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Macro Data

Euro feels European Central Bank pressure

LONDON The euro hit its lowest in almost three years against the yen and Europe’s shares extended their best run of the year on Tuesday, as data from the region’s big economies bolstered the case for another strong dose of ECB stimulus next week.

Britain’s FTSE 100 .FTSE climbed 0.6 percent, Germany’s DAX .GDAXI jumped 1.3 percent and France’s CAC 40 .FCHI rose 0.4 percent after Asian markets had also risen after weak Chinese manufacturing and service surveys fanned stimulus hopes there.

Markit’s Purchasing Managers’ Index (PMI) will make gloomy reading for the European Central Bank, coming little more than a week before its next policy setting meeting where it is expected to increase its support programme.

Markit’s eurozone factory PMI hit a 12-month low of 51.2, down from 52.3 in January, dragged down by weakness in the two largest euro economies.

Today’s report shows that:

  • Slower growth of production, new orders, export business and employment
  • France and Germany hover close to stagnation mark; Greece slips back into contraction

Markit EZ PMI 1 03 16

Chris Williamson, chief economist at Markit, says the eurozone faces the threat of sluggish growth in 2016, or a full-blown downturn.

“Lacklustre domestic demand is being compounded by a worsening global picture. Exports either fell or rose more slowly in all countries surveyed with the sole exception of Austria.

“For a region in desperate need of lower unemployment, the near-stalling of jobs growth in the manufacturing sector comes as disappointing news. Firms are cutting back on their hiring due to worries about the outlook.

“Prices are meanwhile being dropped as firms endeavour to boost sales, suggesting deflationary pressures have intensified. Input prices are falling at a rate not seen since July 2009.

“With all indicators – from output and demand to employment and prices – turning down, the survey will add pressure on the ECB to act quickly and aggressively to avert another economic downturn.”

Growth in Germany’s factory sector has ground to a near-halt, according to Markit.

The German manufacturing PMI slowed sharply to 50.5, a 15-month low, from 52.3 in January. New orders, and new exports, both dipped to the slowest growth since last summer.

France’s manufacturers remained in near-stagnation last month.

The French PMI came in at 50.2, up from 50.0 in January – which showed no growth at all.

Companies interviewed by Markit reported a drop in new business, and deflationary pressures.

Markit economist Jack Kennedy says:

“Falling new orders were again the source of weakness, leading firms to cut production levels slightly.

Meanwhile, the survey’s price indices point to continued downward pressure on already low inflation.”

Italy’s factory sector didn’t enjoy a great February.

The Italian manufacturing PMI has fallen to 52.2, from 53.2 in January. That’s the lowest reading in a year, signalling that growth last month.

New orders also rose at the slowest pace since February 2015.

he Dutch manufacturing sector has reported its slowest growth in 18 months, with the PMI dropping to 51.7 from 52.4.

And Spain’s factory PMI has dipped to 54.1, from 55.4. That’s a solid growth rate, and is the 27th month of expansion in a row.

Italy 2015 GDP Grows 0.8%, Misses Forecast
Italy’s economy advanced 0.8 percent in 2015 following a downwardly revised 0.3 percent contraction in 2014. Although it was the first annual growth after a three-year recession, it stayed below government’s forecast of 0.9 percent expansion. Separate data from Istat showed that Italy’s public debt reached a new peak last year of 132.6 percent of GDP compared to 132.5 percent in 2014 while government budget deficit came in at 2.6 percent of GDP from 3 percent in the previous year.

South Africa Q4 GDP Growth Slows to 0.6%
The South African economy advanced an annualized 0.6 percent on quarter in the three months to December of 2015, easing from a 0.7 percent growth in the previous period while missing market consensus of 0.8 percent. Trade, mining and construction were the main drivers of growth while manufacturing and agriculture dragged the expansion down. Year-on-year, the economy advanced 0.6 percent, slowing from a 1 percent growth in the third quarter and hitting its lowest level since the 2009 recession. Considering full 2015, the GDP grew 1.3 percent compared to a 1.4 percent expansion in 2014.

Confusingly, China actually has two PMI reports — the Caixin one which is so gloomy this month, and reported in an earlier post, and a separate survey conducted by the government.

And that official PMI confirms that the factory sector shrank last month:

The Financial Times has the details:

China’s official manufacturing purchasing managers’ index fell to 49 in February from 49.8 in January, equalling its weakest since February 2009 and the seventh straight month of decline. The National Bureau of Statistics, which released the measure, said this was partly due to seasonal effects of the lunar new year holiday, when many factories shut down for extended periods to allow workers to travel to distant hometowns to spend time with their families.

The official services sector PMI, which had previously held up better than the manufacturing index in China’s economic slowdown, also slipped last month to 52.7, its weakest level since December 2008.

Curencies

The yen eased back in early European trading but was still hot to the touch having completed its best month against the dollar since 2008 and reached its highest against the euro EURJPY since April 2013. 

That was despite Japan becoming the first major G7 economy to sell 10-year government bonds at a negative yield, something that would usually make the currency less attractive as investors effectively pay rather than get paid to hold them.

Russia’s ruble rose 2 percent versus the dollar and Malaysia’s ringgit strengthened 0.7 percent as the rebound in crude prices brightened prospects for the oil-exporting nations. South Africa’s rand jumped 1 percent as data showed foreign investors on Monday pumped the most money into the nation’s stock market since 2009.

The yuan rose for the first time in eight days in Shanghai after the PBOC raised its reference rate by 0.1 percent to 6.5385. China’s officials said there is no intention or need to devalue the yuan, according to U.S. Treasury Secretary Jacob J Lew, who was speaking at a briefing in Hong Kong after Monday meetings with Premier Li Keqiang.

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