- China’s HSBC flash manufacturing PMI rebounds in September
- Eurozone consumer confidence returns to the levels at the start of the year
- Sell-off in precious metal prices in full swing
China’s HSBC flash PMI firms in September
This morning, HSBC’s flash Manufacturing PMI was the first indicator to provide further insights into the development of the Chinese economy in September, after many – but not all – August data were rather disappointing. The index rose from 50.2 to 50.5 against market expectations of a decline to 50. This proves that the government and central bank’s targeted stimulus is supporting the economy despite ongoing correction of the property market and the curtailment of shadow banking. We remain cautiously optimistic on China as we have yet to see any material effects from the targeted stimulus measures announced last week (PBoC’s USD 81 bn injection into the five largest banks, tax cuts and loan subsidies for small firms and a slight reduction of one of the policy rates). Furthermore the service PMI in August jumped to 54.1 (July: 50), driving HSBC’s composite output index to a 17-month high of 52.8. Last but not least the clear pick-up of Chinese exports should continue to support the economy. We retain our view that the Chinese authorities will continue to provide additional targeted stimulus if needed to prevent the overall deleveraging process from becoming disorderly. Hence, we have left our 2014 and 2015 growth forecasts unchanged at 7.5% and 7%. Our year end target for the Chinese yuan at 6.10 also remains unchanged.
Eurozone consumer less confident
Consumer confidence in the eurozone fell to -11.4 in September from -10.0 in August. At its current level, it is close to the levels at the start of this year, which is still somewhat above the long-term average value and consistent with moderate growth in private consumption. Indeed, the fundamentals behind consumption have been gradually improving during recent quarters. The eurozone labour market has been recovering since the middle of last year. The unemployment rate has declined from a level of around 12% in the autumn of 2013 to 11.5% in July, while employment growth has picked up after the middle of last year. The number of jobs rose by 0.2% qoq in Q2. Wage growth has risen as well, with wages rising by 1.2% yoy in Q2 (Q1: 1.0%). Moreover, consumption is supported by low inflation and an improvement in the housing market. Therefore, we expect ongoing moderate growth in consumption in the coming quarters.
Precious metals sell-off in full swing
Since the US dollar has started to rally on 10 July 2014, precious metal prices have fallen one by one. For example, silver prices have lost more than 17%, followed by platinum prices (-12%). Initially the sell-off was concentrated in gold and silver. Afterwards, however, the more cyclical precious metals such as platinum and palladium could not fight US dollar strength anymore. This was mainly the result of most of the positive news being reflected into prices and investors becoming more cautious about precious metals as an investment. The presence of large investor positions have made these precious metals very vulnerable to investor liquidation. A higher US dollar and higher US yield have just triggered that. Silver and platinum prices have already moved below our September targets of respectively 18 USD and 1,400 USD per ounce. Gold and palladium prices will likely reach our end of September targets of respectively 1,200 USD and 800 USD per ounce soon. Going forward we expect the sell-off in precious metal prices to continue, because the rally in the US dollar and upward adjustment in US rate expectations is far from over, in our view.