Thu 1 Feb 2018


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  • Today at the stock market Opinion
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  • Today at the stock market

    bull/bearWall Street stocks gave up early gains on Thursday as bond yields rose and technology stocks retreated ahead of a host of high-profile earnings. It has been a rocky week for Wall Street with mostly robust earnings met by rising bond yields as world central banks back away from easy monetary policy.

    The benchmark S&P 500 stock index is on track for its first weekly decline in 5 weeks. Of the 11 major sectors of the S&P 500, 4 posted gains.

    • the S&P 500 index fell 1.83 points, or 0.06%, to 2,821.98
    • The Dow Jones Industrial Average rose 37.32 points, or 0.14%, to 26,186.71
    • The Nasdaq Composite index fell 25.62 points, or 0.35 percent, to 7,385.86.
    • Declining issues outnumbered advancing ones on the NYSE by a 1.24-to-1 ratio; on Nasdaq, a 1.01-to-1 ratio favored advancers.
    • The S&P 500 posted 29 new 52-week highs and 9 new lows; the Nasdaq Composite recorded 82 new highs and 66 new lows.
    • Volume on U.S. exchanges was 7.80 billion shares, above the 7.23 billion average for the full session over the last 20 trading days.

    Monetary Policy

    The Federal Reserve held the fed funds target rate steady on Wednesday but indicated it was concerned about inflation rising.
    U.S. Treasury yields continued to climb after economic indicators seemed to confirm the Fed’s inflation views.

    Banks, which benefit from higher interest rates, led the S&P 500 financials to a 1.0 percent gain, with Goldman Sachs helping to push the Dow into positive territory.

    Economy

    Initial claims for U.S. unemployment benefits were below expectations, indicating a tight labor market, while U.S. Institute of Supply Management data showed prices paid by U.S. factories hitting a near 7-year high, and fourth-quarter labor costs increased by 2.0%, adding to inflation concerns.

    Technology

    Notable stock movers included eBay, up 13.8% after its earnings report, and its announcement that it would move away from PayPal as its main payments partner. PayPal shares slid 8.1%.

    Amazon.com was up over 6.0% in after hours trading after results.
    Alphabet was down nearly 3.0% in extended trade after its quarterly earnings.
    Apple was down about 1.0% in after hours trading after posting results.

    Other Earnings Reports

    UPS was down 6.1% after it reported fourth-quarter profit that was hurt by higher holiday season shipping costs. The company was the second-biggest percentage loser on the S&P 500.

    Analysts see fourth-quarter S&P 500 company earnings growth of 14.9%, up from 12% expected on 1 Jan 2018. So far, of 227 companies that have reported, 79.7% have come in above Street estimates.

    “Earnings are going very well, it demonstrates that the dramatic cut in corporate taxes are helping every one in terms of profitability,” said Stephen Massocca, Managing Director at Wedbush Securities in San Francisco.Reuters

    Market indices

    Market indices
    ^ Market indices today (mouseover for 12 month view) Chart: Google Finance

    Index Ticker Today Change 31 Dec 17 YTD
    S&P 500 SPX (INX) 2,821.98 -0.07% 2,673.61 +5.54%
    DJIA INDU 26,186.71 +0.14% 24,719.22 +5.93%
    NASDAQ IXIC 7,385.86 -0.35% 6,903.39 +6.98%

    Portfolio Indices

    USD and AUD denominated indices over the past 52 weeks (Chart: Bunting)
    ^ USD and AUD denominated indices over the past 52 weeks Chart: Bunting

    Index values

    Index Currency Today Change 31 Dec 17 YTD
    USD-denominated Index USD 3.187 -0.21% 3.068 +3.88%
    Valuation Rate USD/AUD 0.80933 -0.19% 0.78528 +3.06%
    AUD-denominated Index AUD 3.941 -0.03% 3.909 +0.83%

    Portfolio stock prices

    :-) Ebay closed on a record high of $46.19 beating its 26 Jan 2018 record of $40.89. A major factor was its decision to dump PayPal as its backend payments processor. This led to an 8.11% fall for PayPal :-(
    :-) Facebook closed on a record high of $193.09 beating its 26 Jan 2018 record of $190.00.

    After market close (approx 5:20pm), reporting impacts:

    :-) Apple is up 3.63% at $173.50 (6:19pm)
    :-) Amazon is up 1.86% at $1,477.94 (This exceeds Amazon’s record high of $1,450.89 set yesterday) (6:19pm)
    :-( Alphabet is down (GOOGL is down 2.56% to $1,152.00) (6:18pm)
    :-) Visa is up 0.18% at $124.45. (6:14pm)

    Stock Ticker Today Change 31 Dec 17 YTD
    Alphabet A GOOGL $1,181.59 -0.06% $1,053.00 +12.21%
    Alphabet C GOOG $1,167.70 -0.20% $1,045.65 +11.67%
    Apple AAPL $167.78 +0.20% $169.23 -0.86%
    Amazon AMZN $1,390.00 -4.20% $1,169.54 +18.85%
    Ebay EBAY $46.19 +13.82% $37.76 +22.32%
    Facebook FB $193.09 +3.31% $176.46 +9.42%
    PayPal PYPL $78.40 -8.12% $73.61 +6.50%
    Twitter TWTR $27.14 +5.15% $24.01 +13.03%
    Visa V $125.72 +1.19% $114.02 +10.26%
    VMware VMW $125.71 +1.55% $125.32 +0.31%

    FX: USD/AUD

    USD

    DXY movements
    ^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg

    The Bloomberg Dollar Spot Index (DXY) fell 0.5%.
    The EUR rose 0.3% to USD 1.2456, the strongest in more than 3 years on the largest gain in more than a week.
    Britain’s GBP rose 0.3% to USD 1.423, the strongest in more than a week.
    Japan’s JPY fell 0.4% to 109.59 per USD, the weakest in more than a week.
    The MSCI Emerging Markets Currency Index fell 0.2%.
    Bloomberg

    AUD

    AUD movements
    ^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com

    Oil and Gas Futures

    Futures prices

    Prices are as at 15:46 ET

    • NYMEX West Texas Intermediate (WTI): $66.13/barrel +2.16% Chart
    • ICE (London) Brent North Sea Crude: $69.89/barrel +1.45% Chart
    • NYMEX Natural gas futures: $2.87/MMBTU -4.04% Chart

    Alphabet Q4/2017 Earnings Report

    Press Release Extract [goog]

    Alphabet Inc. today announced financial results for the quarter and fiscal year ended December 31, 2017.
    “Our business is driving great growth, with 2017 revenues of $110.9 billion, up 23% year on year, and fourth quarter revenues of $32.3 billion, up 24% year on year. Our full year operating income growth continues to underscore our core strength, and on top of this, we continue to make substantial investments for the long-term in exciting new businesses,” said Ruth Porat, CFO of Alphabet.

    Q4 2017 financial highlights

    In order to facilitate comparison of current quarter performance to prior periods, this summary table highlights the impact of the U.S. Tax Cuts and Jobs Act (Tax Act):

    googl_tax_20180201

    The following summarizes our consolidated financial results for the quarters ended December 31, 2016 and 2017 (in millions, except for per share information, effective tax rate, and number of employees; unaudited), reported on a GAAP basis including the impact of the Tax Act (except for constant currency revenues information):

    googl_fin1_20180201

    Note: Not included in this extract: Q4 2017 supplemental information, incl segment revenues, traffic acquisition costs, paid clicks and cost per click. Financial statements are also available in the press release

    Impact of the Tax Act

    The Tax Act was enacted on December 22, 2017 and resulted in additional tax expense of $9.9 billion in the fourth quarter of 2017 primarily due to the one-time transition tax on accumulated foreign subsidiary earnings and deferred tax impacts.

    Other announcements

    On January 31, 2018, the Board of Directors (Board) of Alphabet authorized the company to repurchase up to an additional $8,589,869,056 of its Class C capital stock. The repurchase is expected to be executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans.

    On January 31, 2018, the Board appointed John L. Hennessy to serve as Chair of Alphabet’s Board. Mr. Hennessy has served as a member of the Board since April 2004 and Lead Independent Director since April 2007.

    Alphabet, “Alphabet Announces Fourth Quarter and Fiscal Year 2017 Results“, 1 Feb 2018 More

    googl_20180201

    Amazon Q4/2017 Earnings Report

    Press Release Extract [amzn]

    Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for its fourth quarter ended December 31, 2017.

    Operating cash flow increased 7% to $18.4 billion for the trailing twelve months, compared with $17.3 billion for the trailing twelve months ended December 31, 2016. Free cash flow decreased to $8.4 billion for the trailing twelve months, compared with $10.5 billion for the trailing twelve months ended December 31, 2016. Free cash flow less lease principal repayments decreased to $3.4 billion for the trailing twelve months, compared with $6.5 billion for the trailing twelve months ended December 31, 2016. Free cash flow less finance lease principal repayments and assets acquired under capital leases decreased to an outflow of $1.5 billion for the trailing twelve months, compared with an inflow of $4.7 billion for the trailing twelve months ended December 31, 2016.

    Common shares outstanding plus shares underlying stock-based awards totaled 504 million on December 31, 2017, compared with 497 million one year ago.

    Fourth Quarter 2017

    Net sales increased 38% to $60.5 billion in the fourth quarter, compared with $43.7 billion in fourth quarter 2016. Excluding the $1.1 billion favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 36% compared with fourth quarter 2016.

    Operating income increased 69% to $2.1 billion in the fourth quarter, compared with operating income of $1.3 billion in fourth quarter 2016.

    Net income was $1.9 billion in the fourth quarter, or $3.75 per diluted share, compared with net income of $749 million, or $1.54 per diluted share, in fourth quarter 2016. The fourth quarter 2017 includes a provisional tax benefit for the impact of the U.S. Tax Cuts and Jobs Act of 2017 of approximately $789 million.

    Full Year 2017

    Net sales increased 31% to $177.9 billion, compared with $136.0 billion in 2016. Excluding the $210 million favorable impact from year-over-year changes in foreign exchange rates throughout the year, net sales increased 31% compared with 2016.

    Operating income decreased 2% to $4.1 billion, compared with operating income of $4.2 billion in 2016.

    Net income was $3.0 billion, or $6.15 per diluted share, compared with net income of $2.4 billion, or $4.90 per diluted share, in 2016.

    “Our 2017 projections for Alexa were very optimistic, and we far exceeded them. We don’t see positive surprises of this magnitude very often — expect us to double down,” said Jeff Bezos, Amazon founder and CEO. “We’ve reached an important point where other companies and developers are accelerating adoption of Alexa. There are now over 30,000 skills from outside developers, customers can control more than 4,000 smart home devices from 1,200 unique brands with Alexa, and we’re seeing strong response to our new far-field voice kit for manufacturers. Much more to come and a huge thank you to our customers and partners.”

    Financial Guidance

    The following forward-looking statements reflect Amazon.com’s expectations as of February 1, 2018, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and customer spending, world events, the rate of growth of the Internet, online commerce, and cloud services, and the various factors detailed below.

    First Quarter 2018 Guidance

    • Net sales are expected to be between $47.75 billion and $50.75 billion, or to grow between 34% and 42% compared with first quarter 2017. This guidance anticipates a favorable impact of approximately $1.2 billion or 330 basis points from foreign exchange rates.
    • Operating income is expected to be between $300 million and $1.0 billion, compared with $1.0 billion in first quarter 2017.
    • This guidance assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded.

    Amazon, “Amazon.com Announces Fourth Quarter Sales up 38% to $60.5 Billion“, 1 Feb 2018 More

    amzn_20180201

    Apple Q1/2018 Earnings Report

    Press Release Extract [aapl]

    Apple today announced financial results for its fiscal 2018 first quarter ended December 30, 2017. The Company posted quarterly revenue of $88.3 billion, an increase of 13 percent from the year-ago quarter and an all-time record, and quarterly earnings per diluted share of $3.89, up 16 percent, also an all-time record. International sales accounted for 65 percent of the quarter’s revenue.

    “We’re thrilled to report the biggest quarter in Apple’s history, with broad-based growth that included the highest revenue ever from a new iPhone lineup. iPhone X surpassed our expectations and has been our top-selling iPhone every week since it shipped in November,” said Tim Cook, Apple’s CEO. “We’ve also achieved a significant milestone with our active installed base of devices reaching 1.3 billion in January. That’s an increase of 30 percent in just two years, which is a testament to the popularity of our products and the loyalty and satisfaction of our customers.”

    “Thanks to great operational and business performance, we achieved all-time record profitability during the quarter, with EPS up 16 percent,” said Luca Maestri, Apple’s CFO. “Cash flow from operations was very strong at $28.3 billion, and we returned $14.5 billion to investors through our capital return program.”
    Apple is providing the following guidance for its fiscal 2018 second quarter:

    • revenue between $60 billion and $62 billion
    • gross margin between 38 percent and 38.5 percent
    • operating expenses between $7.6 billion and $7.7 billion
    • other income/(expense) of $300 million
    • tax rate of approximately 15 percent.

    Apple’s board of directors has declared a cash dividend of $0.63 per share of the Company’s common stock. The dividend is payable on February 15, 2018 to shareholders of record as of the close of business on February 12, 2018.

    Consolidated financial statements: PDF
    Summary data: PDF

    Apple, “Apple Reports First Quarter Results“, 1 Feb 2018 More

    aapl_20180201

    Ebay Dumps PayPal as Back-End Payments Service

    Press Report

    Its been a mixed day for Paypal. eBay, one of the world’s biggest online marketplaces, announced that it’s dropping PayPal as its main partner for processing payments in favour of Adyen. The news prompted investors to offload PayPal stock, which fell more than 11% in after-hours trading.

    The two US tech companies have a complicated history. In 2002, eBay paid $1.5 billion to buy PayPal. It proved to be a very successful investment. When eBay spun off PayPal in 2015 – something investors and analysts had urged it to do – the payments company’s market value was close to $50 billion. It’s now above $100 billion.

    Despite the split, the two companies’ businesses have remained tightly linked. PayPal continued to process payments for eBay and is the preferred payment method for most of the buyers and sellers on the site. But eBay is now moving to cut those ties.

    The shift will start gradually in North America later this year and eBay expects most marketplace customers around the world to be using the new system in 2021.

    On the good news side, Bank of America Merrill Lynch has announced a collaboration with PayPal that will enable the bank’s US commercial customers to make payments in local currencies to payees with PayPal accounts.

    The payments, which are initiated through the bank’s global Digital Disbursements service, can be made from the US to PayPal account holders in Mexico, France, Germany, Italy, the UK and the Philippines.

    Bank of America Merrill Lynch customers will be able to use a payee’s email address to disburse funds through PayPal, removing the need for the payer to gather and store an individual’s bank account information.More

    Visa Q1/2018 Earnings Report

    Press Release Extract [v]

    Key points:

    • GAAP net income of $2.52B or $1.07 per share and adjusted net income of $2.54B or $1.08 per share
    • Net operating revenue $4.86B, an increase of 9%
    • GAAP effective tax rate of 22.1% and adjusted effective tax rate of 21.7%, both including a 6 percentage point reduction resulting from U.S. tax reform
    • Returned $2.2B of capital to shareholders in the form of share repurchases and dividends
    • The Board of Directors authorized a new $7.5 billion share repurchase program and increased the Company’s quarterly cash dividend to $0.21 per share
    • Performance driven by continued strength in payments volume, cross-border volume and processed transactions

    Fiscal First Quarter 2018 — Financial Highlights

    GAAP net income in the fiscal first quarter was $2.52 billion or $1.07 per share, an increase of 22% and 25%, respectively, over prior year’s results. Excluding two special items in this quarter’s results related to U.S. tax reform, adjusted net income for the quarter was $2.54 billion or $1.08 per share, an increase of 23% and 26%, respectively, over prior year’s results. Exchange rate shifts versus the prior year positively impacted earnings per share growth by approximately 1 percentage point. All references to earnings per share assume fully-diluted class A share count, inclusive of series B and C convertible participating preferred stock, unless otherwise noted. The Company’s adjusted effective tax rate, net income and earnings per share of class A common stock are non-GAAP financial measures that are reconciled to their most directly comparable GAAP measure in the accompanying financial tables.

    GAAP effective income tax rate, which included two non-recurring special items related to U.S. tax reform, was 22.1% for the quarter ended December 31, 2017. The two special items are:

    • Estimated benefit of $1.13 billion related to the remeasurement of net deferred tax liabilities based on the new corporate tax rate; and
    • Estimated charge of $1.15 billion related to a transition tax on certain foreign earnings; in transitioning to the new territorial tax system, the Tax Cut and Jobs Act requires a transition tax on previously untaxed deferred foreign earnings, payable over eight years.

    Excluding these special items, the adjusted effective tax rate was 21.7%. Both GAAP and adjusted effective tax rates are 6 percentage points lower than they would have been, as a result of recurring tax reform benefits associated with the lower corporate tax rate.

    Net operating revenues in the fiscal first quarter were $4.9 billion, an increase of 9%, driven by continued growth in payments volume, cross-border volume and processed transactions. Exchange rate shifts versus the prior year positively impacted reported net operating revenue growth by approximately 1 percentage point.

    Payments volume for the three months ended September 30, 2017, on which fiscal first quarter service revenue is recognized, grew 10% over the prior year on a constant dollar basis. As a reminder, Europe co-badged volume is no longer included in reported volume.

    Payments volume for the three months ended December 31, 2017, grew 10% over the prior year on a constant dollar basis. Cross-border volume growth, on a constant dollar basis, was 9% for the three months ended December 31, 2017.

    Total processed transactions, which represent transactions processed by Visa, for the three months ended December 31, 2017, were 30.5 billion, a 12% increase over the prior year.

    Fiscal first quarter service revenues were $2.1 billion, an increase of 12% over the prior year, and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on current quarter activity. Data processing revenues rose 13% over the prior year to $2.1 billion. International transaction revenues grew 12% over the prior year to $1.7 billion. Other revenues of $229 million rose 13% over the prior year. Client incentives, which are a contra revenue item, were $1.3 billion and represent 21.4% of gross revenues.

    Operating expenses were $1.5 billion for the fiscal first quarter, a 13% increase over the prior year’s results primarily from higher personnel costs.
    Cash, cash equivalents, and available-for-sale investment securities were $14.1 billion at December 31, 2017.

    The weighted-average number of diluted shares of class A common stock outstanding was 2.35 billion for the quarter ended December 31, 2017.

    Financial Outlook for Fiscal Full-Year 2018

    Visa Inc. reaffirms its financial outlook for the following metrics for fiscal full-year 2018:

    • Annual net revenue growth of high single digits on a nominal dollar basis, with approximately 0.5 to 1 percentage point of positive foreign currency impact;
    • Client incentives as a percentage of gross revenues: 21.5% to 22.5% range;
    • Annual operating margin: High 60s;

    Visa Inc. updates its financial outlook for the following metrics for fiscal full-year 2018:

    • Annual operating expense growth: High end of mid-single digits adjusted for special items in fiscal 2017
    • GAAP and adjusted effective tax rate: Approximately 23%, which includes a 6 percentage point reduction resulting from U.S. tax reform; and
    • Annual diluted class A common stock earnings per share growth including the impact of U.S. tax reform: Mid-50′s on a GAAP nominal dollar basis and high end of mid-20′s on an adjusted, non-GAAP nominal dollar basis. Both include approximately 9 to 10 percentage points driven by U.S. tax reform and approximately 1 to 1.5 percentage
      points of positive foreign currency impact.

    Note: The financial outlook for fiscal full-year 2018 includes Visa Europe integration expenses of approximately $60 million for the full-year. Annual operating expense growth is derived from adjusted full-year 2017 operating expenses of $6.0 billion. Annual adjusted diluted class A common stock earnings per share growth is derived from adjusted full-year 2017 earnings per share results of $3.48

    Visa, “Visa Inc. Reports Fiscal First Quarter 2018 Results“, 1 Feb 2018 More

    v_20180201

    flag_australia AU: International Trade Price Indexes. Dec 2017

    Press Release Extract [au_trade]

    Import Price Index

    The Import Price Index rose 2.0% in the December quarter 2017. This follows a fall in the September quarter 2017 of 1.6%.

    The rise was driven by higher prices paid for Petroleum, petroleum products and related materials (+14.0%), reflecting tightening worldwide supply due to global production restrictions and capacity constraints. This pricing pressure has flowed through to a rise in Organic Chemicals (+10.0%) which are derived from Petroleum.

    Fertilisers (excluding crude) rose 23.1% and Inorganic Chemicals rose 13.1%. China’s environmental policies regulating coal intensive industries are putting upward pressure on prices of a number of industrial commodities.

    These rises were partly offset by falls in Telecommunication equipment (-1.8%).

    Through the year to the December quarter 2017, the Import Price Index rose 1.4%, driven by Petroleum, petroleum products and related materials (+17.0%).

    Major Import Products

    The price movements of Australia’s major import products are summarised below:

    • Road vehicles (SITC 78) (+0.3%);
    • Petroleum, petroleum products and related materials (SITC 33) (+14.0%);
    • Telecommunications and sound recording equipment and reproducing apparatus and equipment (SITC 76) (-1.8%);
    • General industrial machinery and equipment, n.e.s. (SITC 74) (-0.2%);
    • Electrical machinery, apparatus and appliances, n.e.s. (SITC 77) (+1.2%)

    Export Price Index

    The Export Price Index rose 2.8% in the December quarter 2017. This follows a fall in the September quarter 2017 of 3.0%.

    Prices received for many of Australia’s mineral fuel commodities rose in the December quarter 2017. Coal, coke and briquettes rose 9.0% driven by demand from China for higher quality coal and supply restrictions. Petroleum, petroleum products and related materials rose 19.7% reflecting tightening worldwide supply due to global production restrictions and capacity constraints.

    Non Ferrous metals prices rose 9.8%, driven by rises in Copper, Aluminium, Nickel, Zinc and Lead due to strong global demand.

    Cereals and cereal preparations rose 7.3%, due to increased demand for wheat and barley from Asia and the Middle East.

    Gold, non-monetary rose 2.5%, driven by the depreciation of the Australian dollar against the US dollar.

    Offsetting the rises were falls in Meat and meat preparations (-3.6%), driven by beef, Gas, natural or manufactured (-1.8%) and Sugar, sugar preparations and honey (-15.5%).

    Through the year to the December quarter 2017, the Export Price Index rose 2.4%, driven by Non-ferrous metals (+18.3%) and Petroleum, petroleum products and related materials (+22.0%).

    Major Export Products

    The price movements of Australia’s major export products are summarised below:

    • Metalliferous ores and metal scrap (SITC 28) (-0.2%);
    • Coal, coke and briquettes (SITC 32) (+9.0%);
    • Gas, natural and manufactured (SITC 34) (-1.8%)
    • Gold, non-monetary (SITC 97) (+2.5%);
    • Meat and meat preparations (SITC 01) (-3.6%);

    Australian Bureau of Statistics, “6457.0 International Trade Price Indexes. Dec 2017“, 1 Feb 2018 More

    flag_australia AU: Building Approvals. Dec 2017

    au_construction_20190109

    Press Release Extract [au_building]

    Dwelling approvals fall 1.7 per cent in December

    The number of dwellings approved fell 1.7 per cent in December 2017, in trend terms, and has fallen for three months, according to data released by the Australian Bureau of Statistics (ABS) today.

    “Dwelling approvals have weakened in December, driven by a large decline in private dwellings excluding houses,” said Daniel Rossi, Director of Construction Statistics at the ABS. “Approvals for private sector houses have remained stable, with just under 10,000 houses approved in December 2017.”

    Dwelling approvals decreased in December in the Australian Capital Territory (35.0 per cent), the Northern Territory (12.9 per cent), New South Wales (5.6 per cent), South Australia (2.4 per cent), Western Australia (1.3 per cent) and Queensland (0.8 per cent), but increased in Tasmania (3.1 per cent) and Victoria (2.5 per cent) in trend terms.

    In trend terms, approvals for private sector houses fell 0.2 per cent in December. Private sector house approvals fell in South Australia (1.5 per cent), Western Australia (0.9 per cent) and New South Wales (0.2 per cent) but rose in Queensland (0.4 per cent). Private house approvals were flat in Victoria.

    In seasonally adjusted terms, dwelling approvals decreased by 20.0 per cent in December, driven by a fall in private dwellings excluding houses (39.2 per cent), while private house approvals rose 1.0 per cent.

    The value of total building approved fell 0.3 per cent in December, in trend terms, after rising for 11 months. The value of residential building fell 0.2 per cent while non-residential building fell 0.4 per cent.

    Australian Bureau of Statistics, “8731.0 Building Approvals“, 1 Feb 2018 More

    flag_australia AU: Commonwealth Bank Manufacturing PMI. Jan 2018

    Press Release Extract [au_pmi]

    Key findings

    Growth of Australia’s manufacturing sector was sustained during January, underpinned by strong expansions in both output and new orders. In turn, greater inflows of new business encouraged firms to raise employment. Despite this, outstanding business increased amid further delayed deliveries of purchased inputs from suppliers. Supportive demand conditions coincided with an improvement in business confidence.

    au_pmi_20180201

    The headline index from the survey, the seasonally adjusted Commonwealth Bank Manufacturing Purchasing Managers’ Index™ (PMI®) – a composite indicator designed to measure the performance of the manufacturing economy – registered 55.4 in January, from 57.1 in December, signalling a marked upturn in the Australian manufacturing sector. That said, the rate of improvement eased to a four-month low.

    Australian manufacturers raised production during January in line with strong growth in new business inflows. Furthermore, demand from overseas markets increased for a fifth consecutive month, underpinned by new orders from Asia and the U.S.A. That said, growth of new work eased to the weakest since September last year, driving a slower expansion in output.

    Firms increased buying activity amid higher new order receipts. According to anecdotal evidence, panellists also expect workloads to rise further. In turn, the rate at which additional inputs were purchased increased strongly. Greater demand for inputs resulted in intensified capacity pressures across the supply chain, contributing to a sharp lengthening of average lead times. A combination of delayed raw material deliveries and strong client demand led to an accumulation of outstanding work.

    In line with greater production requirements, firms hired additional staff. Although the rate of job creation eased slightly, it remained relatively marked. Payroll numbers have expanded in each month since September 2016.

    On the price front, input cost in ation was sustained due to rising prices for energy and metals. In efforts to protect profit margins, firms raised output charges to the greatest extent since August 2017.

    Lastly, business optimism strengthened to a six-month high. Con dence was linked to growth forecasts, higher capital expenditure and new opportunities in overseas markets.

    Comment

    Commenting on the Commonwealth Bank Manufacturing PMI data, Michael Blythe, Chief Economist at the Commonwealth Bank, said:

    “The Australian manufacturing sector has started 2018 on a healthy note. The headline PMI expanded at a slightly slower pace than in December. But readings for current and future conditions remain strong. New orders from both domestic and offshore sources, for example, are expanding. Earlier concerns about capacity constraints remain. The backlog of work continues to rise and delivery times continue to lengthen. The resultant pressures on input costs are filtering through the pricing chain. It seems that demand is strong enough to allow manufacturers to protect margins by lifting output prices”.

    Commonwealth Bank, “Commonwealth Bank Manufacturing PMI. Jan 2018“, 1 Feb 2018 More

    flag_europe EU: IHS Markit Eurozone Manufacturing PMI. Jan 2018

    Press Release Extract [eu_pmi]

    Key findings:

    • Final Eurozone Manufacturing PMI at 59.6 in January (Flash: 59.6, December Final: 60.6)
    • Price pressures strengthen as input costs and output charges rise at faster rates
    • Business confidence hits series-record high

    eu_pmi_20180201

    The eurozone manufacturing sector made a strong start to 2018. Although January saw rates of growth in output and new orders ease from near-record highs at the end of last year, they remained among the best seen since the survey began in 1997.

    The final IHS Markit Eurozone Manufacturing PMI® posted a three-month low of 59.6 in January, down from December’s record high of 60.6 and identical to the earlier flash estimate. The PMI has signalled expansion in each of the past 55 months.

    Sector data signalled solid growth across the consumer, intermediate and investment goods categories, with the steepest rates of expansion in the latter two. This was despite consumer goods being the only category to see growth accelerate during the latest survey month.

    The Netherlands PMI rose to a series-record high in January, taking it to the top of the euro area rankings. Italy also saw growth improve, to an 83- month high, while the Greek PMI moved to its highest level in over a decade.

    Although rates of expansion eased in the other nations covered by the survey, PMI readings remained close to record highs in Germany, Austria and Ireland, and among the best for 17 and ten years in France and Spain respectively.

    The robust improvement in eurozone manufacturing operating conditions signalled by continued strong expansions of both production and new orders had a positive impact on business confidence. January saw optimism rise to a series-record high, with confidence improving in all nations bar Germany and Austria (although these nations maintained strongly positive outlooks overall).

    Companies indicated that they were experiencing solid inflows of new business from both the domestic and export markets during January. The level of new export orders rose at a robust pace, albeit a three- month low. Growth of new export business remained solid across the nations covered by the survey, with Spain, Ireland and Greece seeing sharper increases than those registered at the end of 2017.

    Euro area manufacturing employment rose for the forty-first successive month in January. The rate of jobs growth remained substantial and close to the survey record highs achieved in November and December of last year.

    Solid increases in staffing levels were seen across the nations covered by the survey, with the steepest rises in the Netherlands, Austria and Germany. Rates of expansions strengthened in Italy, the Netherlands and Greece.

    Higher staff headcounts reflected improved inflows of new orders, rising business confidence and efforts to increase capacity in light of increasing backlogs of work. Outstanding business rose for the thirty-third consecutive month, with the pace of expansion only slightly slower than November’s record high.
    Inflationary pressures picked up at the start of 2018, with both output charges and input prices rising at faster rates. Output price inflation accelerated to an 80-month high.

    Purchasing costs rose to the greatest extent in over six-and-a-half years, reflecting higher commodity prices (including oil) and greater pricing power at vendors. The latter factor was the result of shortages developing for some inputs as demand outstripped supply. This also led to one of the sharpest lengthening of supplier lead times on record.

    Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

    “The eurozone’s manufacturing boom continued in full swing in January. Output grew at one of the fastest rates recorded over the survey’s 20-year history, matched by a further near-record surge in new orders. Employment likewise showed one of the largest gains yet recorded by the survey as firms expanded capacity in line with rising demand. The extent to which demand has surged in recent months nevertheless continued to run ahead of capacity, leading to near-record increases in both backlogs of uncompleted orders and suppliers’ delivery times. The hike in prices associated with the further shift to a sellers’ market for many goods was accompanied by a steep rising in oil prices during the month, resulting in a further intensification of cost pressures. With higher costs being increasingly passed on to customers, the survey sends a warning signal for a potential rise in future consumer price inflation.”

    IHS Markit, “Eurozone Manufacturing PMI. Jan 2018“, 1 Feb 2018 More

    flag_usa US: Unemployment Insurance Weekly Claims

    Press Release Extract [ser_4]

    Seasonally Adjusted Data

    In the week ending January 27, the advance figure for seasonally adjusted initial claims was 230,000, a decrease of 1,000 from the previous week’s revised level. The previous week’s level was revised down by 2,000 from 233,000 to 231,000. The 4-week moving average was 234,500, a decrease of 5,000 from the previous week’s revised average. The previous week’s average was revised down by 500 from 240,000 to 239,500.

    Claims taking procedures in Puerto Rico and in the Virgin Islands have still not returned to normal.

    unemployment

    The advance seasonally adjusted insured unemployment rate was 1.4 percent for the week ending January 20, unchanged from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending January 20 was 1,953,000, an increase of 13,000 from the previous week’s revised level. The previous week’s level was revised up 3,000 from 1,937,000 to 1,940,000. The 4-week moving average was 1,932,750, an increase of 12,000 from the previous week’s revised average. The previous week’s average was revised up by 750 from 1,920,000 to 1,920,750.

    unemployment

    Unadjusted Data

    The advance number of actual initial claims under state programs, unadjusted, totaled 267,674 in the week ending January 27, an increase of 7,604 (or 2.9 percent) from the previous week. The seasonal factors had expected an increase of 8,792 (or 3.4 percent) from the previous week. There were 280,983 initial claims in the comparable week in 2017.

    The advance unadjusted insured unemployment rate was 1.7 percent during the week ending January 20, an increase of 0.1 percentage point from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 2,373,175, an increase of 85,441 (or 3.7 percent) from the preceding week. The seasonal factors had expected an increase of 69,854 (or 3.1 percent) from the previous week. A year earlier the rate was 1.8 percent and the volume was 2,494,547.

    Employment and Training Administration, “Unemployment Insurance Weekly Claims Report“, 1 Feb 2018 (08:30) More

    flag_usa US: ISM Report on Business (PMI) – Manufacturing. Jan 2018

    Press Release Extract [us_ism_pmi]

    Economic activity in the manufacturing sector expanded in January, and the overall economy grew for the 105th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

    The January PMI® registered 59.1 percent, a decrease of 0.2 percentage point from the seasonally adjusted December reading of 59.3 percent.

    The New Orders Index registered 65.4 percent, a decrease of 2 percentage points from the seasonally adjusted December reading of 67.4 percent.

    The Production Index registered 64.5 percent, a 0.7 percentage point decrease compared to the seasonally adjusted December reading of 65.2 percent.

    The Employment Index registered 54.2 percent, a decrease of 3.9 percentage points from the seasonally adjusted December reading of 58.1 percent.

    The Supplier Deliveries Index registered 59.1 percent, a 1.9 percentage point increase from the seasonally adjusted December reading of 57.2 percent.

    The Inventories Index registered 52.3 percent, an increase of 3.8 percentage points from the December reading of 48.5 percent.

    The Prices Index registered 72.7 percent in January, a 4.4 percentage point increase from the December reading of 68.3 percent, indicating higher raw materials prices for the 23rd consecutive month.

    Comments from the panel reflect expanding business conditions, with new orders and production maintaining high levels of expansion; employment expanding at a slower rate; order backlogs expanding at a faster rate; and export orders and imports continuing to grow faster in January. Supplier deliveries continued to slow (improving) at a faster rate. Price increases occurred across all industry sectors. The Customers’ Inventories Index indicates levels are still too low. Capital expenditure lead times increased 8 percent during the month of January.”

    Of the 18 manufacturing industries, 14 reported growth in January in the following order: Textile Mills; Fabricated Metal Products; Plastics & Rubber Products; Primary Metals; Machinery; Transportation Equipment; Apparel, Leather & Allied Products; Chemical Products; Computer & Electronic Products; Paper Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products. Four industries reported contraction during the period: Printing & Related Support Activities; Wood Products; Furniture & Related Products; and Nonmetallic Mineral Products.

    Institute for Supply Management, “Report on Busines – Manufacturing. Jan 2018“, 1 Feb 2018 (10:00) More

    flag_usa US: IHS Markit US Manufacturing PMI. Jan 2018

    Press Release Extract [us_pmi]

    Key findings:

    • Output and new orders expand at quickest rates for a year
    • Purchasing activity rises at steepest pace since September 2014
    • Input price inflation eases but remains sharp

    us_pmi_20180201

    Operating conditions across the US manufacturing sector continued to improve in January, with the latest survey data indicating the strongest upturn since March 2015. Moreover, production levels and new orders grew at the quickest rates in twelve months. Rising global demand also drove a faster expansion in new export orders.

    Higher production requirements resulted in a sharp and accelerated increase in buying activity. At the same time, the rate of input cost inflation eased slightly but remained marked overall. Consequently, firms raised their selling prices at the second- steepest pace since September 2014.

    The seasonally adjusted IHS Markit final US Manufacturing Purchasing Managers’ Index™ (PMI™) registered 55.5 in January, up from 55.1 in December. The latest index reading indicated a strong improvement in business conditions across the manufacturing sector. Moreover, the index signalled the strongest upturn in the health of the sector for over two-and-a-half years.

    Extending the trend seen since June 2016, manufacturers indicated a further rise in production in January. The rate of growth accelerated to the sharpest in twelve months. Where increases in output were reported, panellists generally linked this to more favourable economic conditions and higher inflows of new work.
    Greater domestic and foreign client demand underpinned the largest rise in total new orders since January 2017. New business from abroad registered one of the largest gains seen over the past year and a half.

    For the thirteenth month running, vendor performance deteriorated as capacity pressures at suppliers led to longer lead times. Purchasing activity rose at the quickest rate since September 2014, stretching supply chains, and pre-production inventories accumulated at the fastest pace in twelve months.

    The latest rise in input costs largely stemmed from greater raw material prices and higher transport costs. Although the rate of inflation was marked, it dipped slightly to a three-month low. Conversely, output charge inflation accelerated to the second- highest since September 2014.

    Higher new orders contributed to a further rise in backlogs of work in January. The level of outstanding business at manufacturing firms increased at the fastest rate since October 2015. Staffing numbers also grew strongly, with a number of panel members linking payroll growth to greater business activity and improved future output expectations.

    Business confidence among goods producers remained robust in January, despite dipping to a three-month low. Panellists commonly attributed optimism to more favourable market conditions and sustained rises in output and new orders.

    Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

    “US manufacturing started 2018 in fine fettle, with the PMI up to its highest for over two-and-a-half years. Output growth accelerated in response to fuller order books, the latter buoyed by the twin drivers of robust domestic demand and rising exports. Factory payroll growth remained among the highest seen over the past three years, underscoring the bullish mood evident across the manufacturing sector. Pricing power is also returning as a result of strengthening demand, which should help bolster profit margins, but is likely to also feed through to higher consumer prices. The acceleration of manufacturing growth and upward price trends are grist to the mill for Fed hawks, adding to the likelihood of interest rates rising in March.”

    IHS Markit, “US Manufacturing PMI. Jan 2018“, 1 Feb 2018 (09:45) More

    flag_usa US: Productivity and Costs. Q4/2017

    Press Release Extract [us_prody]

    Nonfarm business sector labor productivity decreased 0.1 percent during the fourth quarter of 2017, the U.S. Bureau of Labor Statistics reported today, as output increased 3.2 percent and hours worked increased 3.3 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the fourth quarter of 2016 to the fourth quarter of 2017, productivity increased 1.1 percent, reflecting a 3.2-percent increase in output and a 2.1-percent increase in hours worked.Annual average productivity increased 1.2 percent from 2016 to 2017.

    us_prod1_20180201

    Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers.

    us_prod2_20180201

    Unit labor costs in the nonfarm business sector increased 2.0 percent in the fourth quarter of 2017, due primarily to a 1.8-percent increase in hourly compensation. Unit labor costs increased 1.3 percent over the last four quarters.

    Manufacturing sector labor productivity increased 5.7 percent in the fourth quarter of 2017, as output increased 7.3 percent and hours worked rose 1.5 percent. These were the largest quarterly increases in manufacturing sector productivity and output since the second quarter of 2010, when output per hour increased 7.0 percent and output jumped 10.7 percent. Productivity increased 6.7 percent in the durable goods manufacturing sector and 4.5 percent in the nondurable goods sector in the fourth quarter of 2017. Over the last four quarters, total manufacturing sector productivity increased 1.1 percent, as output increased 2.7 percent and hours worked increased 1.6 percent. Unit labor costs in manufacturing decreased 3.7 percent in the fourth quarter of 2017 and increased 1.1 percent from the same quarter a year ago.

    Revised measures

    In the third quarter of 2017, nonfarm business productivity was revised down 0.3 percentage point, to an increase of 2.7 percent. Unit labor costs in the nonfarm business sector decreased 0.1 percent in the third quarter—rather than declining 0.2 percent as previously reported.

    In the manufacturing sector, productivity was revised down 0.5 percentage point, to a decrease of 4.9 percent. Manufacturing unit labor costs increased 5.4 percent, a 0.6 percentage point increase over the previously reported figure.

    In the nonfinancial corporate sector, productivity was revised down 0.4 percentage point in the third quarter of 2017, to a decrease of 0.4 percent. This downward revision to productivity is due primarily to a 0.3-percentage point downward revision to output.

    Annual averages (past 5 years

    Nonfarm business sector productivity grew 1.2 percent in 2017, as output and hours increased 2.9 percent and 1.6 percent, respectively. In 2016, productivity declined 0.1 percent. The average annual rate of nonfarm business sector productivity growth from 2007 to 2017— corresponding to the current business cycle—is 1.2 percent, which is below the long-term rate from 1947 to 2017 of 2.1 percent.

    Unit labor costs in the nonfarm business sector increased 0.2 percent in 2017, reflecting increases of 1.5 percent in hourly compensation and 1.2 percent in productivity. Real hourly compensation, which takes into account changes in consumer prices, decreased 0.7 percent in 2017.

    In the manufacturing sector, productivity increased 0.7 percent in 2017, as output increased 1.7 percent and hours worked increased 1.0 percent. Manufacturing sector productivity has grown less than 1.0 percent in each of the last 7 years. The average annual rate of manufacturing productivity growth from 2007 to 2017 is 0.8 percent, well below the long-term rate from 1987 to 2017 of 2.7 percent. Unit labor costs increased 0.9 percent in 2017.

    Bureau of Labor Statistics, “Productivity and Costs. Q4/2017“, 1 Feb 2018 (08:30) More

    flag_usa US: Construction Spending (Construction Put in Place). Dec 2017

    Press Release Extract [us_const]

    Total Construction

    Construction spending during December 2017 was estimated at a seasonally adjusted annual rate of $1,253.3 billion, 0.7 percent (±1.0 percent) above the revised November estimate of $1,245.1 billion. The December figure is 2.6 percent (±1.3 percent) above the December 2016 estimate of $1,221.6 billion.

    The value of construction in 2017 was $1,230.6 billion, 3.8 percent (±1.0 percent) above the $1,185.7 billion spent in 2016.

    us_construction_20180201

    Private Construction

    Spending on private construction was at a seasonally adjusted annual rate of $963.2 billion, 0.8 percent (±1.2 percent) above the revised November estimate of $955.9 billion. Residential construction was at a seasonally adjusted annual rate of $526.1 billion in December, 0.5 percent (±1.3 percent) above the revised November estimate of $523.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $437.1 billion in December, 1.1 percent (±1.2 percent) above the revised November estimate of $432.1 billion.

    The value of private construction in 2017 was $950.7 billion, 5.8 percent (±1.0 percent) above the $898.7 billion spent in 2016. Residential construction in 2017 was $515.9 billion, 10.6 percent (±2.1 percent) above the 2016 figure of $466.6 billion and nonresidential construction was $434.8 billion, 0.6 percent (±1.0 percent) above the $432.1 billion in 2016.

    US Census Bureau, “Construction Spending (Construction Put in Place). Dec 2017“, 1 Feb 2018 (10:00) More

    JPMorgan Global Manufacturing PMI. Jan 2018

    Press Release Extract [global_pmi]

    The global manufacturing sector made a positive start to 2018, with rates of growth in output and new orders staying close to highs reached before the turn of the year. At 54.4 in January, the J.P.Morgan Global Manufacturing PMI™ – a composite index1 produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – was only a tick below December’s near seven-year record.

    global_pmi_20180201

    Please note that a later than usual release date meant final PMI data were not available for Malaysia. The annual review of the global PMI weights has also been implemented, resulting in minor revisions to the time series back histories from 2013 onwards.

    The upturn remained broad-based, with growth signalled in the consumer, intermediate and investment goods industries and across almost all of the nations covered by the survey. The sole exception was Indonesia, where operating conditions were broadly stagnant during January.

    The euro area remained the principal growth engine of global manufacturing expansion during January. Although the eurozone PMI slipped to a three-month low, from December’s record high, solid expansions were still registered across all of the nations within the currency union covered by the survey.

    The US PMI improved to a 34-month high. Accelerations were signalled in Mexico and Canada, while Brazil saw further expansion (albeit slower than December). Asia manufacturing also fared well, with rates of expansion picking up in Japan, Taiwan, Vietnam, Thailand and Myanmar, and holding steady in China. South Korea returned to growth following a minor contraction at the end of 2017.

    Growth of global manufacturing production was underpinned by rising new order volumes. Inflows of new work continued to test capacity, leading to rising backlogs of work and encouraging further job creation. Employment rose in almost all of the nations covered, the exceptions being China, Indonesia, South Korea, Russia and Thailand. To meet rising output needs, firms also increased their purchasing activity to the greatest extent in almost seven years.

    Rates of increase in input prices and output charges both accelerated during January. Selling price inflation was the second-highest in 80 months, bettered only during that sequence by November of last year. The pick-up in cost inflation was only minor, as stronger input price increases in the euro area, Japan, the UK and South Korea were largely offset by decelerations in the US and China.

    Commenting on the survey, David Hensley, Director of Global Economic Coordination at J.P.Morgan, said:

    “The start of 2018 saw a continuation of the solid upturn in global manufacturing performance, with rates of growth in production and new orders remaining close to December’s highs. With business confidence still robust and further job creation reported, the sector is on course to sustain its current solid pace of expansion into the coming months.”

    J.P.Morgan and IHS Markit in association with ISM and IFPSM, “Global Manufacturing PMI. Jan 2018“, 1 Feb 2018 (11:00) More

    flag_japan Japan update

    Nikkei Japan Manufacturing PMI. Jan 2018

    Press Release Extract [jp_pmi]

    Key points:

    • Broad-based increase in new orders
    • Output prices rise amid intensified cost pressures
    • Business confidence strengthens

    jp_pmi_20180201

    The Japanese manufacturing sector gained further momentum at the start of 2018. Output and new order growth rates accelerated, while businesses raised employment amid rising backlogs of work. Robust demand also encouraged firms to pass on part of the sharp rise in cost burdens to customers.

    In line with stronger business confidence, firms increased input buying and were less cautious over inventory levels.

    The headline Nikkei Japan Manufacturing Purchasing Managers’ Index™ (PMI)® – a composite single-figure indicator of manufacturing performance – increased to 54.8 in January, up from 54.0 in December. The headline PMI has risen for three successive months and the latest reading signalled the sharpest improvement in the health of the Japanese manufacturing sector since February 2014.

    Panellists reported a favourable receipt of new orders during January due to new product launches and strong demand from existing customers. New order growth quickened for a third month in succession to a four-year high. Similarly, new business from abroad increased at a faster pace, recording the quickest rate of growth since May 2010. Firms attributed the rise to stronger demand from China, Korea and Taiwan. Subsequently, firms increased output for the eighteenth consecutive month and at the sharpest rate in 47 months.

    Operating capacities were tested as a result of greater sales. Backlogs of work were accumulated for a fifth month running in January, albeit at a fractionally slower pace. Anecdotal evidence suggested that panellists anticipate the upward trend in order book volumes to continue. Growth in new orders also fuelled a rise in business optimism. The level of positive sentiment regarding future output strengthened to a four-month high. Consequently, manufacturers hired additional staff in preparation of greater production requirements.

    The rate of job creation accelerated to the joint- fastest since April 2014, on a par with February 2017.

    In line with forecasts of greater new order intakes, Japanese manufacturers increased purchasing activity. Input buying increased to the joint- strongest extent since February 2014. Confident that output growth would be sustained, Japanese manufacturers were less cautious regarding inventory levels. Input stocks increased for the first time since October last year. Reports from panel members suggested that higher demand for inputs had led to a deterioration of vendor performance. Suppliers’ delivery times lengthened markedly in January, and for a twenty-first successive month.

    On the price front, purchase costs increased during the latest survey period, maintaining an inflationary run that started in November 2016. Firms noted that the higher oil price was a key source of cost pressures. In turn, output charges were raised to partly offset the squeeze on profit margins. Output price inflation accelerated to the sharpest extent since October 2008.

    Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

    “Headline PMI data for January signalled further positivity for the Japanese manufacturing sector. New business opportunities increased at the sharpest rate in four years, supporting the quickest rise in output since February 2014.

    “Businesses appeared to derive confidence from the robust economic backdrop that official data has depicted, with optimism strengthening to a four- month high. In turn, this supported an accelerated rate of job creation.

    “Amid rising global commodity prices, input costs increased sharply. In response, manufacturers raised selling prices to the greatest extent since October 2008. Sustained output price inflation observed recently in the PMI suggests firms are becoming more confident in the purchasing power of their customers. With a tightening labour market, firms should raise wages to support consumption and in turn, generate domestic inflationary pressures. That said, rising raw material prices could risk the extent to which labour costs can be increased without harming profit margins.”

    IHS Markit, “Nikkei Japan Manufacturing PMI. Jan 2018“, 1 Feb 2018 More

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    flag_china China update

    Caixin China General Manufacturing PMI. Jan 2018

    Press Release Extract [cn_pmi]

    Key Points:

    • Production rises at quickest pace in over a year…
    • …but total new work and export orders both expand at softer rates
    • Inflationary pressures subside

    cn_pmi_20180201

    China’s manufacturing sector continued to expand at the start of 2018, with production rising to the greatest extent in just over a year. Growth was supported by further, albeit slightly softer, increases in total new work and new export sales. Higher production requirements led firms to increase their buying activity, while employment fell at the weakest pace for nearly three years. Capacity pressures meanwhile persisted, with backlogs of work rising to the greatest extent since early-2011. Prices data showed that input cost inflation eased to a five- month low and factory gate charges rose only slightly.

    Looking ahead, companies were generally optimistic that output would rise over the next year. Moreover, the degree of confidence strengthened to a four-month high.

    The seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – was unchanged from December’s reading of 51.5 in January, to signal a further modest improvement in overall operating conditions. The health of the sector has now strengthened in each of the past eight months, while the pace of improvement was slightly stronger than the long-run trend.

    January data signalled a solid and accelerated increase in Chinese manufacturing output, with the rate of growth the strongest since December 2016. A number of companies mentioned that improving demand conditions and rising new work led them to raise output. Notably, total new orders rose for the nineteenth month in a row, albeit at a moderate pace that was weaker than in December. Growth in new export sales also softened to a similarly modest pace.

    Employment continued to decline in January, which was partly linked to company downsizing policies. That said, the rate of job shedding was the weakest since February 2015. At the same time, rising new order volumes exerted further pressure on operating capacity. Notably, outstanding business increased at a solid pace that was the quickest since March 2011.

    In line with higher output, manufacturing companies in China continued to raise their purchasing activity in January. However, the time taken for purchased items to be delivered continued to increase.

    Stocks of finished goods declined slightly as firms made greater use of current inventories to fulfil new and existing orders. Stocks of purchases were meanwhile unchanged after a slight drop in December.

    The rate of input price inflation softened to a five-month low in January, but remained sharp overall. Companies commonly linked higher costs to greater prices for raw materials such as metals and packaging. At the same time, output charges rose at the weakest pace since June 2017.

    Business optimism about the year ahead strengthened to a four-month record in January. Positive expectations were support by forecasts of improving market conditions, promotional activities and new product launches.

    Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

    “The Caixin China General Manufacturing Purchasing Managers’ Index came in at 51.5 in January, unchanged from the previous month, suggesting that operating conditions continued to improve at a modest pace. The sub-indices of output and employment continued to rise, reflecting improving production conditions. The sub-indices of stocks of purchases and stocks of finished goods both improved from December’s relatively low levels. However, overall new business and new export orders increased at a slower pace than in the previous month, pointing to slightly moderating demand. Meanwhile, the upward pressure on prices of industrial products eased markedly as the increases in both input costs and output prices slowed sharply. The manufacturing industry had a good start to 2018. Going forward, we should keep a close eye on the stability of the demand side.”

    IHS Markit, “Caixin China General Manufacturing PMI. Jan 2018“, 1 Feb 2018 More

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