Afghanistan, Covid, and August Purchasing Manager Surveys

September 1, 2021

On this 82nd anniversary of the start of World War II, U.S. military forces have left Afghanistan, creating a whole new source of geopolitical uncertainty.

The rapidly spreading Delta Variant of the Covid-19 pandemic remains the dominant economic and political wild card. There were over 160k newly identified U.S. cases of Covid yesterday, and almost 1350 people died from the disease.

Meantime, financial market participants have a flood of August manufacturing purchasing manager surveys to comb through. By and large, these attest to strong recovery from the pandemic-induced coma but also severe constraints in capacity, delays in raw material deliveries, and worker shortages. The continuing spike in inflation around the world stems from these supply-side matters and not the appropriately accommodative monetary and fiscal policies taken to mitigate the economic consequences of the pandemic.

The dollar on this first day of September has fallen 0.2% against its weighted DXY index. The euro has strengthened 0.3% against the U.S. currency. Sterling is up 0.2%, and the yen and Swiss franc have risen 0.1%.

European stock markets, with a notable exception of the German Dax, are higher. Stock markets closed up 1.3% in Japan and 0.7% in China but fell 1.0% in Indonesia. The DOW is somewhat lower, while the S&P 500 and Nasdaq show gains.

Prices for WTI oil and Comex gold have dropped 1.2% and 0.2%. Ten-year German  bund and Japanese JGB yields edged up two and one basis points.

The IHS-compiled U.S. manufacturing purchasing managers index slipped 2.3 points below July’s record high to a 4-month low but still historically elevated reading of 61.1. The ISM U.S. manufacturing index printed at 59.9, a 2-month high but also revealing the first sub-50 reading since November in its employment sub-index.

The ADP monthly estimated change in U.S. private sector jobs, an increase of 374 thousand, also drew much attention, since analysts had been anticipating a rise of somewhat more than 600k. Separately, construction spending in the United States went up 0.3% in July but were unchanged from April’s level.

Euroland’s manufacturing PMI survey produced a solid August score of 61.4,  which nonetheless was the lowest reading in six months. Germany, France and Austria also yielded 6-month lows, while the Greek PMI of 59.5 signaled the fastest factory growth in 256 months. Likewise, the Spanish and Italian PMI readings were also higher than in the prior month. Output price inflation accelerated, while input price inflation lessened somewhat.

Britain’s manufacturing PMI score of 60.3 was a tad above its preliminary estimate  but at a 5-month low. The Swiss PMI of 67.7 fell below July’s record high of 71.1 but was still more elevated than June’s result.

Manufacturing PMIs among Nordic European economies registered and 8-month low in Sweden of 60.1 and two-month lows in Denmark and Norway of 67.3 and 62.2. With a reading of 50 representing neutral ground between improvement and deterioration, all of these scores like those above attest to solid paces of recovery.

In Eastern Europe, the Czech PMI dropped to a 4-month low of 61.0 in August. Poland’s PMI of 56.0 was also at a 4-month  low, but Hungary’s 55.9 was the highest in 27 months. But the Russian PMI dropped another full point to a 9-month and sub-50 reading of 46.5.

Turning to Asia, Japan’s manufacturing PMI was revised 0.3 points higher but, at 52.7, was lower than July’s reading of 53.0.

In China where officials are trying to halt an upturn in Covid, the manufacturing PMI slumped below 50 to an 18-month low of 49.2.

The Filipino PMI reading of 46.4 represents a 13-month low, and Vietnam’s PMI dived almost five points to a 16-month low of 40.2.

South Korea’s PMI of 51.2 was the lowest in 10 months. Thailand’s 48.3 PMI was a 3-month low, and the Indian and Taiwanese readings of 52.3 and 58.5 were at 2-month lows. Malaysia bucked the downward trend with a 3-month high, but it was still well under the 50 threshold at 43.4.

Elsewhere, the Canadian PMI improved to a 4-month high of 57.2, and Turkey’s manufacturing sector rose to a 7-month high of 54.1. The Absa-compiled South African manufacturing PMI bounced back to a 10-month high of 57.9 after plunging from 57.4 in June to 43.5 in July. Two Australian manufacturing PMIs were reported today: AIG’s fell to an 11-month low of 51.6, and CBA’s index also dropped to a 14-month low of 52.0. Brazil’s PMI of 53.6 was a 4-month low, and Mexico‘s reading of 47.1 broke a string of three straight scores above 50 and was at a 5-month low.

Quarterly Australian real GDP growth slowed by more than half to 0.7% in 2Q 2021 from 1.9% in the first quarter. Set against the pandemic ground zero of 2Q 2020, on-year growth of 9.6% represented an all-time high.

Brazilian real GDP dipped 0.1% last quarter but was still 12.4% higher than a year earlier.

A huge disappointment reported today was the 5.1% monthly plunge in German retail sales in July. Although such had posted back-to-back rises of 4.5% in May and June, analysts were forecasting only around a 1% monthly retrenchment. Sales were also below their year-earlier level (-0.3%) for the first time since February.

The jobless rate in Euroland dropped 0.2 percentage points in July to a 14-month low of 7.6% but was only 0.8 percentage points lower than  in July 2020.

British shop prices were 0.8% lower than a year earlier in July.

Indonesian consumer confidence dived to a 9-month low of 80.2 in July from a June reading of 107.4.

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



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