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 PMIs POINT TO STRONGER ECONOMY

Eurozone economic growth rose to a four-year high in June, as levels of new business and employment continued to expand at solid rates. The final Markit Eurozone PMI® Composite Output Index posted 54.2 in June, up from 53.6 in May and fractionally above the earlier flash estimate. The upturn in June also took the average index reading for the second quarter as a whole to a four-year high.

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Rates of growth improved in both the manufacturing and service sectors during June. Manufacturing production rose at the joint-quickest pace in a year, while the expansion in service sector business activity was the fastest since May 2011.

National PMI data signalled that Ireland remained at the top of the PMI growth league table in June, seeing its rate of output expansion accelerate to a six-month high. Spain stayed in second position, despite its pace of growth slowing sharply to the weakest in the year so far. Economic growth accelerated in Germany, Italy and
France during June, hitting a two-month high in Germany, 12-month peak in Italy and 46-month record in France.

Furthermore, the French manufacturing sector signalled an expansion of output for the first time since May 2014, meaning that all of the ‘big-four’ manufacturing and service sectors recorded concurrent growth. The last time this was achieved was during April 2014.

The survey also indicated that both employment and new business had risen at the strongest rates (on average) for four years over the second quarter as a whole, despite growth easing slightly in June in both cases.

Rates of job creation in Germany, France and Spain all remained broadly steady in June, but eased to a four-month low in Italy and two-month low in Ireland.

Although input price inflation slowed from May’s three year high, costs nonetheless continued to rise on the back of higher oil prices, wages bills and import costs
(the latter reflecting the euro’s recent depreciation). June saw a further marginal decrease in average output charges. Germany, Spain and Ireland reported
increases, whereas further price discounts were offered in France and Italy.

Service sector business activity growth accelerated to a four-year high in June, as output expanded in each of the ‘big-four’ eurozone economies. At 54.4 in June, up from 53.8 in May, the Eurozone Services Business Activity Index posted an identical reading to its earlier flash estimate. Output has now risen in each of the past 23 months.

By nation, the strongest performance was registered by Ireland, where output rose at the sharpest pace since September 2006. Spain was some way back in second position, as its rate of service sector growth eased to a six-month low. Rates of output expansion quickened in Germany (two-month high), France (46-month high) and Italy (12-month high). In the case of Germany and Italy, this was despite a slight moderation in the pace of expansion in new orders. France saw new business rise to the greatest extent since August 2011.

Job creation was registered for the eighth month running, with the pace of increase just shy of May’s four-and-a-half year peak. Employment increased across the ‘big-four’ nations and Ireland. Growth rates in staffing levels slowed slightly in Germany, Italy and Ireland. Meanwhile, France and Spain saw the strongest job creation since December 2011 and September 2007 respectively.

The outlook† for the sector also remained positive in June, with eurozone service providers reporting they expect business activity to be higher in one year’s time. Optimism ticked higher in Germany and France, but edged lower in Italy, Spain and Ireland.

June data showed a further divergence in firms’ input prices and output charges. Cost burdens increased during the month, although the pace of inflation eased from May’s 29-month record. In contrast, selling prices were discounted for the forty-third month running amid reports of efforts to satisfy client demands.
Germany and Ireland reported output charge increases, while selling prices were broadly unchanged in Spain. France and Italy both reported accelerated rates of decline in output charges.

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CHINA SERVICES PMI SLUMPS FROM 53.5 TO 51.8

HSBC China Composite PMI™ data (which covers both manufacturing and services) pointed to a further rise in total business activity in China during June. However, the rate of expansion eased to a marginal pace that was the slowest recorded since May 2014. This was signalled by the HSBC Composite Index posting only slightly above the neutral 50.0 mark at 50.6 in June, down from 51.2 in May.

The decline in the headline index was partly caused by a further fall in manufacturing output in June (albeit marginal), but also due to a moderation in the rate of service sector activity growth. Moreover, it was the slowest expansion in services business activity since January, as signalled by the HSBC China Services Business Activity Index posting 51.8, down from May’s eight-month high of 53.5.

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The slowdown in services activity growth reflected softer new business gains in June, with service providers signalling the slowest increase in new orders in 11 months. According to panellists, relatively subdued market conditions had dampened overall client demand. Meanwhile, manufacturers saw only a marginal expansion of new work, following a three-month sequence of contraction. As a result, composite new business increased only modestly over the month.

Slower growth of activity and new orders led service sector companies to raise their staff numbers at a weaker rate in June. Furthermore, the pace of job creation was the slowest in three months and only marginal. In contrast, manufacturers cut their payrolls for the twentieth successive month in June, with the latest reduction the sharpest since February 2009. The particularly marked reduction in manufacturing staff numbers therefore led employment to fall modestly at the composite level in June.

Outstanding business at services companies declined modestly in June, which was generally linked by panellists to higher workforce numbers and slower growth of new work. Meanwhile, manufacturers saw backlogs of work increase slightly over the month. At the composite level, unfinished workloads fell fractionally in June.

Chinese service providers saw a further increase in total cost burdens during June. That said, the rate of input price inflation was only slight and much weaker than the series average. Cost burdens faced by manufacturers meanwhile continued to decline, though the latest reduction in input costs was the slowest since last August. Overall, average input prices fell slightly at the composite level.

Prices charged fell across both the manufacturing and service sectors in June. While manufacturers reduced their selling prices modestly, service providers cut their charges only slightly.

Services companies operating in China continued to signal optimism towards the 12-month business outlook in June. That said, the overall degree of positive sentiment edged down to its lowest since July 2014.