In Portfolioticker today
- Energy: Oil and Gas Futures
- AU: Commonwealth Bank Services PMI. Dec 2017
- EU: IHS Markit Eurozone Composite PMI. Dec 2017
- US: ADP National Employment Report. Dec 2017
- US: Unemployment Insurance Weekly Claims Report
- US: IHS Markit US Services PMI. Dec 2017
- Global: JPMorgan Global Services PMI. Dec 2017
- Global: JPMorgan Global Composite PMI. Dec 2017
Today at the stock market
“The Dow industrials broke above the 25,000 level for the first time on Thursday and other major indexes hit closing record highs again, propelled by strong global economic data that extended the new year’s rally for the stock market.
About 7.0 billion shares changed hands on U.S. exchanges, above the 6.3 billion daily average for the past 20 trading days, according to Thomson Reuters data.
The 30-member blue-chip index crossed five 1,000-point marks in 2017 on the back of U.S. President Donald Trump’s pro-growth agenda and solid corporate earnings. It took less than a year for the Dow to add a 5,000-point milestone, which is the fastest since the index was created in May 1896.
Wall Street has started 2018 on a strong note. The benchmark S&P index closed above 2,700 for the first time on Wednesday and the Nasdaq settled above 7,000 a day earlier. Both indexes also registered closing record highs on Thursday.
Strong manufacturing and services sector data from the world’s largest economies provided a bullish tone on Thursday, while other data showed U.S. private employers stepped up hiring in December. Friday will bring the key U.S. non-farm payrolls report.
“There are expectations we will see volatility creep back into the market and pull this market down,” at some point this year, said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey. “But as long as you have economic growth and earnings moving higher… there’s still a solid underpinning,” she said. The rally shows “investors are expecting conditions to remain solid at least in the initial couple of months.”
Financials led gains on the S&P 500 on Thursday, with Wells Fargo up 1.3%, JPMorgan Chase up 1.4% and Goldman Sachs also up 1.4%.
“There were very positive notes on the banks today so that set the tone for the group. As we head into earnings, a lot of people will take a break. The banks are well owned. People are positive, but the banks are due for a little pause,” said R.J. Grant, head of trading at Keefe, Bruyette & Woods in New York.
S&P 500 companies are expected to soon begin reporting quarterly earnings, with JPMorgan results due next week.
On the downside, Victoria’s Secret owner L Brands slid 12.3% on a disappointing quarterly earnings forecast.
Macy’s shares fell 3.3% after reporting only modest growth in holiday sales and saying it would close stores and slash thousands of jobs this year. Other department store operators including J.C. Penney Co Inc also tumbled.” Reuters
^ Market indices today (mouseover for 12 month view) Chart: Google Finance
|Index||Ticker||Today||Change||31 Dec 17||YTD|
|S&P 500||SPX (INX)||2,723.99||+0.40%||2,238.83||+1.88%|
^ USD and AUD denominated indices over the past 52 weeks Chart: Bunting
|Index||Currency||Today||Change||31 Dec 17||YTD|
Portfolio stock prices
Alphabet closed on a record high of $2,182, beating yesterday’s record of $2,098.65
- GOOGL closed on a record high of $1,095.76, up 0.40% on yesterday’s record of $1,091.42
- GOOG closed on a record high of $1,088.40, up 0.41% on yesterday’s record of $1,082.00
Amazon closed on a record high of $1,209.59, up 0.48% on yesterday’s record of $1,203.84
Visa closed on a record high of $116.08, up 0.37% on yesterday’s record of $115.65
VMware closed on a record high of $131.24, up 0.93% on yesterday’s record of $130.03
|Stock||Ticker||Today||Change||31 Dec 17||YTD|
^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg
“The Bloomberg Dollar Spot Index (DXY) dipped 0.2%.
The EUR rose 0.5 percent to USD 1.2069, after touching the strongest in about 3 years.” Bloomberg
^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com
Oil and Gas Futures
Prices are as at 15:48 ET
- NYMEX West Texas Intermediate (WTI): $61.88/barrel +0.41% Chart
- ICE (London) Brent North Sea Crude: $67.92/barrel +0.12% Chart
- NYMEX Natural gas futures: $2.87/MMBTU -4.49% Chart
AU: CBA Services PMI. Dec 2017
Press Release Extract [au_psi]
Output growth in the Australian service sector gathered further momentum during December, with the pace of expansion accelerating to the quickest since July. New orders grew at a slightly faster pace, while the rate of backlog accumulation accelerated to a seven-month high. However, confidence eased to the lowest since May, while job creation slowed. Meanwhile, output price inflation climbed to a survey peak, reflecting increased input costs.
The headline figure derived from the survey is the Commonwealth Bank of Australia Services Business Activity Index, which is designed to provide timely indications of changes in business activity in the Australian service sector. Readings above 50.0 signal an improvement in business activity on the previous month while readings below 50.0 show deterioration.
The seasonally adjusted Business Activity Index increased in December to 55.1, from 54.0 in November, to indicate a strong rate of growth that was the fastest since July.
Higher business activity was linked to the beginning of new project work by some panellists. Others mentioned that order receipts had been favourable during December. Indeed, new business placed with Australian service providers rose. The rate of expansion quickened for the second month running to the most pronounced since September. Firms attributed stronger demand to a positive economic environment and successful tendering.
Greater order book volumes exerted pressure on operating capacity however. Outstanding business increased markedly and at an accelerated rate that was the highest since May.
Despite the marked rise in unfinished work, businesses hired additional staff at a weaker pace during December. Nonetheless, the rate of job creation was broadly in line with the series average.
Supportive demand conditions encouraged firms to raise selling prices. Output charge inflation edged higher, accelerating to the fastest rate in the 20-month survey history. Concurrently, input costs increased to a sharper extent amid reports of greater labour expenses. Furthermore, some panellists were impacted by the recent implementation of the container deposit scheme.
Business optimism was retained overall during December, but the degree of confidence moderated to a sevenmonth low. Nonetheless, the majority of panellists (65%) anticipated output to rise over the coming 12 months, attributing the positive outlook to planned company expansions and growth forecasts.
Commonwealth Bank Composite PMI®
The Commonwealth Bank Composite Output Index is a GDP-weighted average of the Commonwealth Bank Manufacturing Output Index and the Commonwealth Bank Services Business Activity Index. It is designed to provide a timely indication of changes in business activity in the Australian private sector economy as a whole. Readings above 50.0 signal an improvement in business activity on the previous month, while readings below 50.0 show deterioration.
The seasonally adjusted Commonwealth Bank Composite Output Index increased from 54.3 in November to 55.5 in December, to signal a strong and quickened rate of output growth across the Australian private sector. Furthermore, the upturn was the fastest since July.
Commenting on the Commonwealth Bank Services and Composite PMI data, CBA’s Chief Economist, Michael Blythe, said:
‘The combination of strong and rising services activity at the end of 2017 indicates that the Australian economy will enter 2018 with a respectable momentum behind it. Robust readings in the New Business Index and the Business Expectations Index support this view”.
‘The large lift in the Outstanding Business Index at the end of 2017 suggests capacity constraints are biting more sharply. The robust demand reported by panellists that is driving capacity pressures is putting pressure on labour costs and output prices. These developments will bear careful watching.’”
Commonwealth Bank of Australia, “Commonwealth Bank Services PMI. Dec 2017“, 4 Jan 2018 More
EU: IHS Markit Eurozone Composite PMI. Dec 2017
Press Release Extract [eu_psi]
Final Eurozone Composite Output Index: 58.1 (Flash: 58.0, November Final: 57.5) Final Eurozone Services Business Activity Index: 56.6 (Flash: 56.5, November Final: 56.2)
The euro area economy gathered further growth momentum at the end of 2017, spurred on by a near-record expansion of manufacturing production and the steepest increase in service sector activity for over-six-and-a-half years.
The final IHS Markit Eurozone PMI® Composite Output Index posted 58.1 in December, up from 57.5 in November, to register its highest reading since February 2011. The headline index has signalled growth for 54 successive months, with the average level during quarter four the best since the opening quarter of 2011.
Ireland remained at the top of the national output PMI growth league table in December, seeing its rate of expansion accelerate to the fastest for 21 months. France saw its pace of output growth remain close to November’s high, putting it in second position overall. Rates of output expansion improved in Germany (80-month record), Italy (eight-month high) and Spain (three-month high).
The trend in new business also strengthened in December. Manufacturers saw the steepest increase since April 2000, underpinned by improved domestic demand and near-record growth in new export orders. Service providers, meanwhile, registered the fastest increase in new work for over a decade.
The positive economic environment led to improved business confidence in the euro area. Optimism rose to its best since September, after strengthening to a joint-record high in Germany and three-month highs in France, Spain and Ireland.
Rising new order intakes and an associated accumulation of backlogs of work encouraged firms to take on additional staff in December. The pace of job creation matched November and was the joint- highest seen during the past 17 years. Employment increased in Germany, France, Italy, Spain and Ireland.
Upward price pressures abated slightly in December, with rates of increase in input costs and output charges both easing for the first time in five months. The pace of inflation signalled for each price measure remained strong relative to their long-run trends, however, and among the steepest seen over the past six-and-a-half years.
Eurozone service sector business activity rose at the quickest pace for 80 months in December, underpinned by the steepest increase in new work for over a decade. At 56.6 in December, up from 56.2 in November, the final IHS Markit Eurozone PMI® Services Business Activity Index posted above the earlier flash estimate of 56.5.
Output growth accelerated in Germany (24-month high), Italy (five-month high), Spain (two-month high) and Ireland (eight-month high), but slowed slightly in France. That said, the rate of expansion in France was only slightly below November’s six- and-a-half year record high.
Companies mainly attributed higher activity and stronger new order intakes to improved economic conditions. Inflows of new work remained sufficiently robust to test capacity, leading to a further rise in work-in-hand at eurozone service providers. Outstanding business expanded for the nineteenth successive month, albeit at a weaker pace than in November.
The rate of job creation subsequently remained elevated, matching the previous survey’s decade- high. Staffing levels were raised in each of the nations covered, expanding at accelerated rates in Germany, Italy and Ireland.
Input price pressures increased in December, with the rate of cost inflation the highest for six-and-a- half years. Part of the rise was passed on to clients in the form of higher service charges. However, the pace of output price inflation eased for the first time in six months. Increases in charges were signalled in almost all of the nations covered, the exception being Italy.
Firms held a positive outlook towards output growth in 2018. The degree of positive sentiment rose to a three-month high and remained strong overall. Business confidence improved in Germany, France, Spain and Ireland, but moderated in Italy.
Chris Williamson, Chief Business Economist at IHS Markit said:
‘A stellar end to 2017 for the eurozone rounded off the best year for over a decade, continuing to confound widely-held fears that rising political uncertainty would curb economic growth. At 56.4, the average PMI reading for 2017 was the highest annual trend since 2006. Manufacturing is enjoying its best growth spell since data were first collected over two decades ago while the service sector closed off its best year since 2007.
‘The survey data are consistent with the quarterly rate of GDP growth accelerating to an impressive 0.8% in Q4, with no sign of momentum being lost as we move into 2018. New work is flowing to companies at a rate not seen for a decade and backlogs of uncompleted work are rising sharply. Hiring is consequently at a 17-year high as firms look to boost capacity to meet rising workloads. Optimism about the outlook also turned higher in December.
‘While not accelerating in December, price pressures are running at the highest for over six years as solidifying demand nurtures improved pricing power. Based on past experience, the extent to which demand appears to be outstripping supply for many goods and services suggests that inflationary pressures could continue to build in the coming months. A big question for 2018 will therefore be whether relatively high unemployment and spare capacity in many countries will continue to hold down pay growth and keep a ceiling on consumer price inflation; a reminder that many wounds from the global financial crisis and the region’s sovereign debt crisis are still healing.’”
IHS Markit, “IHS Markit Eurozone Composite PMI® – final data. Includes IHS Markit Eurozone Services PMI®. Dec 2017“, 4 Jan 2018 More
US: ADP National Employment Report. Dec 2017
Press Release Extract [us_adp]
Private sector employment increased by 250,000 jobs from November to December according to the December ADP National Employment Report®
‘We’ve seen yet another month where the labor market has shown no signs of slowing Throughout the year there was significant growth in services except for an overall loss of jobs in the shrinking information sector. Looking at company size, small businesses finished out 2017 on a high note adding more than double their monthly average for the past six months,’ said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute.
Mark Zandi, chief economist of Moody’s Analytics, said, ‘The job market ended the year strongly. Robust Christmas sales prompted retailers and delivery services to add to their payrolls. The tight labor market will get even tighter, raising the specter that it will overheat.’ ”
ADP Research Institute, “ADP National Employment Report. Dec 2017“, 4 Jan 2018 (08:15) More
US: Unemployment Insurance Weekly Claims
Press Release Extract [ser_4]
“Seasonally Adjusted Data
In the week ending December 30, the advance figure for seasonally adjusted initial claims was 250,000, an increase of 3,000 from the previous week’s revised level. The previous week’s level was revised up by 2,000 from 245,000 to 247,000. The 4-week moving average was 241,750, an increase of 3,500 from the previous week’s revised average. The previous week’s average was revised up by 500 from 237,750 to 238,250.
Claims taking procedures continue to be disrupted in the Virgin Islands. The claims taking process in Puerto Rico has still not returned to normal.
The advance seasonally adjusted insured unemployment rate was 1.4 percent for the week ending December 23, unchanged from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 23 was 1,914,000, a decrease of 37,000 from the previous week’s revised level. The previous week’s level was revised up 8,000 from 1,943,000 to 1,951,000. The 4-week moving average was 1,922,500, an increase of 750 from the previous week’s revised average. The previous week’s average was revised up by 2,000 from 1,919,750 to 1,921,750.
The advance number of actual initial claims under state programs, unadjusted, totaled 351,920 in the week ending December 30, an increase of 26,998 (or 8.3 percent) from the previous week. The seasonal factors had expected an increase of 22,767 (or 7.0 percent) from the previous week. There were 350,561 initial claims in the comparable week in 2016.
The advance unadjusted insured unemployment rate was 1.5 percent during the week ending December 23, an increase of 0.1 percentage point from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 2,077,014, an increase of 91,039 (or 4.6 percent) from the preceding week. The seasonal factors had expected an increase of 130,708 (or 6.6 percent) from the previous week. A year earlier the rate was 1.6 percent and the volume was 2,253,543.
The total number of people claiming benefits in all programs for the week ending December 16 was 2,022,166, an increase of 17,935 from the previous week. There were 2,153,852 persons claiming benefits in all programs in the comparable week in 2016.
Initial claims for UI benefits filed by former Federal civilian employees totaled 924 in the week ending December 23, a decrease of 392 from the prior week. There were 640 initial claims filed by newly discharged veterans, a decrease of 81 from the preceding week.
There were 13,836 former Federal civilian employees claiming UI benefits for the week ending December 16, a decrease of 2,595 from the previous week. Newly discharged veterans claiming benefits totaled 8,712, a decrease of 176 from the prior week.
The highest insured unemployment rates in the week ending December 16 were in the Virgin Islands (7.7), Puerto Rico (5.5), Alaska (3.9), New Jersey (2.4), Connecticut (2.2), Montana (2.2), California (2.1), Massachusetts (2.1), Pennsylvania (2.1), and Illinois (2.0).
The largest increases in initial claims for the week ending December 23 were in Kentucky (+9,063), Pennsylvania (+3,590), New Jersey (+3,086), Missouri (+3,038), and New York (+2,611), while the largest decreases were in California (-2,482), Puerto Rico (-1,556), Florida (-361), Minnesota (-357), and Arizona (-320).“
Employment and Training Administration, “Unemployment Insurance Weekly Claims Report“, 4 Jan 2018 (08:30) More
US: IHS Markit US Services PMI. Dec 2017
Press Release Extract [us_psi]
- Slower expansion in business activity in December
- Upturn in new orders remains relatively strong
- Business confidence slips further to a 15-month low
December data signalled a solid, but softer expansion in business activity across the US service sector. Moreover, the latest upturn eased to a seven-month low. In line with the trend in output, the rate of growth in new business volumes softened slightly. Meanwhile, backlogs continued to rise and the latest expansion was the fastest for four months. Another solid rise in employment levels was linked to greater capacity pressures. On the price front, both input cost and charge inflation eased slightly. In line with softer business activity growth, the degree of optimism in the sector dipped to a 15-month low.
The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 53.7 in December, down from 54.5 in November. The latest index was higher than the earlier ‘flash’ reading (52.4) and indicated a solid increase in business activity at US service providers. A number of panel members suggested the upturn was due to greater client demand and increased new order volumes. However, the overall rate of activity growth was the weakest since May and below the series trend.
New business received by service providers continued to increase in December, albeit at a softer pace than that seen in the previous survey period. Anecdotal evidence linked the rise in new orders to the acquisition of new clients and more favourable market conditions.
Meanwhile, the level of outstanding business at service sector firms rose further in December, with the rate of growth accelerating to reach a four- month high. Employment levels also continued to increase in December, as monitored firms reported a solid rate of job creation. Increased hiring was attributed to greater capacity requirements and the upturn in new order volumes. That said, workforce numbers rose at the softest pace since June.
Inflationary pressures eased in December, with both input price and charge inflation softening. The latest rise in cost burdens was attributed by panellists to higher fuel prices and staff salaries. Greater input costs were partly passed on to clients, as firms noted that average charges also rose solidly. Although the rate of inflation softened, it was above the series trend.
Business confidence towards the future outlook was relatively subdued in December, with service providers reporting the lowest level of optimism since September 2016. Where expectations were positive, panel members linked this to greater client demand and more favourable market conditions.
IHS Markit Final U.S. Composite PMI™
The final seasonally adjusted IHS Markit U.S. Composite PMI™ Output Index fell to 54.1 in December, down from 54.5 in November. Despite an accelerated upturn in manufacturing output, the composite index signalled softer growth following a slower expansion in service sector business activity.
The latest composite index figure was above the earlier flash reading (53.0) and indicated a solid end to 2017, despite output growth easing to a six- month low.
The composite index is based on original survey data from the IHS Markit U.S. Services PMI and the IHS Markit U.S. Manufacturing PMI.
Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
‘The final services and manufacturing PMI surveys collectively signalled faster business activity growth than the earlier flash readings, though still indicated a moderation in the pace of expansion to the weakest since June. A welcome improvement in manufacturing output growth was countered by a slowdown in the comparatively larger services economy.
‘However, while moderating, the overall rate of expansion remains relatively robust, with the PMIs running at levels consistent with the economy growing at a solid 2-2.5% annualised rate in the fourth quarter.
‘Similarly, hiring, while also slowing slightly at the end of the year, continued to run at a pace indicative of non-farm payrolls up by around 195,000 in December as firms boosted capacity in line with rising demand. Price pressures meanwhile moderated but remained elevated by standards seen over the past three years.’”
IHS Markit, “IHS Markit U.S. Services PMI™ – final data (with composite PMI™) – Business activity growth softens to seven-month low in December“, 4 Jan 2018 (09:45) More
Global: JPMorgan Global Services PMI. Dec 2017
Press Release Extract [global_psi]
The end of 2017 saw rates of expansion in global service sector output and new orders tick higher, leading to a further solid increase in staffing levels.
The J.P.Morgan Global Services Business Activity Index – a composite index produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – rose to 53.9 in December, up from 53.7 in November. The average index reading over the final quarter of 2017 was identical to the prior quarter, which was the highest since Q2 2015.
The strongest upturn in business activity was registered in the business services category, where the rate of increase accelerated to a four-month high. Growth eased in the consumer and financial services sectors, with the slower pace of expansion in the former.
National PMI data highlighted broad-based growth of business activity, with expansions signalled in almost all of the countries covered. The sole exception was Brazil, which saw output contract for the third straight month.
Rates of growth accelerated in the euro area (80-month high), China (40-month high), the UK (two-month high) and Australia (five-month high). Expansions were also registered in the US and Russia, albeit slower than those seen in November, while India returned to growth following a mild contraction in the prior survey month.
Global service sector employment rose again in December, extending the current sequence of increase to 94 months. Jobs growth reflected improved inflows of new work and rising volumes of outstanding business. Staffing levels increased in the US, the euro area, China, the UK, Russia, Australia and India.
December saw rates of input cost and output charge inflation moderate. For both price measures, increases were (on average) steeper in developed nations compared to those signalled for emerging markets.
Global service providers maintained an optimistic outlook at the end of 2017, forecasting higher output in one year’s time. However, the degree of positive sentiment slipped to a 15-month low.
Commenting on the survey, David Hensley, Director of Global Economic Coordination at J.P.Morgan, said:
‘According to the global PMI, growth of global services output and new business improved at the end of 2017. The performance over the final quarter was also solid, with business activity rising at a similar pace to the third quarter’s recent high. On this positive heading, the sector should maintain its current pace of expansion at the start of 2018.”
J.P.Morgan and IHS Markit in association with ISM and IFPSM , “J.P.Morgan Global Services PMI™: Growth of global service sector activity improves in Dec 2017“, 4 Jan 2018 (11:00) More
Global: JPMorgan Global Composite PMI. Dec 2017
Press Release Extract [global_composite_pmi]
The global economy ended 2017 on a firm footing. Output rose at the fastest pace since March 2015, underpinned by the steepest increase in new business in three-and-ahalf years. The expansion remained broad-based, with economic activity rising across the six sectors covered by the survey (consumer, intermediate and investment goods and business, consumer and financial services).
The J.P.Morgan Global All-Industry Output Index, which is produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM, posted 54.4 in December, up from 54.1 in November. The headline index has signalled expansion for 63 successive months.
Output growth accelerated in both the manufacturing and service sectors. The stronger pace of expansion was signalled in the former, where the upturn hit an 82-month record. The service sector recouped part of the growth momentum lost between October and November.
PMI data signalled that the euro area remained the strongest-performing region. Output across the currency union rose at the fastest rate in almost seven years, led by a near survey-record high expansion in manufacturing production. Similarly, eurozone services activity rose to the greatest extent in 80 months.
Economic activity increased at faster rates in China (12- month high), the UK (two-month high), India (14-month high) and Australia (five-month high). Growth slowed slightly in the US and Russia, but remained solid in both cases. However, the rate of increase in the US slipped below the global average for the first time since May. Brazil was the only nation to register a contraction.
The continued global economic upturn supported further job creation, with employment rising at the quickest pace during the current seven-year sequence of increase. Staffing levels were raised in almost all of the nations covered, the sole exception being a modest reduction in Brazil. The increase in China was only minor.
Business optimism remained positive at the end of 2017, with companies forecasting an increase in economic activity over the coming year. However, the degree of positive sentiment slipped to a 13-month low.
December saw inflation of input costs and output charges ease slightly. Rates of increase in both price measures were marginally higher (on average) in developed nations compared to emerging markets.
Commenting on the survey, David Hensley, Director of Global Economic Coordination at J.P.Morgan, said:
‘The global PMI indicates the rate of global economic expansion gathered momentum in December, with output rising at a pace last achieved in early-2015. Forward- looking indicators such as new orders and backlogs of work also point to the current solid upturn being extended into the start of 2018. Growth in the goods-sector appears to be especially strong.’”
J.P.Morgan and IHS Markit in association with ISM and IFPSM , “J.P.Morgan Global Manufacturing & Services PMI™: Global economic growth strengthens at end of 2017“, 4 Jan 2018 (11:00) More
JP: Nikkei Japan Manufacturing PMI. Dec 2017
- Output growth gathers further momentum
- New orders increase at sharper rate
- Business confidence weakens
Japanese manufacturers marked the final month of 2017 with the greatest improvement in operating conditions since February 2014. Output growth quickened for the fifth successive month amid a broad-based rise in new orders. In turn, backlogs of work were accumulated, spurring on firms to hire additional staff.
To the downside, business confidence dipped marginally to a 13-month low as some firms raised concerns over the ageing population.
The headline Nikkei Japan Manufacturing Purchasing Managers’ Index™ (PMI)® – a composite single-figure indicator of manufacturing performance – posted 54.0 in December, up from 53.6 in November. This indicated a strong improvement in business conditions across the Japanese manufacturing sector. In fact, the headline figure rose to a 46-month high.
Incoming new business placed with Japanese manufacturers increased markedly in December. Order book volumes expanded at the joint-sharpest rate since January 2014, on a par with February of that year. Firms reported new contract wins from both domestic and overseas markets. Consequently, new export orders rose at an accelerated pace amid reports of greater demand from China and Taiwan. Furthermore, greater inflows of new work underpinned the strongest rate of output growth in 46 months.
Subsequently, stronger demand intensified capacity pressures across the Japanese manufacturing sector. Backlogs of work were accumulated moderately and for a fourth successive month. In turn, firms opted to use inventories of finished goods to ease the burden on the production line. The rate of depletion was modest having quickened from the previous month. Accordingly, firms boosted employment in order to enhance production capabilities. That said, the rate of job creation eased to a modest pace following November’s six-month high.
Robust demand conditions prompted businesses to raise purchasing activity. In fact, input buying increased at the fastest rate in almost two years. As a result, pressure on supply chains rose. Vendor performance deteriorated to a greater extent as panellists indicated that stronger demand had resulted in material shortages. In turn, this encouraged businesses to use pre-production inventories. Input stocks were depleted at the quickest rate in 12 months.
On the price front, operating expenses increased sharply. The weakness of the yen along with higher oil and metal prices were frequently mentioned by survey respondents. In turn, this provoked firms to raise output charges. Selling prices were increased for the twelfth month in a row, marking the longest run of inflation since the period ending November 2008.
Meanwhile, although firms were optimistic overall, the degree of confidence weakened to the lowest since November 2016. Positive expectations were attributed to forecasts of stronger demand. However, some firms linked their pessimism to the ageing population.
Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:
‘The Japanese manufacturing sector concluded Q4 with the highest PMI reading since February 2014. Output growth accelerated for a fifth month in succession, while new business opportunities, both domestic and foreign, rose sharply.
‘Firms took advantage of the robust demand backdrop and raised selling prices for a twelfth month in a row, extending the current run of inflation to the longest seen since a 15-month stint ending in November 2008. This will provide encouragement that the aggressive monetary easing Bank of Japan policymakers have pursued is being effectively transmitted into the economy.
‘That said, although firms retained a positive outlook over the forthcoming 12 months, the degree of optimism eased to a 13-month low amid concerns regarding the ageing population.’
IHS Markit, “Nikkei Japan Manufacturing PMI®: Manufacturing sector ends Q4 with solid improvement“, 4 Jan 2018 More
^ JPY movements against the USD over the past month (mouseover for inverse) Chart: xe.com
Stockmarket: Nikkei 225
^ Nikkei 225 movements over the past week Chart: Google Finance
Caixin China General Services PMI. Dec 2017
- Solid increase in services activity accompanied by faster growth in manufacturing output
- Total new work rises to greatest extent in nearly five years
- Employment remains broadly stable
Summary – Services and Composite PMI data
The Caixin China Composite PMITM data (which covers both manufacturing and services) signalled a solid upturn in Chinese business activity at the end of 2017. At 53.0, the Composite Output Index picked up from 51.6 in November to indicate the fastest rate of activity growth for a year.
Steeper increases in activity were registered across both the manufacturing and service sectors during December. Notably, services companies recorded the quickest expansion in activity since August 2014. This was shown by the seasonally adjusted Caixin China General Services Business Activity Index rising from 51.9 in November to 53.9 at the end of the year. Meanwhile, manufacturing output increased at a pace that, though modest, was the strongest seen for three months.
Improved growth of services activity was widely linked to greater volumes of new business. Latest data indicated that services companies saw the strongest upturn in new orders since May 2015, with around 14% of monitored companies noting an increase. Manufacturers also signalled a steeper rate of new order growth in December. Moreover, the rate of expansion was the strongest seen for four months, with a number of panellists commenting on greater client bases and new product launches. As a result, composite new orders rose at the quickest pace since January 2013.
Services companies continued to add to their payroll numbers at the end of the year amid reports of rising business requirements. That said, the rate of job creation was similar to that seen in November and moderate. Employment at Chinese manufacturers meanwhile remained on a downward trend in December, though the rate of job shedding was the least marked for nine months. Consequently, staffing levels at the composite level was broadly unchanged, as has been the case in each of the past five months.
December data pointed to little pressure on capacity at services companies, with backlogs of work falling for the fourth month in a row. However, the rate of backlog depletion was marginal, as has been the case throughout the current sequence of reduction. In contrast, outstanding work rose solidly at goods producers, which in turn underpinned a modest rise in unfinished business at the composite level.
Average input costs faced by services companies in China increased at a solid and accelerated rate in December. Furthermore, the rate of inflation was the joint-quickest since February 2013 (on par with March 2017). Raw materials, transportation and salaries were all cited as having gone up in price in the latest survey period. Cost burdens meanwhile rose sharply at manufacturing companies, despite the rate of inflation softening to a four-month low. At the composite level, input prices rose at a marked pace that was unchanged from November.
Greater input costs prompted service providers to raise their average charges again in December. That said, the rate of inflation was little- changed from the previous month and moderate overall. Factory gate prices increased solidly, despite the rate of inflation softening since November. Therefore, prices charged for manufactured goods and services overall rose at a moderate pace that was slightly weaker than in the previous month.
Business confidence towards the 12-month outlook for activity improved across both the manufacturing and service sectors at the end of the year. Services companies expressed the greatest degree of optimism since June, while sentiment at manufacturers picked up from November’s joint-record low. However, business confidence remained at a historically-subdued level overall.
Commenting on the China General Services PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:
‘The Caixin China General Services Business Activity Index rose 2.0 points from the previous month to 53.9 in December, the highest level since August 2014. The expansion in new business picked up for the second consecutive month. Prices charged increased at a slightly slower rate in December, while input prices rose at the joint-fastest pace since February 2013.
‘The Caixin China Composite Output Index rose 1.4 points from November to 53.0 in December, with both manufacturing and service sectors seeing stronger rates of growth. The December readings of the Caixin PMI surveys also point to improving economic sentiment. Expansions in total new orders and new export business supported optimism among manufacturers and service providers towards the business outlook for next year. Although China’s economic growth remains under downward pressure, it is still resilient. However, special attention should be paid to whether future policies will become tighter than expected.’“
IHS Markit, “Caixin China General Services PMI™: Business activity growth in China strengthens to one-year high in December“, 4 Jan 2018 More
^ CNY movements against the USD over the past month (mouseover for inverse) Chart: xe.com
^ Shanghai CSI300 movements over the past week Chart: Google Finance