Along with a U.S. market (NYSE:SPY) that almost always goes up, the other thing that happens on the first day of the month are global releases of manufacturing data.
China’s 2 PMI’s (one from govt, one from HSBC) showed a slowdown, while Europe was stronger. The Chinese (NYSE:FXI) slowdown could actually be seen as a positive, as they are trying to slow their economy and China (NYSE:FXI) seemingly can turn on a dime when needed. Early last fall I believe their PMI readings were near 50, then they turned the spigot on – and were back off to the races. Plus during Chinese New Year, the data is not as useful. Through most of these reports there continues to be cost pressures, which either need to be absorbed by consumer or producer. Thankfully the U.S. is an inflation free zone …
- Chinese manufacturing activity softened in February, as mounting inflationary pressures acted as a negative drag on demand, though overall manufacturing activity still expanded, according to two purchasing managers’ surveys of the nation’s industrial activity released Tuesday.
- Analysts cautioned against reading too much into the data, as it offers a snapshot of factory activity during a month when businesses shut down across the country to mark the Chinese Lunar New Year holiday.
- China’s official purchasing managers’ index, released by the China Federation of Logistics & Purchasing, was 52.2 in February compared to 52.9 in January. The survey marked the 24th straight month that the PMI remained above the all-important level of 50, which separates expansion from contraction.
- Meanwhile a privately compiled PMI put out by HSBC and U.K group Markit, eased to a seven-month low of 51.7, down from 54.5 in January.
- New export orders were negative on a month-on-month basis, marking the first such contraction since August. HSBC (NYSE:HBC) also said….was the sharpest month-on-month drop since the series began in April 2004.
- HSBC’s (NYSE:HBC) chief economist for China, Hongbin Qu, said concerns about a slump in growth were “unwarranted,” though he acknowledged the data confirmed China’s (NYSE:FXI) manufacturing is cooling. “This is a good number, suggesting Beijing’s policy tightening is starting to cool excessive growth and inflation.”
- Bank of America-Merrill Lynch (NYSE:BAC) downplayed both PMIs because of potential distortions during the holiday month and an inability to adjust the data series the for seasonal factors in a credible way.
- The HSBC (NYSE:HBC) survey covers 400 companies, while the federation’s monthly reports measure data from 820 companies across a range of industries and is an indicator of future trends.
- European manufacturing growth accelerated to the fastest pace in more than 10 years in February, a further sign the economy is gathering strength. A gauge of manufacturing in the euro region rose to 59 last month from 57.3 in January, London-based Markit Economics said today. That’s the highest since June 2000. A reading above 50 indicates expansion.
- British manufacturing also grew strongly, at its fastest pace in nearly two decades.
- The output price index in the 17-nation euro zone hit a record high for the survey, which was conducted February 11-21 before oil prices spiked again last week.
- The ECB is not expected to exit from the ultra-loose monetary policy it adopted in the depths of the financial crisis when it meets on Thursday but economists expect an interest rate hike by the fourth quarter of this year.
- Raw material costs have risen broadly with oil (NYSE:USO). Worries abound that a sustained rise in commodity prices, from metals to grains, could reduce demand and so slow economic activity around the world.
Disclosure: No position
This is a guest post written by Trader Mark who runs the blog Fund My Mutual Fund.
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