Mon 5 Feb 2018


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

    bull/bearThe benchmark S&P 500 and the Dow suffered their biggest percentage drops since August 2011 as a long-awaited pullback from record highs deepened. The S&P 500 ended 7.8% down from its record high on 26 Jan 2018, with the Dow down 8.5% over that time.

    • The S&P 500 index fell 113.19 points, or 4.10%, to 2,648.94
    • The Dow Jones Industrial Average fell 1,175.21 points, or 4.6%, to 24,345.75
    • The Nasdaq Composite index fell 273.42 points, or 3.78%, to 6,967.53.
    • About 11.5 billion shares changed hands in U.S. exchanges, well above the 7.6 billion daily average over the last 20 sessions.
    • Declining issues outnumbered advancing ones on the NYSE by a 8.64-to-1 ratio; on Nasdaq, a 6.92-to-1 ratio favored decliners.
    • The S&P 500 posted 1 new 52-week highs and 38 new lows; the Nasdaq Composite recorded 17 new highs and 164 new lows. 37.32

    Many investors have been bracing for a pullback for months, as the stock market has minted record high after record high with investors encouraged by solid economic data and corporate earnings prospects, the latter bolstered by recently passed U.S. corporate tax cuts.

    Friday’s January jobs report sparked worries over inflation and a surge in bond yields, as well as concerns that the Federal Reserve will raise rates at a faster pace than expected.

    “The market has had an incredible run. We have an environment where interest rates are rising. We have a stronger economy so the Fed should continue to tighten … You’re seeing real changes occur and different investments are adjusting to that,” said Michael O’Rourke, chief market strategist At JonesTrading In Greenwich, Connecticut.

    Even with the sharp declines, stocks finished above their lows touched during the session. At one point, the Dow fell 6.3% or 1,597 points, the biggest one-day points loss ever, as it breached both the 25,000 and 24,000 levels during trading.

    The stock market has climbed to record peaks since President Donald Trump’s election and remains up 23.8% since his victory. Trump has frequently touted the rise of the stock market during his presidency.

    As the stock market fell on Monday, the White House said the fundamentals of the U.S. economy are strong.

    The CBOE Volatility index (VIX), the closely followed measure of expected near-term stock market volatility, jumped 20 points to 30.71, its highest level since Aug 2015.

    Until recently, gains for stocks have come as the market has been relatively subdued, and any declines were met with buyers looking for bargains.

    “People who have been buying the dip are now going to be selling the rip. The psychology of the market changed today. It’ll take a while to get that psychology back,“ said Dennis Dick, a proprietary trader at Bright Trading LLC in Las Vegas.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) 2,648.94 -4.10% 2,238.83 -0.93%
    DJIA INDU 24,345.75 -4.61% 19,762.60 -1.52%
    NASDAQ IXIC 6,967.53 -3.78% 5,383.12 +0.92%

    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 2.991 -3.04% 2.105 -2.47%
    Valuation Rate USD/AUD 0.79411 -0.46% 0.72663 +1.12%
    AUD-denominated Index AUD 3.770 -2.60% 2.895 -3.54%

    Portfolio stock prices

    Stock Ticker Today Change 31 Dec 17 YTD
    Alphabet A GOOGL $1,062.88 -5.04% $1,053.00 +0.93%
    Alphabet C GOOG $1,054.66 -5.15% $1,045.65 +0.86%
    Apple AAPL $156.49 -2.50% $169.23 -7.53%
    Amazon AMZN $1,390.00 -2.80% $1,169.54 +18.85%
    Ebay EBAY $42.39 -4.32% $37.76 +12.26%
    Facebook FB $181.26 -4.75% $176.46 +2.72%
    PayPal PYPL $74.70 -2.45% $73.61 +1.48%
    Twitter TWTR $25.13 -3.05% $24.01 +4.66%
    Visa V $116.27 -3.84% $114.02 +1.97%
    VMware VMW $116.40 -5.15% $125.32 -7.12%

    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) rose 0.3%.
    The EUR fell 0.5% to USD 1.2405.
    Britain’s GBP fell 0.8% to USD 1.4001, the weakest in almost 2 weeks.
    japan’s JPY gained 0.3% to 109.79 per USD.
    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 15:33 ET

    • NYMEX West Texas Intermediate (WTI): $63.86/barrel -2.43% Chart
    • ICE (London) Brent North Sea Crude: $67.38/barrel -1.75% (15:49) Chart
    • NYMEX Natural gas futures: $2.75/MMBTU -3.27% Chart

    flag_australia AU: CBA Services PMI. Jan 2018

    Press Release Extract [au_psi]

    Key findings

    January survey data signalled a slowdown in Australian service sector activity growth, with the pace of expansion easing to a three-month low. Furthermore, both incoming new orders and employment increased to the weakest extents since data collection began 21 months ago. On the price front, output charges rose at the slowest rate since July 2017 amid a softer upturn in input costs.

    au_psi_20180205

    The seasonally adjusted Business Activity Index registered 53.8 in January, down from 55.1 in December, to signal the slowest pace of expansion in Australian service sector output since last October.

    Although activity growth weakened during January, the upturn was solid overall. Panellists associated higher output with positive economic conditions and new product launches.

    Australian service providers also signalled a rise in new business inflows, supported by new contract wins and successful marketing. That said, the rate of new order growth was the least marked since data collection began in May 2016.

    Despite a weaker upturn in demand, capacity pressures persisted in January, as shown by a further rise in backlogs of work. The rate of accumulation slowed, but remained strong relative to the series average.

    Job creation was sustained in January amid activity growth and increased backlogs of work. That said, in line with a decelerated expansion in new business, employment growth was the weakest observed over the 21-month survey history.

    Nonetheless, confidence strengthened in January to a four-month high. Around two-thirds of monitored companies forecast output to rise over the next year, with positive sentiment attributed to planned expansion into foreign markets, organic business growth and new marketing initiatives.

    Input cost inflation, albeit strong, slowed markedly in January to a fresh survey low. Firms raised selling prices in efforts to share additional cost burdens with customers. However, output price inflation eased to the slowest since July 2017.

    Commonwealth Bank Composite PMI®

    The seasonally adjusted Commonwealth Bank Composite Output Index declined to 54.2 in January, from 55.5 in December, marking the weakest pace of private sector output growth since October 2017.

    au_composite_pmi_20180205

    Comment

    Commenting on the Commonwealth Bank Services and Composite PMI data, CBA’s Chief Economist, Michael Blythe, said:

    “The rate of expansion in the Australian services sector slowed a little in early 2018. But service providers remain strongly positive on the outlook for the year ahead. More than two-thirds of respondents expect a lift in activity. Despite the slower pace of expansion in January, capacity pressures continued to rise. The Outstanding Business Index, for example, remains well above average levels. These pressures are playing out in a positive way in the labour market and payrolls are expanding with business growth. But, as with the earlier Manufacturing PMI, some panellists are indicating that rising cost burdens are being passed on down the pricing chain”.

    Commonwealth Bank of Australia, “Commonwealth Bank Services PMI. Jan 2018“, 5 Feb 2018 More

    flag_europe EU: Retail Trade. Dec 2017

    Press Release Extract [eu_retail]

    In December 2017 compared with November 2017, the seasonally adjusted volume of retail trade decreased by 1.1% in the euro area (EA19) and by 1.0% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In November, the retail trade volume rose by 2.0% in the euro area and by 2.1% in the EU28.

    eu_retail_20180205

    In December 2017 compared with December 2016, the calendar adjusted retail sales index increased by 1.9% in the euro area and by 2.4% in the EU28.

    The average retail trade for the year 2017, compared with 2016, rose by 2.6% in both the euro area and EU28.

    Monthly comparison by retail sector and by Member State

    The 1.1% decrease in the volume of retail trade in the euro area in December 2017, compared with November 2017, is due to falls of 1.5% for automotive fuel, of 1.2% for non-food products and of 0.7% for “Food, drinks and tobacco”. In the EU28, the 1.0% decrease in the volume of retail trade is due to falls of 1.1% for non-food products and of 0.7% for both “Food, drinks and tobacco” and automotive fuel.
    Among Member States for which data are available, the largest decreases in the total retail trade volume were registered in Luxembourg (-6.2%), Ireland (-2.7%) and Slovenia (-2.3%), while the highest increases were observed in Malta (+3.1%), Estonia (+1.8%) and Romania (+1.3%).

    Annual comparison by retail sector and by Member State

    The 1.9% increase in the volume of retail trade in the euro area in December 2017, compared with December 2016, is due to rises of 2.7% for non-food products and of 1.3% for “Food, drinks and tobacco”, while automotive fuel fell by 0.8%. In the EU28, the 2.4% increase in retail trade volume is due to rises of 3.7% for non-food products, of 1.2% for “Food, drinks and tobacco” and of 0.4% for automotive fuel.
    Among Member States for which data are available, the highest increases in the total retail trade volume were registered in Malta (+12.4%), Romania (+10.1%) and Poland (+9.2%), while decreases were observed in Luxembourg (-20.7%) and Belgium (-2.5%).

    Eurostat, “Retail Trade. Dec 2017“, 5 Feb 2018 More

    flag_europe EU: Eurozone Composite PMI. Jan 2018

    Press Release Extract [eu_composite_pmi]

    Key findings:

    • Final Eurozone Composite Output Index: 58.8 (Flash: 58.6, December Final: 58.1)
    • Final Eurozone Services Business Activity Index: 58.0 (Flash: 57.6, December Final: 56.6)

    eu_composite_pmi_20180205

    The start of 2018 saw the eurozone economy continue its recent advance. Output growth accelerated to a near 12-year high, underpinned by solid inflows of new business and accompanied by the strongest phase of job creation since late-2000.

    The final IHS Markit Eurozone PMI® Composite Output Index posted 58.8 in January, its highest level since June 2006 and above the earlier flash estimate of 58.6. The headline index has signalled expansion for 55 successive months.

    Growth of manufacturing production continued to outpace that of service sector activity in January. Although easing over the month, the rate of expansion in manufacturing output stayed close to December’s near-record high. The performance of the service sector continued to strengthen, with business activity growth accelerating to its best since August 2007.

    Economic output expanded at solid rates across the nations covered by the survey. France moved to the top of the growth rankings, with its rate of expansion matching December and staying close to November’s near six-and-a-half year record.

    Germany (81-month high), Italy (139-month high) and Ireland (2-month low) achieved rates of growth only slightly below that of France. Growth in Spain also accelerated to a six-month high.

    The corollary of the sustained period of economic improvement was greater price pressures, in part reflecting improved pricing power as demand outpaced supply, as well as rising oil prices. Input costs and output charges both rose at the sharpest rates since mid-2011, with accelerations signalled in both the manufacturing and service sectors.

    The sustained upturn in economic activity also tested capacity at euro area manufacturers and service providers alike, leading to further accumulation of backlogs of work in both sectors. This in turn encouraged job creation, with employment again rising at a pace matching November’s 17-year high. Germany saw faster jobs growth (a near series- record high), offsetting slightly slower increases in France, Italy, Spain and Ireland. The outlook for the eurozone economy also remained bright, with business confidence improving to an eight-month high.

    Services

    At a near ten-and-a-half year high of 58.0 in January, the final IHS Markit Eurozone PMI® Services Business Activity Index signalled a marked increase in output and came in above the earlier flash estimate of 57.6.

    The upward revision in the headline index mainly reflected stronger contributions from Germany and (on average) those nations outside of the ‘big-two’. The rate of expansion for Germany was the best since March 2011.

    Growth also improved in Italy and Spain (to 126 and six-month highs respectively), but eased in Ireland. Although the rate of expansion in France was slightly below that signalled by the earlier flash estimate, it was still faster than in December and one of the sharpest registered since mid-2011.

    The level of new business placed with euro area service providers rose at the quickest pace in over a decade in January. This exerted pressure on capacity, leading to a further solid increase in outstanding business. This combination of higher new orders and rising backlogs of work encouraged firms to take on additional staff.

    Employment rose at an identical pace to November and December, making the recent phase of jobs growth the strongest seen in a decade. The latest survey month saw further increases in all of the nations covered. Faster job creation in Germany and Spain was offset by slower rates of expansion in France, Italy and Ireland.

    Companies maintained a positive outlook in January. The overall degree of optimism was the second-highest in almost seven years, bettered only during this sequence by May of last year. Sentiment improved in Italy, Spain and Ireland.

    Input price inflation hit an 81-month high in January. The intensification reflected stronger increases in Germany, France and Spain, although rates of increase remained marked elsewhere too. Output charges, meanwhile, rose to the greatest extent in nine-and-a-half years. Concurrent rises in selling prices were seen across all of the nations covered for the first time since July 2008.

    Comment

    Chris Williamson, Chief Business Economist at IHS Markit said:

    “At 58.8, the final Eurozone PMI for January came in even higher than the earlier flash estimate, registering the strongest monthly expansion since June 2006. If this level is maintained over February and March, the PMI is indicating that first quarter GDP would rise by approximately 1.0% quarter-on-quarter.

    “The official initial estimate of GDP is likely to come out weaker than this, however, following the trend of recent GDP releases which show early growth estimates to be subsequently revised higher (and more in line with the PMI). For the same reason, the 0.6% GDP rise signalled by Eurostat’s preliminary flash estimate for the fourth quarter of 2017 is likely to be revised higher to approach the 0.8% indicated by the PMI.

    “The strong upturn is also broad-based, which adds to the potential for the growth to become more self- sustaining as demand rises across the single currency area, feeding through to higher job creation as spare capacity is increasingly eroded. The survey data are therefore indicating that the eurozone has started 2018 with very good growth momentum, and that price pressures are building commensurately. If such impressive numbers continue to be seen in coming months, expect policymakers to sound increasingly hawkish.”

    IHS Markit, “Eurozone Composite PMI. Jan 2018“, 5 Feb 2018 More

    flag_usa US: Markit US Services PMI. Jan 2018

    Press Release Extract [us_psi]

    Key findings:

    • Upturn in output softens but remains solid
    • New business expands at fastest pace since September 2017
    • Backlogs increase at joint-strongest rate since March 2015

    us_psi_20180205

    January survey data indicated a solid rise in U.S. service sector business activity, though the rate of growth eased for a third month running to reach a nine-month low. That said, new business continued to expand strongly, with the upturn accelerating to the fastest since last September.

    Greater client demand was reflected in a faster rate of backlog accumulation. The level of outstanding business increased at the joint-quickest pace since March 2015. Meanwhile, inflationary pressures strengthened with both input cost and selling price inflation accelerating.

    The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 53.3 in January, down from 53.7 in December. The latest index reading signalled a solid expansion in business activity among service providers, albeit the slowest since April 2017. Anecdotal evidence linked the latest upturn to more favourable economic conditions.

    Greater demand also drove the fastest rise in new orders since September 2017. Where growth was reported, panellists linked this to the acquisition of new clients and higher sales spurred by increases in marketing activity.

    Reflecting recent trends in output and new orders, the level of outstanding business at service sector firms increased for the ninth successive month in January. Moreover, backlog accumulation accelerated to a rate that was the joint-sharpest since March 2015.

    Meanwhile, job creation remained solid with firms increasing their workforce numbers in response to greater activity requirements.

    The January data also indicated a further rise in input costs faced by service providers to the fastest since last September. A number of survey respondents linked the latest increase to higher raw material costs, especially fuel.

    Average prices charged also increased further in January, with the pace of inflation quickening. Stronger client demand reportedly allowed firms to pass on greater cost burdens to customers through higher charges. Overall, output price inflation was solid and above the series trend.

    Finally, business confidence increased and reached a three-month high. Improved optimism was widely attributed to planned investment and expectations of stronger client demand.

    IHS Markit Final U.S. Composite PMI™

    The final seasonally adjusted IHS Markit U.S. Composite PMI™ Output Index fell to 53.8 in January, down from 54.1 in December. Although output growth in the manufacturing sector accelerated further, weaker service sector growth was reflected in the final composite figure.

    The overall upturn was solid, but eased for the third consecutive month and indicated the slowest output expansion since May 2017.

    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.

    Comment

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

    “A slowdown in the service sector comes as a disappointment, though was partially offset by faster manufacturing growth during the month. Combined, the two PMI surveys point to the economy expanding at a reasonably solid, albeit not exciting, 2-2.5% annualised rate at the start of the first quarter.

    “Beneath the headline numbers, the survey findings are more encouraging, and suggest the pace of economic growth could accelerate in coming months. Most importantly, growth of new orders jumped higher in both sectors in January, registering the largest upturn in new work since last August and one of the biggest gains seen over the past three years.

    “Back orders also showed the biggest rise for almost three years as firms struggled to cope with rising demand. This upturn in client demand was a key factor behind another month of strong hiring, but also encouraged firms to hike prices. Selling price inflation accelerated in both manufacturing and services as pricing power continued to return.”

    IHS Markit, “IHS Markit U.S. Services PMI™ – final data (with composite PMI™) – U.S. business activity growth eases to nine-month low. Jan 2018“, 5 Feb 2018 (09:45) More

    flag_usa US: ISM US Services PMI. Jan 2018

    Press Release Extract [us_ism_psi]

    The NMI® registered 59.9 percent, which is 3.9 percentage points higher than the seasonally adjusted December reading of 56 percent. This represents continued growth in the non-manufacturing sector at a faster rate.

    The Non-Manufacturing Business Activity Index increased to 59.8 percent, 2 percentage points higher than the seasonally adjusted December reading of 57.8 percent, reflecting growth for the 102nd consecutive month, at a faster rate in January.

    The New Orders Index registered 62.7 percent, 8.2 percentage points higher than the seasonally adjusted reading of 54.5 percent in December.

    The Employment Index increased 5.3 percentage points in January to 61.6 percent from the seasonally adjusted December reading of 56.3 percent.

    The Prices Index increased by 2 percentage points from the seasonally adjusted December reading of 59.9 percent to 61.9 percent, indicating that prices increased in January for the 23rd consecutive month.

    According to the NMI®, 15 non-manufacturing industries reported growth. The non-manufacturing sector reflected strong growth in January after two consecutive months of pullback. Overall, the majority of respondents’ comments are positive about business conditions and the economy. They also indicated that recent tax changes have had a positive impact on their respective businesses.”

    The 15 non-manufacturing industries reporting growth in January — listed in order — are: Management of Companies & Support Services; Arts, Entertainment & Recreation; Mining; Utilities; Retail Trade; Construction; Transportation & Warehousing; Public Administration; Real Estate, Rental & Leasing; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Educational Services; Finance & Insurance; Wholesale Trade; and Accommodation & Food Services.

    The three industries reporting contraction in January are: Information; Other Services; and Professional, Scientific & Technical Services.

    Institute for Supply Management, “US Services PMI. Jan 2018“, 5 Feb 2018 (10:00) More

    Global Services PMI. Jan 2018

    Press Release Extract [global_psi]

    January saw a further improvement in the rate of increase in global services activity. Growth accelerated to match the 26-month high registered last October, underpinned by the fastest inflows of new work since July 2015.

    global_psi_20180205

    The J.P.Morgan Global Services Business Activity Index posted 54.1 in January, up from 53.8 in December.

    Solid increases in output were registered across the business, consumer and financial services sectors. The steepest expansion was seen in the latter, with growth hitting a three-month high, followed closely by that recorded at business services firms (albeit slower than in December). The pace of increase in consumer services activity improved to a 27-month high.

    The upturn remained broad-based by nation in January. Almost all of the countries covered saw business activity rise, with growth strengthening in the euro area (fastest in over a decade), China (68-month high), Japan and India (both three-month highs).

    Output growth eased to a nine-month low in the US, 16- month low in the UK and three-month lows in Russia and Australia. The Brazilian service sector stabilised, halting a three-month sequence of contraction.

    The outlook for the world service sector remained positive in January 2018. Alongside improved inflows of new work, companies reported feeling confident about future performance. Business optimism rose to a seven-month high, with all of the nations covered forecasting output growth over the coming year.

    Employment rose at a solid pace in January. Moreover, rates of jobs growth during the past half-year have been among the best seen in over a decade. Staffing levels rose in all of the nations covered except Brazil.

    Price pressures increased at the start of 2018. Rates of inflation in input costs and selling prices accelerated to a six-and-a-half year high and joint-highest since April 2014 respectively. Rates of increase in both price measures remained stronger in developed nations compared to their emerging market counterparts.

    Comment

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

    “The global service sector made a positive start to 2018, with output growth improving and the upturn broad-based by both sub-sector and nation. Stronger inflows of new orders combined with rising business confidence and job creation all suggest that the sector is on course to maintain this robust upswing during the coming months.”

    J.P.Morgan and IHS Markit in association with ISM and IFPSM, “Global Services PMI. Jan 2018“, 5 Feb 2018 (11:00) More

    Global Composite PMI. Jan 2018

    Press Release Extract [global_composite_pmi]

    The start of 2018 saw a further solid and broad-based expansion of global economic activity, with growth rising to a 40-month high. Output increased across the six categories of manufacturing and service sector activity tracked and in almost all of the national PMI surveys available at the time of publication.

    golbal_composite_pmi+20180205

    The J.P.Morgan Global All-Industry Output Index posted 54.6 in January, up from 54.3 in December. The headline index has signalled expansion in each of the past 64 months.

    Manufacturing production increased at a pace matching December 2017’s near seven-year high, while output growth in the service sector improved to the fastest in three months. Economic activity increased at faster rates in four of the six sub-sectors covered by the survey (consumer and intermediate goods as well as consumer and financial services). Output also expanded in the business services and intermediate goods categories.

    National PMI data pointed to a broad-based upturn in world economic activity, with all of the nations for which all-industry data are available registering expansions. The euro area remained a principal growth engine. Eurozone output rose at the quickest pace in almost 12 years, with growth accelerating in Germany, Italy and Spain.

    Rates of expansion also strengthened in China and Japan, while Brazil returned to growth following recent contractions. Slower rates of increase were signalled for the US, the UK, India, Russia, Australia and Ireland.

    Global all-industry new business rose at the quickest pace in over three-and-a-half years in January. Strong new order growth tested capacity, leading to the steepest rise in backlogs of work since August 2007. This in turn encouraged job creation, with employment increasing at the joint-fastest rate in a decade.

    Staffing levels rose in almost all of the nations covered, the exception being Brazil. Jobs growth improved in China, Japan, Germany and the UK, but slowed in the US, France, Italy, Spain, India, Russia, Ireland and Australia.

    Price pressures increased at the start of 2018. Inflation of input costs and output charges strengthened to 79- and two-month highs respectively. Rates of increase in both price measures were sharper in developed nations compared to their emerging market counterparts.

    Comment

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

    “The world economy sustained its strong upturns in output and new business at the start of 2018, as manufacturers and service providers benefitted from a synchronised upswing in global market conditions and growth. Forward- looking indicators such as new orders, backlogs of work and business confidence also suggest that this solid phase of expansion will be maintained in coming months.”

    J.P.Morgan and IHS Markit in association with ISM and IFPSM, “J.P.Morgan Global Manufacturing & Services PMI™: Global economic growth at 40-month high in Jan 2018“, 5 Feb 2018 (11:00) More

    flag_japan Japan update

    Nikkei Japan Services PMI. Jan 2018

    Press Release Extract [jp_psi]

    Key points:

    • New order growth quickens for first time since October 2017
    • Firms hire additional staff amid rising backlogs of work
    • Cost pressures intensify further

    jp_psi_20180205

    The Japanese service economy began 2018 positively, with an accelerated pace of activity growth. New business inflows increased at a sharper rate, contributing to a rise in the level of outstanding work and prompting firms to hire new staff. Encouraged by stronger upturns in output and new orders, business confidence strengthened to a 56-month high.

    The headline index from the survey – the seasonally adjusted Business Activity Index – increased to 51.9 in January, from 51.1 in December. This signalled a moderate pace of expansion, and the first time that output growth has quickened in the Japanese service sector since October last year.

    Concurrently, the manufacturing sector expanded production at the fastest rate since February 2014. The Nikkei Composite Output Index increased to 52.8 during January from 52.2 in December to signal a solid pace of private sector output growth.

    According to service providers, stronger growth in output was underpinned by greater new business inflows. New order receipts rose for an eighteenth consecutive month and at a quicker rate in January. Firms noted that demand from new and existing customers had fuelled the upturn.

    Similarly, new order growth in the manufacturing sector picked up to a four-year high.

    In line with a faster expansion in order book volumes, the level of outstanding business with Japanese service providers increased in January. Firms suggested that staff shortages had contributed to an accumulation in backlogs of work.

    Buoyed by stronger sales and output growth, service sector firms maintained a positive outlook towards activity over the coming 12 months. The level of confidence strengthened to the highest since May 2013.

    Confident that the growth trend in activity would be sustained, Japanese service providers enhanced operating capacity by hiring more employees. Additional jobs have been created in each of the past 13 survey periods. That said, the latest reading signalled a marginal slowdown in the rate of employment growth.

    In the manufacturing sector, additional jobs were created at the joint-fastest pace since April 2014, on a par with February 2017. New staff were hired in anticipation of greater new business inflows.

    In line with stronger optimism and robust demand conditions, Japanese service sector firms raised their selling prices in January. In fact, output price inflation accelerated for the third successive month to the sharpest since May 2014.

    That said, the rate at which input prices increased continued to outstrip that of selling charges, implying a further tightening of profit margins. The rate of inflation was sharp, quickening to the fastest since August 2008.

    Similarly, manufacturers raised output prices to partly offset stronger input cost inflation.

    Comment

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

    “January PMI data shows continued growth in Japanese service sector output. Indeed, activity rose at a faster pace amid a stronger expansion in new business inflows. This supported forecasts of further economic growth by panellists, with business optimism strengthening to a 56-month high. Input cost inflation accelerated to the sharpest rate since August 2008, with higher food and fuel expenses cited as a principal factor behind the uptick. However, demand growth spurred on firms to raise output prices at the fastest pace since May 2014. The Bank of Japan does not expect the 2% target to be attained until at least April 2019, with December 2017 core CPI rising at an annual rate of 0.9%. That said, with PMI and official data signalling sustained increases in output and employment, domestic inflationary pressures are not lacking. A continuation of yen appreciation against the US dollar could undermine the BoJ’s commitment to ultra-loose monetary policy, however.”

    IHS Markit, “Nikkei Japan Services PMI. Jan 2018“, 5 Feb 2018 More

    Currency: USD/JPY

    JPY movements
    ^ JPY movements against the USD over the past month (mouseover for inverse) Chart: xe.com

    Stockmarket: Nikkei 225

    n225 movements
    ^ Nikkei 225 movements over the past week Chart: Google Finance

    flag_china China update

    Caixin China General Services PMI. Jan 2018

    Press Release Extract [cn_psi]

    Key points:

    • Service sector activity expands at fastest pace since May 2012, while manufacturing output also rises solidly
    • Total employment rises at quickest pace for ten months
    • Overall inflationary pressures ease

    cn_composite_pmi_20180205

    The Caixin China Composite PMI™ data (which covers both manufacturing and services) indicated that growth momentum across China picked up for the third straight month in January. Furthermore, the Composite Output Index rose to a seven-year high of 53.7, from 53.0 in December, to signal a solid pace of expansion.

    January survey data signalled accelerated rates of activity growth across both the manufacturing and service sectors in China. The steeper pace of expansion was registered by services companies, which saw the most marked increase in activity since May 2012. This was highlighted by the seasonally adjusted Caixin China General Services Business Activity Index posting 54.7 at the start of 2018, up from 53.9 in December. At the same time, manufacturers signalled the quickest upturn in production levels since December 2016.

    Similar to the trends for activity, both service providers and manufacturers noted a further increase in new business during the opening month of the year amid reports of firmer client demand. Furthermore, new order growth accelerated to a 32-month record across the service sector. Meanwhile, goods producers registered a modest increase in new work that was softer than in December. At the composite level, total new orders rose at a solid pace that was similar to that recorded at the end of 2017.

    Employment data continued to signal divergent trends, with rising headcounts at services companies contrasting with further job cuts at manufacturers. Service sector staff numbers have now risen for seventeen months in succession, with some firms adding to their payrolls due to greater business requirements. Moreover, the rate of job creation edged up to a five-month high. Manufacturing workforce numbers meanwhile declined at the softest pace for nearly three years. As a result, composite employment rose slightly, after broadly stagnating between August and December last year.

    After falling in each of the prior four months, backlogs of work were unchanged at services companies in January. In contrast, manufacturers signalled sustained pressures on operating capacity, with outstanding work rising for the twenty-third month in a row and to the greatest extent since March 2011. Consequently, unfinished business rose at a stronger, albeit modest, pace at the composite level.

    The rate of input price inflation continued to soften across China’s manufacturing sector at the start of the year. Though sharp overall, the pace of increase was the weakest since last August. Service providers meanwhile registered a faster rise in cost burdens, with the rate of inflation the steepest since April 2012. Nonetheless, the marked slowdown in the manufacturing sector led composite input prices to increase at the slowest pace for five months.

    Despite strong cost pressures, manufacturers and service providers raised their output charges at softer rates in January. In fact, selling prices rose only marginally in both cases. At the composite level, average charges increased at the slowest pace in seven months.

    Chinese companies were generally optimistic that activity would increase over the next 12 months. However, improved confidence across the manufacturing sector (four-month high) contrasted with a slight dip in sentiment at service providers (four-month low). Nonetheless, expectations remained relatively subdued across both sectors compared to their long-run trends.

    Comment

    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 0.8 points to 54.7 in January, the joint-best reading since October 2010. The new business sub-index continued to inch up, although by a smaller margin than in the previous two months, reflecting solid demand for services. The input prices sub-index hit the highest since April 2012, due to the impact of rising labor costs and increasing crude oil prices. However, the sub-index of prices charged went down again last month, suggesting that providers of services have failed to fully pass higher costs on to consumers.

    The Caixin China Composite Output Index increased 0.7 points to 53.7 in January, pointing to continued improvement in the operating conditions of both the manufacturing and services sectors.

    Caixin PMI readings in January showed that the Chinese economy had a good start to 2018. Looking forward, we should watch for stability of demand in the manufacturing industry and the impact of growing costs on the profitability of service providers.”

    IHS Markit, “Caixin China General Services PMI™: Chinese business activity expands at quickest pace for seven years in January. 2018“, 5 Feb 2018 More

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