but that reading was ascertained before President Erdogan sacked Turkey’s central bank governor, thereby triggering a near double-digit drop in the Turkish lira, which will further feed the economy’s vicious cycle of accelerating inflation and currency depreciation.

Danish consumer confidence edged up 0.2 index points to a 2-month high but still weak reading of minus 5.0 in March.

Czech consumer sentiment and business confidence dropped in March to respective 4- and 2-month lows.

South African CPI inflation slowed to an 8-month low of 2.9% in February from 3.2% in the prior month.

Malaysian consumer prices slid 0.2% on month and were just 0.1% above their year-earlier level in February.

Finnish producer price inflation, on the other hand, accelerated sharply to 2.0% in February. An on-year PPI decline of 0.8% in January had been the 20th sub-zero result in row.

Finland also reported a higher unemployment rate of 8.7% in January versus 7.1% in December and 7.1% in January 2020. Mexico’s jobless rate, however, fell 0.3 percentage points to 4.4% in February as was expected.

The Central Bank of Iceland‘s key seven-day term deposit interest rate was left unchanged at 0.75% after the latest review of Icelandic monetary policy. It’s been at that level since a 25-basis point cut in October, which culminated 225 basis points of easing in five moves last year. Icelandic GDP performed better in the final quarter of 2020 than officials were anticipating, resulting in a 6.6% average contraction for the whole year rather than the 7.7% drop that the central bank was forecasting. CPI inflation of 4.1% last month was above target but lower than¬† in January. Officials are projecting inflation will recede further but are carefully watching signs of marginally higher expected inflation. Bottom line, “The MPC will apply the tools at its disposal to support the domestic economy and ensure that inflation eases back to the target within an acceptable time frame.”

As in Iceland, officials at the Bank of Thailand agreed to keep their policy interest rate unchanged at 0.5%, which happens to be an alltime low. The rate has been at that level since a trio of 25-basis point reductions in February, March, and May of last year.  A released statement revises projected GDP growth in 2021 down 0.2 percentage points to 3.0% and speaks of uncertainty related among other things to the Covid pandemic and the downside risks that such imply.

Still to come: U.S. IHS-compiled March purchasing managers survey, Euroland consumer confidence, and the Czech National Bank’s decision after today’s policy review.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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