August Global PMI Roundup (August 2011): weak but still growing

Wednesday, September 14th, 2011

The pace of growth in global economic activity continued to slow in August. The JP Morgan Global Composite PMI dropped to 51.5 in August from 52.6 in July and is moving closer to the precarious 50 mark as a drop below 50 will mean contraction in the global economy.

On a GDP-weighted/composite basis (manufacturing and non-manufacturing/services combined) the U.S. and France were the only economies where the PMIs indicated faster growth. My GDP-weighted ISM PMI for the U.S. improved to 52.7 from 52.3 in July, while Markit’s composite PMI for France rose to 53.7 from 53.2.

My GDP-weighted PMI for the Eurozone fell to 50.8 from 51.3 with Markit’s composite PMI for Germany dropping to 51.3 from 52.5. With Germany and France the two major economies in the Eurozone, the composite PMIs indicate that the rest of the economies in the region are contracting and that growth in the U.K. has slumped.

Japan’s recovery from the twin disasters is weakening. In the rest of the Far East, China’s GDP-weighted CFLP fell on both an unadjusted and seasonally-adjusted basis. Hong Kong went from growing to contraction and India’s growth slowed markedly.

Of the other emerging economies Brazil went from growing to contracting, while growth in Russia slowed. The slowdown is also apparent in the major oil-producing economies.

Sources: *Markit; **CFLP, Li & Fung, Plexus; ***ISM, Plexus Asset Management; ****Markit, Plexus Asset Management.

Sources: ISM, Markit, CFLP, Plexus Asset Management.

Most of the slowdown can be attributed to the global non-manufacturing sector as the JP Morgan Global Services PMI indicates a marked slowdown in August, with the PMI falling to 52.0 from 53.1 in July.

The U.S., France and Australia bucked the trend, though. In the U.S. the ISM non-manufacturing PMI surprised by rising to 53.3 from 52.7 in July, but the ISM business activity index slowed slightly from a robust 56.1 to 55.6. France’s services sector gained traction and rose to 56.8 from 54.2, while Australia’s services sector is expanding again.

Growth in the services sector in the rest of the Eurozone has stalled. Germany is barely growing with a PMI that slumped to 51.1 from 52.9 in July, while the contraction in Italy and Spain has intensified. On the British Isles growth in Ireland’s services sector is fading again, while in the U.K. the sector slumped as the PMI fell to 51.1 from a robust 55.4 in July, indicating abysmal growth.

August saw a significant slowdown in growth in Asia’s services sector as the return to pre-disaster levels in Japan faded. India’s PMI slumped from a robust 58.2 to 53.8, while China’s CFLP non-manufacturing PMI surprised on the downside with the seasonally-adjusted PMI falling to 56.0 from 58.5. The same weakening trend was evident in Brazil and Russia.

Sources: ISM, Markit, CFLP, Plexus  Asset Management.

Growth in the global manufacturing sector has stalled. The global manufacturing PMI that I calculate on a GDP-weighted basis for the major economic regions fell to 50.4 from 50.9 in July, while the JP Morgan Global Manufacturing PMI fell to 50.1.

It does not paint a pretty picture. Germany is the only country in the Eurozone in which the manufacturing sector is still displaying some growth, albeit paltry. The rest of the region’s manufacturing sector is in the grip of a recession. France and Italy dipped into contraction, while the contraction in Greece, Spain, Italy and U.K. accelerated. The rate of contraction in Ireland slowed, though. Emerging Europe is also feeling the pinch as growth slowed in Poland, while Turkey dipped into contraction.

While the U.S. manufacturing sector still displayed some growth with the ISM manufacturing PMI at 50.6 in August, it is close to stalling.

The Far East has not been spared the slowdown. India’s manufacturing sector has lost steam, South Korea has moved from growing to contracting, while the contraction in Taiwan and Australia has worsened. The recovery in Japan’s manufacturing sector is losing some steam as the PMI edged lower to 51.9 from 52.1 in July. China was the exception with the CFLP manufacturing PMI improving to 50.9 from 50.7 in July, but surprised me on the downside as my seasonally-adjusted PMI fell to 52.3 from 52.9.

The contraction in Brazil’s manufacturing sector deepened, but slowed slightly in Russia. However, the contraction in South Africa’s manufacturing sector slowed significantly.

Sources: Markit*; Li & Fung**; Plexus Asset Management****; ISM*****.

Sources: Markit*; Li & Fung**; Plexus Asset Management****; ISM*****.

Tags: Activity Index, Asset Management, Brazil, Business Activity, Contraction, East China, Emerging Economies, Eurozone, Global Economic Activity, Global Economy, Global Services, India, Ism, Jp Morgan, Management Sources, Manufacturing Sector, Manufacturing Services, Markit, Plexus, Pmis, Services Pmi, Slowdown
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Gold Market Cheat Sheet (March 7, 2011)

Sunday, March 6th, 2011

Gold Market Cheat Sheet (March 7, 2011)

For the week, spot gold closed at $1,430.90 per ounce, up $20.30 per ounce, or 1.44 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 1.72 percent. The U.S. Trade-Weighted Dollar Index fell 1.12 percent for the week.

Strengths

• The price of gold reached a new all-time high of $1,434.50 an ounce as crude oil prices rose and settled at their highest levels since September 2008 on investor fears of supply disruptions and possible international intervention in the Middle East.
• China was the number one gold producer with reported production of 341 tonnes. Australia maintained its number two ranking with production of 266 tonnes and the United States ranked third with an output of around 240 tonnes as miners dug deeper to cash in on high bullion prices, according to Melbourne-based Surbiton Associates.
• Canadian provinces occupied three of the top four rankings for mining exploration and investment in the latest version of the Fraser Institute’s Survey of Mining Companies 2010/2011. Alberta is the top-ranked place in which mining and exploration companies can do business, according to the latest edition of the Fraser Institute annual survey of international mining companies. While Canadian provinces occupied three of the top four rankings, Nevada came in second, followed by Saskatchewan and Quebec, which had previously been ranked first for three consecutive years.

Weaknesses

• South Africa’s mining community has been rocked by the latest global mining rankings published by the Toronto-based Fraser Institute, which placed the country 67 out of 79 jurisdictions across the world. Over the past five years, South Africa has fallen precipitously from 37th place in the rankings. Zimbabwe is placed at 71, just behind South Africa, yet Botswana, a neighbor of both, ranked 14th, and the top spot for the African continent.
• Egypt on Sunday banned the export of gold for the next four months, a measure bankers said seemed aimed at preventing business people and former government officials who acquired capital illegally from transferring it abroad. A decree banning the export of gold in all its forms, including jewelry and ornaments, was issued by newly appointed Trade Minister Samir el-Sayyad. It takes effect immediately and continues until June 30, the official news agency MENA reported. “This decision, which comes in light of the exceptional circumstances the country is passing through …, is to preserve the country’s wealth until the situation stabilises,” MENA said. The MENA statement made no mention of whether the ban included exports of gold from mining.
• Holdings of the world’s largest gold-backed exchange traded fund, the SPDR Gold Trust, fell for the fifth consecutive month in February which is the longest run of outflows since the trust’s inception.

Opportunities

• There were 52 initial public offerings (IPOs) in the mining sector across the TSX and TSX Venture exchange, which raised more than $1.3 billion, and the sector as a whole raised more than $17.7 billion in IPOs, public offerings and private placements, Ernst & Young said. “Strong commodity prices and the fundamental need to develop long-term reserves will continue to drive activity into 2011, particularly in the gold sector,” E&Y national mining and metals leader Tom Whelan said.
• Chinese gold demand has exceeded 200 tonnes in the first two months of this year. Only a couple of months ago China reported its gold imports for the first ten months of 2010 totaled 209 tonnes. If the pace continues China would purchase close to half of world mine production in 2011.
• The world’s biggest commodities trader, Glencore International, is bullish on the outlook for the asset class, expecting last year’s buoyant trends based on growth in emerging nations such as China to persist this year. “Their outlook is basically a continuation of the trend we’ve had this year. The mega-trend for the mining sector is still in place and will continue next year. We’ll continue to see recovery in developed markets,” said Henri Alexaline, a credit analyst at BNP Paribas.

Threats

• Battle lines are once again being drawn between Australia’s minerals sector and the Federal Labor Government over taxation measures, this time over the introduction of a carbon tax as a so-called prelude to introducing an emissions trading scheme several years down the track. The industry already pays income tax to the Federal Government; a myriad of taxes and royalties to State and Territory governments; and some miners are faced with the Minerals Resource Rent Tax,” chief executive of the Association of Mining & Exploration Companies (AMEC), Simon Bennison said.” A carbon tax will have an inflationary impact on the Australian economy, detrimentally affect Australia’s international competitiveness and attractiveness as a safe place in which to invest.
• Branded gold and silver jewellery items are set to get more expensive in India. India’s finance minister Pranab Mukherjee announced the government would levy a nominal 1 percent central excise duty on jewellery made of gold, silver and precious metals that are sold under a brand name. Of the 130 items that are to be covered by the new levy, gold and silver branded jewellery items have entered the tax net. The new levy is set to deal a body blow to precious metal and stone jewellers in India
• Legislation before the Securities and Exchange Commission is designed to stop the trafficking of “conflict gold” among other metals from the Democratic Republic of Congo is implemented in its current form, it is going to be “Pretty problematic” for the gold industry at large, says World Gold Council CEO, Aram Shishmanian. Although the World Gold Council fully supports the intention of the legislation, it believes in its current form it will have “perverse and risky unintended consequences.”

Tags: African Continent, Bullion Prices, Canadian Market, Canadian Provinces, Cheat Sheet, China, Commodities, Crude Oil Prices, Dollar Index, East China, Emerging Markets, Exploration Companies, Fraser Institute, Gold, Gold Equities, Gold Market, Gold Producer, India, International Intervention, Investor Fears, Mining Community, mining companies, oil, Philadelphia Gold, Price Of Gold, Silver, Silver Index, Spot Gold
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