Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

EUROZONE MANUFACTURING PMI EDGES DOWN TO 52.0

At 52.0 in July, down from June’s six-month high of 52.8, the final Markit Eurozone Manufacturing PMI® came in slightly above its earlier flash estimate of 51.9. The PMI has now signalled expansion for 37 consecutive months.

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The main factor underlying the drop in the headline index was a softer positive contribution from new order growth. Incoming new business rose at a weaker pace than in June and to a lesser extent than the average for the year-to-date.

Although the rate of job creation also ticked lower, it remained among the fastest registered over the past five years. This partly reflected further solid growth in production volumes, which held steady at June’s six-month peak, and a further accumulation of backlogs of work. Inflows of new export business also improved during the latest survey month, albeit at a marginally slower pace, in part aided by the weak euro exchange rate.

The downside of the weaker currency was an increase in import costs that, alongside higher oil prices, led to the first increase in average purchase prices for a year. In contrast, output charges fell again, albeit to the smallest extent during the current 11-month period of reductions.

National PMI data indicated that five out of the seven nations for which data were available saw an improvement in operating performance during July. Slower growth was registered in three of the ‘big-four’ nations (Germany, Italy and Spain) while the downturn in France continued.

Germany stayed at the apex of the PMI growth rankings, as output expanded at the fastest pace since April 2014 despite a slight easing in new order growth. Germany also recorded the joint fastest increase in new export business (tied with the Netherlands) and solid job creation. Austria and the Netherlands were the next best performers and also saw marked expansions during July. In Austria’s case this reflected a slight deceleration from the recent highs in output and new order growth achieved in June, whereas the Netherlands posted mild accelerations. Both nations registered quicker rates of job creation.

The upturns in Italy and Spain lost momentum during July, with the Italian PMI and Spanish PMI hitting 18- and 31-month lows respectively. Italy reported weaker increases in production, new orders and employment. The picture was more mixed for Spain, with weaker output growth and a decline in new orders (the first since November 2013) contrasting with faster job creation.

France and Greece recorded contractions in output and new business at the start of the third quarter, despite both nations seeing improved inflows of new export orders. France also reported a reduction in staffing levels, the fifth in as many months. In contrast, Greece saw employment rise at the quickest pace in nine years.

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Chris Williamson, Chief Economist at Markit:

However, dig deeper beyond the headline numbers and more worrying pictures appear. Expansions in output and employment are clearly being driven to a large extent by surging growth in Germany, while growth has almost stalled in both Italy and Spain and contractions are being seen in France and Greece.

CHINA MANUFACTURING PMI JUMPS TO 50.6

July survey data signalled a renewed upturn in operating conditions faced by Chinese manufacturers, with output, new orders and buying activity all returning to growth. However, employment continued to decline and at a solid pace, which in turn contributed to the quickest rise in outstanding business since March 2011. Meanwhile, increased prices for raw materials led to a marked rise in average input costs, which companies generally passed on to clients in the form of higher output charges.

At 50.6 in July, the seasonally adjusted Purchasing Managers’ Index™ (PMI™) rose from 48.6 in June to signal a renewed improvement in operating conditions. Though only slight, it was the first strengthening in the health of the sector since February 2015.

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Driving the headline index higher in July was a renewed rise in total new business. Though moderate, it was the first time that overall new orders had increased since March. Respondents commented that new products and improved marketing strategies had boosted new business. Data indicated that growth in new work was largely due to stronger domestic demand, however, as export sales declined marginally at the start of the third quarter.

In response to improved inflows of total new work, manufacturers raised their production for the first time in four months. The rate of expansion, though modest, was the fastest seen in two years.

Despite the upturn in new orders, goods producers continued to lower their staffing levels in July. According to respondents, job shedding was largely driven by efforts to reduce costs and raise productivity. Furthermore, the rate at which employment fell was solid, despite easing to its weakest for six months. A combination of lower workforce numbers and higher amounts of new work led to a build-up in the level of work-in-hand for the fifth month in a row. Moreover, the rate of accumulation was the fastest seen since March 2011.

Higher production contributed to a renewed expansion in purchasing activity. Though modest, it was the first time input buying had increased since March. Subsequently, inventories of inputs rose over the month, and at a moderate pace. Meanwhile, stocks of finished goods increased for the first time since January, albeit fractionally, which some firms attributed to greater output.

Stronger demand for inputs added pressure to supply chains in July, with average delivery times lengthening for the fifth successive month. That said, the degree to which times increased was marginal.

After a slight drop in June, average input costs increased across China’s manufacturing sector in July. Furthermore, the rate of inflation was the second-fastest since September 2013 (behind April 2016). According to respondents, higher prices for raw materials, particularly metals, had led to increased cost burdens. As a result, companies raised their prices charged and at a solid pace.