- US flash Markit PMI bounces back, apparently shaking off the weather…
- …but PMIs in eurozone and China fell in February making it a mixed picture
- We expect global manufacturing to strengthen going forward
US flash Market PMI rebounded strongly
Early reports on global manufacturing activity in February painted a mixed picture, but we maintain the view that stronger advanced economy demand will lift global manufacturing and trade in coming months. To start with the good news, the US manufacturing PMI unexpectedly rose to 56.7 in February, up from 53.7 the month before, which was considerably better than the consensus forecast of no change. Looking at some of the details of the report, there was a solid increase in the more forward looking new orders sub-index, while the employment index also rose. All this seems to suggest that the manufacturing sector is shrugging off the effects of the adverse winter weather, though it is too early to draw strong conclusions. Meanwhile, there were some tentative signs in the report that the inventory correction could be about to turn as well, with the orders to stocks ratio rising to the highest level since April 2010.
Eurozone composite PMI edges lower on weaker manufacturing survey
On the other hand, the eurozone composite whole-economy PMI edged lower in February, declining to 52.7 from 52.9 in January. The weakness in the report was concentrated in manufacturing, with the manufacturing output index falling to 55.5, from 56.7 in January. However, the service sector PMI crept higher, to 51.7 from 51.6. The details of the manufacturing PMI show that the new orders index fell markedly (to 54.1 from 55.7), which is probably related to the temporary soft patch in the US economy due to extreme weather conditions. Meanwhile, the manufacturing PMI employment index also edged lower (to 50.4 from 51.0) while, the input price index dropped to 50.3 from 52.2, which seems to reflect lower global commodity prices and the strong euro. The details of the services sector PMI reveal a sharp jump in the new business indicator and a more subdued rise in the employment indicator, thought the latter remained below the boom-bust mark of 50 signaling continued weakness in the labour market. All in all, the PMI report seems to be in line with ongoing – but moderate – recovery of the eurozone economy. At its current level, the composite PMI is consistent with GDP growth of around 0.3-0.4% qoq in Q1, which fits in well with our forecasts for the eurozone economy.
China’s flash PMI slows, but NY effect might be at play
Adding to the mixed picture, China’s flash manufacturing PMI fell to 48.3 from 49.5 the previous month, taking it to a seven-month low. However, January and February data are normally distorted by the Chinese New Year and this report is not an exception. The distortions, however, also apply to the more positive data, such as January’s trade and loans reports that were released some days ago. But putting aside these effects, there is a sense that the reform process in China has triggered increasing awareness of the delicate balancing act of managing an orderly credit slowdown, while sustaining decent levels of growth. There is growing uncertainty regarding off-balance sheet activities, including trust funds, liquidity issues and the broader implications of credit tightening. We think that China’s authorities can fine tune policy to keep growth at a steady pace and that they have the sufficient firepower and policy levers to manage the process. We continue to expect GDP growth of 7.5% in 2014. On another front, Wednesday’s announcement by one of the largest oil refining firms, Sinopec, that it will open its business towards privatization is an indication of the strong reform momentum. These are the first steps in further moves to restructure state-owned enterprises and alleviate some of the costs faced by local governments, which we assess as central to the reform process in the coming year.