Mon 2 Jul 2018


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In Portfolioticker today

read_this Hey Jarvis, how did we go today?

Today at the stock market

bull/bearWall Street suffered steep losses at the start of the session, but reversed course later, ending higher after a choppy session, with gains in Apple and other technology stocks offsetting worries about an escalating trade war between Washington and its trading partners.

  • The S&P 500 index rose 0.31% to 2,726.71. Only 3 of the 11 main S&P 500 sectors ended lower on Monday, with energy down 1.55% on the back of a 2% drop in Brent crude.
  • The Dow Jones Industrial Average rose 0.15% to 24,307.18
  • The Nasdaq Composite index rose 0.76% to 7,567.69
  • Advancing issues outnumbered declining ones on the NYSE by a 1.09-to-1 ratio; on Nasdaq, a 1.55-to-1 ratio favored advancers.
  • The S&P 500 posted two new 52-week highs and 11 new lows; the Nasdaq Composite recorded 52 new highs and 70 new lows.
  • Volume on U.S. exchanges was 6.2 billion shares, compared with the 7.3 billion average over the last 20 trading days. The lower volume was attributed to tomorrow’s short trading session, followed by Wednesday’s public holiday.

Technology sector

Microsoft Inc, Facebook Inc and Apple Inc each rose 1% or more, pushing the S&P 500 information technology index up 0.99%, bringing gains for the year-to-date to 11% as investors bet on strong earnings from Silicon Valley in the approaching quarterly reporting season.

“It doesn’t look like tech is going to slow down this year,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. “The tech play is here to say.”

Dell Technologies took a step closer to becoming a public company again with a deal to buy the tracking stock of its majority-owned VMware unit. The VMware tracking stock jumped 9%, while VMware rose 10.24%.

Trade policy

Traders were also eyeing the 6 Jul 2018 deadline for U.S. tariffs on $34 billion worth of Chinese goods to kick in, which pose the danger of a strong response from Beijing.
The European Union has warned the United States that imposing import tariffs on cars and car parts would likely lead to counter-measures on $294 billion of U.S. exports, while Canada has vowed to take punitive measures in response to U.S. steel and aluminum tariffs.

“These tit-for-tat trade tariffs will ultimately raise prices for consumers and will likely dampen demand for products,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago. Ablin said he expected strong U.S. corporate earnings for Q2/2018, but that profits for the rest of 2018 were in danger of being hurt by an escalating trade war.

Other drivers

Also helping the market was Commerce Department data that showed U.S. construction spending increased 0.4% in May 2018, more than estimated, amid gains in investment in private and public construction projects.

The Institute for Supply Management (ISM) said national factory activity surged last month, likely as steel and aluminium tariffs disrupted supply chains, resulting in factories taking longer to deliver goods.

Tesla Inc fell 2.3% after the electric car maker said it hit its target of producing 5,000 Model 3 sedans per week. Many investors were skeptical about the financial impact of ramping up production and the quality of the cars being built. In addition, just before the market close, Tesla said its chief engineer was leaving the company.

Shares of casino companies fell as gambling revenue in the Chinese territory of Macau rose less than expected in June.

Wynn Resorts sank 7.89%, while Las Vegas Sands fell 6.67% after Bank of America downgraded the stock. MGM Resorts dropped 3%.Reuters

Market indices

Market indices
^ S&P500 Index today (mouseover for 12 month view) [Chart: Google Finance]

Index Ticker Today Change 31 Dec 17 YTD
S&P 500 SPX (INX) 2,726.71 +0.30% 2,673.61 +1.98%
DJIA INDU 24,307.18 +0.14% 24,719.22 -1.67%
NASDAQ IXIC 7,567.69 +0.76% 6,903.39 +9.62%

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 AUD 3.529 +1.23% 3.068 +15.05%
Valuation Rate USD/AUD 0.73804 -0.96% 0.78528 -6.02%
AUD-denominated Index AUD 4.781 +2.20% 3.909 +22.32%

Portfolio stock prices

:-) VMware closed on a record $162.02, up 10.24% for the day, beating its 20 Jun 2018 record of $152.18.

Stock Ticker Today Change 31 Dec 17 YTD
Alphabet A GOOGL $1,142.11 +1.14% $1,053.00 +8.46%
Alphabet C GOOG $1,127.46 +1.05% $1,045.65 +7.82%
Apple AAPL $187.18 +1.11% $169.23 +10.60%
Amazon AMZN $1,713.78 +0.82% $1,169.54 +46.53%
Ebay EBAY $36.67 +1.13% $37.76 -2.89%
Facebook FB $197.36 +1.56% $176.46 +11.84%
PayPal PYPL $83.89 +0.74% $73.61 +13.96%
Twitter TWTR $44.98 +2.99% $24.01 +87.33%
Visa V $132.50 +0.03% $114.02 +16.20%
VMware VMW $162.02 +10.24% $125.32 +29.28%

Selected Tech News Headlines

  • Amazon’s PillPack Deal Gives It Access to Sensitive Health Data: “Amazon.com Inc. knows more about consumers’ online-shopping habits than any other retailer. Now it is about to get its hands on the most intimate of personal data: people’s health conditions.WSJ

  • Dell nears deal buy out VMWare tracking stock with cash and equity: “Dell Inc. is nearing a deal to buy out the holders of shares that track the performance of VMWare Inc using a mix of cash and equity in Dell, people familiar with the matter said on Sunday. The cash component of the offer will be financed by a dividend that VMWare will pay out to its shareholders, the people said. Dell, which effectively owns more than 80% of VMWare, will receive about $9 billion, the people added. The remainder of the consideration for the VMWare tracking stock holders will be financed with common equity in Dell, which will remain a private company, the people said. Dell will not make any immediate moves to buy out the shareholders of the publicly traded VMWare stock, who will continue to own just under 20% of the company, the people said.Reuters

  • Facebook Reveals Apps, Others That Got Special Access to User Data: “Facebook gave dozens of companies special access to user data, detailing for the first time a spate of deals that contrasted with previous public statements that it restricted personal information to outsiders in 2015.WSJ

Currencies: USD/AUD


^ AUD vs Bloomberg Dollar Spot Index (DXY) movements today Chart: Bloomberg

USD

The USD started Q3/2018 on a positive note on Monday, benefiting from mounting global trade tensions and political developments in Europe, as investors scooped up the USD as a safe-haven bet.

Tension is growing ahead of a 6 Jul 2018 deadline when Washington is due to impose $34 billion of tariffs on Chinese exports, with two surveys of Chinese manufacturing out in the last few days showing a softening in activity, partly due to softness in exports.

Meanwhile, German Chancellor Angela Merkel was dealt a fresh blow when her interior minister offered to quit in an escalating row over migration policy, pushing the EUR lower.

“The dollar seems to have benefited from safe-haven flows … as trade tensions and political developments in Europe have reduced investors’ appetite for risk,” said Oliver Jones, market economist at Capital Economics in London.

But Jones noted that even if global and trade worries ease, the USD will remain supported.

“Given the outlook for U.S. monetary policy, we think that the currency will be supported by another pick-up in Treasury yields this year should a full-blown trade war be avoided,” Jones said.

Taking note of the rising USD, BNP Paribas trimmed its end-2018 forecasts for the euro and sterling.

The USD further extended gains after the Institute for Supply Management’s manufacturing index showed a reading of 60.2, higher than the market forecast of 60.2, while U.S. construction spending rose 0.4% in May 2018.

“The ongoing good news should make manufacturers happy, and continues to suggest robust gains in the second half,” said Michael Montgomery, U.S. economist, at IHS Markit.

Latest positioning data remains broadly USD-supportive and is an extension of themes seen in currency markets in recent days.

USD longs edged higher for a second consecutive week, EUR longs got trimmed again with net outstanding long positions at their lowest in nearly two months while the CHF enjoyed some safe-haven support.

A rising USD also translates into tightening financial conditions for broader financial markets given the U.S. currency’s dominance in global financing and trading markets.

The EUR fell 0.6% to USD 1.1615 on concerns over political developments in Germany. It racked up its third consecutive monthly loss against the USD in Jun 2018.

The USD extended its gains against the JPY to hit a new 6-week high of JPY 111.06, pressured by the Bank of Japan’s tankan business sentiment survey, which showed a slight dip in big Japanese manufacturers’ sentiment.Reuters

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

The Bloomberg Dollar Spot Index (DXY) rose 0.5%.
The EUR fell 0.6% to USD 1.1619.
Britain’s GBP fell 0.6% to USD 1.3129.

The yield on 10-year Treasuries rose less than 1 basis point to 2.8656%.
Germany’s 10-year yield was little changed at 0.304%.
Britain’s 10-year yield fell 2 basis points to 1.255%.
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 15:49 EDT

  • NYMEX West Texas Intermediate (WTI): $73.82/barrel -0.45% Chart
  • ICE (London) Brent North Sea Crude: $77.28/barrel -2.46% Chart
  • NYMEX Natural gas futures: $2.86/MMBTU -2.12% Chart

flag_australia AU: Commonwealth Bank Australia Manufacturing PMI. Jun 2018

Press Release Extract [au_pmi]

Key Findings

  • Manufacturing PMI for Jun 2018: 55.0, up from 53.2 in May 2018

au_pmi_20180702

Growth momentum in the Australian manufacturing sector picked up at the end of the second quarter. Demand improved at a sharp pace, prompting firms to raise employment and boost production. Furthermore, favourable operating conditions led to a strengthening of business confidence. At the same time, capacity pressures were evidenced by lengthening input delivery times and increased backlogs of work.

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 – rose to 55.0 in June, up from 53.2 in May, to signal a strong and faster pace of improvement in the Australian goods-producing sector. Growth has been recorded in each month since data collection began in May 2016.

A sharp expansion in new orders was observed in June, with almost one-third of the survey panel recording greater new sales. New contract wins and improved demand from abroad were among the reasons cited for growth of order books. Exports expanded at a similarly- marked rate that was the quickest in four months.
New business from Asian markets, particularly China, Indonesia and the Philippines were noted by panellists. Buoyed by these trends in demand, future output expectations were strongly positive in June.

Amid robust sales, production was raised. That said, although the rate of increase quickened and was strong, it remained below its average. To cope with higher workloads, additional staff were hired to boost operating capacities. Nonetheless, output capabilities were tested, as evidenced by the quickest rise in backlogs of work since January.

Capacity issues across the supply chain were also apparent, with average input delivery times lengthening to the greatest extent in five months. Worsening vendor performance was attributed to material shortages and strong input demand.

Panellists indicated that suppliers raised input prices further during June, with commodity prices, in particular metals, driving up cost burdens. The rate of inflation was sharp and only slightly weaker than May’s survey high. Strong demand enabled firms to share greater operating expenses with their clients, with output prices rising sharply by historical standards.

Comment: Michael Blythe, Chief Economist at the Commonwealth Bank

‘The Australian manufacturing sector moved through the second quarter at a decent pace. And the leading indicators suggest the positive manufacturing momentum is set to continue The PMI details have settled into a consistent picture. The backlog of work is uncomfortably high, delivery times are lengthening and some demand is being met by running down stocks. The positive spinoff is a solid labour demand. The ongoing risk is rising input costs that a strong economy is allowing to flow through to output prices.’

IHS Markit, “Commonwealth Bank Australia Manufacturing PMI. Jun 2018“, 2 Jul 2018 (09:00 AEST) More

flag_europe EU: Unemployment. May 2018

Press Release Extract [eu_ue]

The euro area (EA19) seasonally-adjusted unemployment rate was 8.4% in May 2018, stable compared with April 2018 and down from 9.2% in May 2017. This remains the lowest rate recorded in the euro area since December 2008. The EU28 unemployment rate was 7.0% in May 2018, stable compared with April 2018 and down from 7.7% in May 2017. This is the lowest rate recorded in the EU28 since August 2008.

eu_ue_20199792

Eurostat estimates that 17.207 million men and women in the EU28, of whom 13.656 million in the euro area, were unemployed in May 2018. Compared with April 2018, the number of persons unemployed decreased by 154 000 in the EU28 and by 125 000 in the euro area. Compared with May 2017, unemployment fell by 1.828 million in the EU28 and by 1.252 million in the euro area.

Member States

Among the Member States, the lowest unemployment rates in May 2018 were recorded in the Czech Republic (2.3%) and Germany (3.4%). The highest unemployment rates were observed in Greece (20.1% in March 2018) and Spain (15.8%).

eu_ue_states_20180702

Compared with a year ago, the unemployment rate fell in all Member States. The largest decreases were registered in Cyprus (from 11.4% to 8.4%), Croatia (from 11.3% to 8.9%), Greece (from 22.1% to 20.1% between March 2017 and March 2018) and Portugal (from 9.2% to 7.3%).

In May 2018, the unemployment rate in the United States was 3.8%, down from 3.9% in April 2018 and from 4.3% in May 2017.

Youth unemployment

In May 2018, 3.377 million young persons (under 25) were unemployed in the EU28, of whom 2.390 million were in the euro area. Compared with May 2017, youth unemployment decreased by 519 000 in the EU28 and by 353 000 in the euro area. In May 2018, the youth unemployment rate was 15.1% in the EU28 and 16.8% in the euro area, compared with 17.2% and 19.3% respectively in May 2017. In May 2018, the lowest rates were observed in Malta (4.8%), Germany (6.1%), Estonia (6.8% in April 2018) and the Netherlands (6.9%), while the highest were recorded in Greece (43.2% in March 2018), Spain (33.8%) and Italy (31.9%).

Eurostat, “Unemployment. May 2018“, 2 Jul 2018 More

flag_europe EU: IHS Markit Eurozone Manufacturing PMI. Jun 2018

Press Release Extract [eu_pmi]

Key findings:

  • Final Eurozone Manufacturing PMI at 54.9 in June (Flash: 55.0, May Final: 55.5)
  • Growth of output and new orders slow further as upturn in new export business remains subdued
  • Supply chain pressure and rising oil prices take input cost inflation to four-month high

eu_pmi_20180702

The euro area manufacturing upturn slowed further at the end of the second quarter. The final IHS Markit Eurozone Manufacturing PMI® posted an 18-month low of 54.9 in June, down from 55.5 in May and the earlier flash estimate of 55.0. The PMI has signalled a weakening in the pace of expansion in each month since the turn of the year, as manufacturers have experienced a synchronised easing in growth of both production and new order volumes.

PMI readings moved lower in five of the nations covered by the survey, including the two best performers (Netherlands and Austria). Weaker expansions were also seen in Germany, France and Greece, with France dropping to the bottom of the growth league table. Third-placed Ireland saw growth pick up to a five-month high, while a mild acceleration in Italy was insufficient to prevent it registering the second-worst overall performance. The pace of expansion was unchanged in Spain.

Output and new order growth have both eased sharply since the end of 2017. In June, the rates of expansion in production and new business were the weakest since November 2016 and August 2016 respectively. This in turn had an impact on business optimism, which slumped to its lowest level in over two-and-a-half years.

The easing was widespread by sector, with output and new order growth slowing across the consumer, intermediate and investment goods segments. Producers of investment goods registered the strongest rates of increase in both measures.

June data signalled that growth of new export orders remained relatively mild and substantially weaker than at the start of the year, despite picking up slightly since May. Exporters are becoming increasingly concerned about the potential impact of tariffs and other trade restrictions on growth. The fastest rates of increase in new export business were seen in the Netherlands, Greece and Ireland. Growth slowed in Germany, Spain and Ireland.

Manufacturing employment continued to increase in June, with the rate of job creation ticking higher. Staffing levels were raised in all of the nations covered by the survey, with rates of increase strengthening in Germany, Italy and Ireland. Expansions were registered across the consumer, intermediate and investment goods sectors, with the steepest gain in the latter.

Companies linked higher employment to rising production and increased backlogs of work. However, the rate of expansion in outstanding business eased to a 22-month low, mainly reflecting the slowdown in new order growth.

Input price inflation across the eurozone manufacturing sector rose to a four-month high in June. Further widespread lengthening of suppliers’ delivery times – a key indicator of demand for inputs outstripping supply – meant vendors were often able to raise their charges. Manufacturers also mentioned higher oil and fuel costs.

In contrast, output charge inflation eased to a nine- month low in June, but remained strong nonetheless. Increases in both input costs and output prices were sharper in the intermediate and investment goods sectors compared to those seen at consumer goods producers.

Comment: Chris Williamson, Chief Business Economist at IHS Markit

‘Eurozone manufacturing reported its weakest expansion for one-and-a-half years in June, with risks clearly tilted towards output growth waning further in coming months. Production growth has weakened markedly since the end of last year, and new order inflows have slowed even more. Manufacturers may therefore need to rein-in their production further to adjust to the recent downturn in order book growth unless demand revives. The biggest concern is the extent to which export order book growth has cooled since the start of the year, and could soon go into decline. The survey reveals mounting worries from companies relating to the impact of tariffs and trade wars, suggesting firms are bracing themselves for the potential for further export losses. Not surprisingly, business expectations for future production deteriorated in June to the lowest November 2015. At the same time there are signs that political uncertainty is also dampening business spirits, most evidently in Italy, which was consequently the second-worst performer of all countries surveyed in June ahead of France.

IHS Markit, “Eurozone Manufacturing PMI. Jun 2018“, 2 Jul 2018 More

flag_usa US: Construction Spending (Construction Put in Place). May 2018

Press Release Extract [us_const]

Total Construction

Construction spending during May 2018 was estimated at a seasonally adjusted annual rate of $1,309.5 billion, 0.4 percent (±1.3 percent) above the revised April estimate of $1,304.5 billion. The May figure is 4.5 percent (±1.6 percent) above the May 2017 estimate of $1,253.6 billion. During the first five months of this year, construction spending amounted to $497.1 billion, 4.3 percent (±1.2 percent) above the $476.7 billion for the same period in 2017.

us_const_20180702

Private Construction

Spending on private construction was at a seasonally adjusted annual rate of $1,005.4 billion, 0.3 percent (±0.8 percent) above the revised April estimate of $1,002.3 billion. Residential construction was at a seasonally adjusted annual rate of $553.8 billion in May, 0.8 percent (±1.3 percent) above the revised April estimate of $549.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $451.5 billion in May, 0.3 percent (±0.8 percent) below the revised April estimate of $453.0 billion.

US Census Bureau, “Construction Spending (Construction Put in Place). May 2018“, 2 Jul 2018 More

flag_usa US: IHS Markit US Manufacturing PMI. Jun 2018

Press Release Extract [us_pmi]

Key findings:

  • Output expands at slower, but still solid, rate
  • New orders increase at softest rate since November 2017
  • Suppliers’ delivery times lengthen to the greatest extent in series history

us_pmi_20180702

June data signalled a slightly softer rate of growth across the U.S. manufacturing sector. The PMI dipped to its lowest in four months as output and new orders both expanded at the slowest rates since November 2017. Meanwhile, the effects of tariffs were widely cited as contributing to another sharp rise in input prices, while suppliers’ delivery times lengthened to the greatest extent since the series began. Average charges also increased sharply, rising at the second-fastest rate since June 2011.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 55.4 in June, down from 56.4 in May. The latest PMI reading was up from the ‘flash’ figure of 54.6 and ended the strongest quarterly performance since the third quarter of 2014.

Output growth remained strong in June, despite the rate of expansion easing to a seven-month low.

Similarly, the upturn in new orders was the softest since November 2017. Although the expansion lost some momentum, it was solid nonetheless. Panellists stated that growth was due to robust client demand and favourable market conditions. However, new business from abroad contracted for the first time since July 2017 (albeit only slightly), amid reports of weaker foreign client demand following recent tariff announcements.

The rate of input cost inflation was the slowest for four months, but remained sharp nonetheless. The rise in cost burdens was driven by greater global demand for inputs and the effects of recent tariffs. Supplier shortages were a key factor behind longer delivery times. Lead times for inputs lengthened to the greatest extent in the series history.

Factory gate prices also increased sharply, with the rate of inflation accelerating to the second-fastest since June 2011. Panellists widely commented that higher input costs were partly passed onto clients.

Reflective mainly of difficulties in sourcing raw materials, buying activity and stocks of purchases grew at weaker rates in June.
Capacity pressures persisted, despite employment growth quickening since May, as backlogs increased solidly. The rate of job creation was the fastest since February and outstanding business rose at the second-strongest rate since September 2015.

Business confidence was strong in June. Optimism was commonly linked to expected sustained upturns in output and new orders. That said, sentiment fell to the lowest level for five months.

Comment: Chris Williamson, Chief Business Economist at IHS Markit

‘The PMI for June rounds off the best quarter for manufacturing for almost four years, but also fires some warning shots about what lies ahead. As such, the second quarter could represent a peak in the production cycle. The survey has a good track record of accurately anticipating changes in the official manufacturing output data, and suggests the goods-producing sector is growing at an annualised rate of around 2.5%. On the downside, new orders inflows were the weakest for seven months, with rising domestic demand countered by a drop in export sales for the first time since July of last year. Business optimism about the year ahead also fell to the lowest since January, with survey respondents worried in particular about the potential impact of trade wars and tariffs. Tariffs were widely blamed on a further marked rise in input costs, and also linked to worsening supply chain delays – which hit the highest on record, exacerbating existing tight supply conditions.’

IHS Markit, “IHS Markit US Manufacturing PMI. Jun 2018“, 2 Jul 2018 (09:45) More

flag_usa US: ISM Report on Business. Jun 2018

The June PMI® registered 60.2 percent, an increase of 1.5 percentage points from the May reading of 58.7 percent.
The New Orders Index registered 63.5 percent, a decrease of 0.2 percentage point from the May reading of 63.7 percent.
The Production Index registered 62.3 percent, a 0.8 percentage point increase compared to the May reading of 61.5 percent.
The Employment Index registered 56 percent, a decrease of 0.3 percentage point from the May reading of 56.3 percent.
The Supplier Deliveries Index registered 68.2 percent, a 6.2 percentage point increase from the May reading of 62 percent.
The Inventories Index registered 50.8 percent, an increase of 0.6 percentage point from the May reading of 50.2 percent.
The Prices Index registered 76.8 percent in June, a 2.7 percentage point decrease from the May reading of 79.5 percent, indicating higher raw materials prices for the 28th consecutive month.

“Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index at 60 percent or above for the 14th straight month, and the Customers’ Inventories Index remaining low. The Backlog of Orders Index continued to expand, reading at 60 percent of higher for the third consecutive month. Consumption, described as production and employment, continues to expand in spite of labor, skill and material shortages. Inputs, expressed as supplier deliveries, inventories and imports, had expansion increases, due primarily to negative supply chain issues. Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue. Export orders expanded at higher rates. Price pressure remains strong, but the index saw its first expansion softening since November 2017. Demand remains robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business,” says Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee.

Of the 18 manufacturing industries, 17 reported growth in June, in the following order: Textile Mills; Wood Products; Nonmetallic Mineral Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; Transportation Equipment; Furniture & Related Products; Machinery; Primary Metals; Miscellaneous Manufacturing; Chemical Products; Petroleum & Coal Products; and Plastics & Rubber Products. No industry reported a decrease in June compared to May.

Institute for Supply Management, “June 2018 Manufacturing ISM® Report On Business®“, 2 Jul 2018 (10:00) More

JPMorgan Global Manufacturing PMI. Jun 2018

Press Release Extract [global_pmi]

Key points:

  • Global PMI: 53.0 (May 53.1)
  • Output: 53.2 (May 53.4)
  • New Orders: 52.9 (May 53.4)
  • New Exports: 50.5 (May 50.7)
  • Employment: 52.1 (May 51.8)
  • Input Prices: 62.2 (May 60.7)
  • Output Prices: 55.0 (May 54.4)
  • Future Output: 61.9 (May 63.9)

global_pmi_20180702

The upturn in the global manufacturing sector lost further momentum in June, as output and new order growth slowed and the rate of increase in new export business slipped closer to stagnation. Concerns about international trade were also a factor underlying a drop-off in business optimism to a 19- month low.

The J.P.Morgan Global Manufacturing PMI™ – a composite index produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – fell to an 11-month low of 53.0 in June, down from 53.1 in May. The rate of expansion was steepest in the investment goods sector, followed by consumer goods, despite both industries seeing growth slow. The pace of improvement accelerated in the intermediate goods category, but remained below the global average.

Of the nations covered by the survey, six reported deteriorations on overall operating performance in June. These were Brazil, Denmark, Malaysia, Russia, South Korea, and Turkey. Rates of expansion remained above the global average in the US and the euro area, despite easing over the month. Growth ticked higher in Japan, but eased in China.

World manufacturing production rose at the slowest pace since July last year, as growth of new order inflows eased to a 19-month low. This was partly the result of subdued international trade flows, as new export orders rose only slightly and to the weakest extent during the current 23-month sequence of expansion. Developed markets saw (on average) a modest increase in new export business, whereas emerging nations registered a decline for the third straight month.

Global manufacturing employment increased for the twenty- second successive month in June. The rate of jobs growth also improved for the first time in the year-so-far. Staffing levels were increased in the majority of the nations covered, the exceptions being Brazil, China, the Philippines, Russia, South Korea, Thailand and Turkey.

Price pressures increased again in June, with both input costs and output charges rising at faster rates. Purchase price inflation was the joint-highest in the past seven years, while the increase in charges was the steepest since May 2011. For both measures, rates of inflation remained (on average) sharper in developed nations compared to emerging markets.

J.P.Morgan and IHS Markit in association with ISM and IFPSM, “JPMorgan Global Manufacturing PMI. Jun 2018“, 2 Jul 2018 (11:00) More

flag_japan Japan update

Nikkei Japan Manufacturing PMI. Jun 2018

Press Release Extract [global_pmi]

Key points:

  • Output and employment increase at faster rates in June
  • New export orders decline for first time since August 2016…
  • …while total inflows of new work rise at softest pace in ten months

jp_pmi_20180702

Summary

Business conditions in the Japanese manufacturing sector improved further at the end of the second quarter. The upturn was supported by increased inflows of new work, which encouraged businesses to expand both output and employment at faster rates. However, for the first time since August 2016, export sales declined. Nevertheless, overall growth in new work kept pressure on operating capacities, with backlogs of work rising at a sharper pace.

On the price front, selling charges were raised to the greatest extent in five months amid sharper input price inflation.

The headline Nikkei Japan Manufacturing Purchasing Managers’ Index™ (PMI)® – a composite single-figure indicator of manufacturing performance – posted 53.0 in June, up from 52.8 in May, to indicate a stronger improvement in the manufacturing sector. Japan’s goods-producing sector has observed growth in each of the past 22 months. Moreover, the latest rate of expansion was above the average seen over this sequence.

New orders increased during June, albeit to the weakest extent in ten months. Nevertheless, demand has improved in each month since October 2016. Meanwhile, sales to overseas clients declined for the first time in 22 months. Panellists mentioned that a combination of higher prices and weaker demand from North America and China had impacted export performance.

Nonetheless, overall inflows of new work tested capacities at Japanese goods producers in June, as signalled by a rise in outstanding business. Although backlogs of work were accumulated at a faster rate, the rise was only modest overall.

To help alleviate this pressure, production was expanded at an accelerated rate in June. Furthermore, extra staff were hired at a faster pace in order to improve output capabilities. That said, the rate of job creation was still the second-slowest in 2018 so far.

Supply chain troubles were also apparent in June, with average lead times for the delivery of inputs lengthening to a sharp extent. Panellists noted that a combination of raw material shortages and stronger input demand had hampered vendor performance. Purchasing activity was ramped up by Japanese manufacturers in June. Anecdotal evidence indicated that additional materials were acquired in line with higher new order volumes.

However, input prices continued to rise at a steep pace at the end of the second quarter. In fact, the rate of inflation rose to a three-and-a-half year high amid reports of increased costs for oil and metals. Businesses responded by hiking selling charges at the quickest pace in five months. That said, the rate of increase in output prices was only modest overall and markedly slower than that of input costs.

Looking ahead, firms remained optimistic that output growth will continue over the coming 12 months. Positive sentiment was attributed to planned new factory openings and product launches, as well as forecasts of greater demand.

Comment: Joe Hayes, Economist at IHS Markit

‘Japan manufacturing PMI data continue to signal that the sector’s current expansion phase still has legs. Output growth edged up in June, supported by further inflows of new work and an accelerated rate of employment growth. Concerns do remain however, as new order growth eased to a ten-month low and export sales decreased for the first time since August 2016. Moreover, with input price inflation jumping to a three-and-a-half year high, manufacturers may be forced to absorb higher cost burdens in order to remain competitive, particularly if the yen faces further safe haven demand.

IHS Markit, “Nikkei Japan Manufacturing PMI. Jun 2018“, More

Currency: USD/JPY

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Stockmarket: Nikkei 225

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flag_china China update

Caixin China Manufacturing PMI. Jun 2018

Press Release Extract [cn_pmi]

Key Points:

  • Production expands at faster pace…
  • …despite softer rise in total new orders and further decline in export sales
  • Staffing levels fall at quickest rate for nearly a year.

cn_pmi_20180702

Summary

China’s manufacturing sector expanded further in June, with companies registering sustained increases in output and new orders. That said, demand from overseas remained subdued, as new export sales fell for the third month running. At the same time, optimism towards the year ahead fell to a six-month low, while employment declined at the quickest pace since July 2017.

Inflationary pressures picked up at the end of the second quarter, with input costs and output charges rising at the fastest rates in five and 11 months respectively.

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – fell fractionally from 51.1 in May to 51.0 in June, to signal a further marginal improvement in operating conditions. The health of the sector has now strengthened in each of the past 13 months, with the latest improvement broadly in line with the historical trend.

June survey data signalled a further increase in Chinese manufacturing production, with the rate of growth edging up to a four-month high. That said, the pace of expansion remained moderate overall.

Supporting the latest upturn in production was a sustained rise in new business. As was the case for output, the rate of growth was moderate and similar to those seen in the prior two months. In contrast, new export sales fell for the third month in a row amid reports of subdued foreign demand.

Manufacturers signalled a further reduction in workforce numbers during June. Anecdotal evidence indicated that lower headcounts were due to retirements, company downsizing policies and insufficient workloads. Notably, the rate of job shedding was the steepest seen for 11 months. Reduced payrolls meanwhile contributed to a further modest rise in backlogs of work.

Increased production needs led firms to expand their purchasing activity again in June, albeit to the weakest degree in three months. At the same time, firms exhibited a relatively cautious approach to their inventory levels, with stocks of both purchased and finished items declining at the end of the second quarter.

Low stock levels among vendors and strict environmental policies led to a further deterioration in supplier performance in June.

The rate of input price inflation picked up to the sharpest in five months in June. A number of monitored firms commented on rising raw material costs, including items such as steel. As a result, manufacturers raised their prices charged, and at the steepest rate since last September.

Finally, goods producers in China remained optimistic that production levels would rise over the next year. However, the level of positive sentiment was the lowest recorded for six months, amid concerns of rising costs and stricter environmental policies.

Comment: Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group

‘The Caixin China General Manufacturing PMI stood at 51.0 in June, dropping slightly from a month earlier but remaining in expansion territory. The output index continued to rise, suggesting that manufacturing supply was relatively strong. The new order index dropped marginally, and the employment index dropped for the second consecutive month, indicating worsening layoffs. The index for new export orders fell to a low for the year so far and remained in contraction territory, pointing to a grim export situation amid escalating trade disputes between China and the U.S., which led to weak demand across the manufacturing sector.

The indices for output charges and input prices both rose, with the latter jumping sharply, continuing to drive the output index upward and suggesting that the year-on-year growth of the producer price index probably continued to rise significantly in June. Corporate profits could have been squeezed due to the rapid rise in input prices, leading to a dip in the future output index. The two indices measuring stocks of finished goods and purchases both dropped, with the latter falling into contraction territory for the first time this year, reflecting that the manufacturing sector is stepping into a destocking phase amid weak demand. The suppliers’ delivery times index remained in contraction territory, indicating delivery delays and poor capital turnover among manufacturing suppliers.

Overall, the manufacturing PMI survey pointed to strengthening price pressures in June. Deteriorating exports and weak employment, along with companies’ destocking and poor capital turnover, put pressure on the manufacturing sector.’

IHS Markit, “Caixin China Manufacturing PMI. Jun 2018“, More

Currency: USD/CNY

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Stockmarket: CSI300

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