Emerging Markets Radar (June 11, 2012)

Sunday, June 10th, 2012

Emerging Markets Radar (June 11, 2012)

Strengths

• The People’s Bank of China (PBOC) has cut interest rates. Lending rates were cut by 25 basis points for all maturities. Deposit rates were cut by between 10 and 40 basis points. The move makes the one-year reference lending rate 6.31 percent and the one-year reference deposit rate 3.25 percent. However, banks have also been given increased flexibility to pay deposit rates up to 10 percent above the reference (previously the reference rate was a ceiling) and make loans at rates up to 20 percent below the reference (previously the floor was 10 percent below).
• Chinese banks lent almost 800 billion Yuan in May, Economic Information Daily reports.
• China HSBC Services PMI was 54.7 versus 54.1 in the prior month, indicating retail and services still in an expanding stage.
• The Philippine economy expanded by 6.4 percent year-over-year in the first quarter of 2012, beating expectations with strong services growth of 8.5 percent amid an improving domestic outlook.

Weaknesses

• While the market praised the progress the PBOC has made in liberalizing interest rates by widening the band where the banks can deviate lending and deposit rates from the reference rates, it almost unanimously agreed this squeezes the banks’ profit margin. In fact, there are a couple of reasons that the margin pressure will be much smaller than the market would believe. Those money center banks have a dominant franchise in China and so they can resist reducing lending rates and increasing deposit rates. For depositors, safety is more important than earnings from the deposits. Besides, bank customers place more than 50 percent of their money in demand deposits with large banks, which pay very little interest and provide banks with cheap money.
• Malaysia’s exports unexpectedly fell in April for a second straight month, dropping 0.1 percent as shipments of electronics and palm oil dropped.
• Lackluster external demand is weighing on the Israeli economy, and weak data have led the broad market index (BMI) to revise down the 2012 real GDP growth forecast from 3.2 percent to 2.9 percent.

Opportunities

• India’s external weaknesses are starting to correct. The country’s trade shortfall came in at $13.5 billion in April, down from $15.2 billion in February and $19.6 billion in October 2011. Lower global commodity prices and the weaker currency are likely to lead to a further narrowing of the trade deficit in the coming months.
• The Colombian peso has a potential to further strengthen in the short term, points out Business Monitor International as companies bring in U.S. dollars from abroad to pay annual taxes due on June 25.
• China cut benchmark lending and deposit rates by 25 basis points on Thursday. Historically, such a move will drive up liquidity and the stock market in Hong Kong and in the domestic B share market, as the chart shows.

Threats

• In spite of the interest rate cut on Thursday evening by the PBOC, both Hong Kong and China domestic A share markets went down on Friday. This indicates that the market is worried about the economic data to be released over the weekend. Also, the rate cut of 25 basis points is not to reverse the economic slow-down in China in the short term, but infrastructure investment and government fiscal spending will.
• The Russian central bank feels increasingly uncomfortable with the recent weakening of the ruble. The central bank has now started to intervene on the open market by selling its foreign currency reserves. So far, this intervention, which is partly responsible for a $10 billion decline in foreign reserves in May, had little success in reversing the decline in the ruble.

Tags: Bank Customers, Bank Of China, Basis Points, Cheap Money, China, Chinese Banks, Demand Deposits, Depositors, Economic Information, Emerging Markets, First Quarter, Hsbc, India, Margin Pressure, Maturities, Money Center Banks, Palm Oil, Pboc, Philippine Economy, Profit Margin, Services Pmi, Yuan
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Global PMI Scorecard: Services Sector Drives Acceleration in Global Growth

Monday, March 12th, 2012

Growth in global economic activity continued to accelerate for the fourth consecutive month in February. Highlights of the February PMIs are as follows:

• The JP Morgan Global Composite PMI increased to 55.5 from 54.5 In January.
• The JP Morgan Global Services PMI jumped to a rather robust 56.5 from 55.4 in January.
• Growth in the global manufacturing sector slowed markedly, mostly as a result of a sharp slowdown in the U.S.
• After stabilizing in January the Eurozone economy is sliding again as the situation in Italy, Spain and Greece has worsened.
• Growth in the BRICS countries is accelerating, especially in larger China.
• Pockets of robust growth are emerging:
  • U.S. non-manufacturing sector
  • India’s manufacturing and services sectors
  • Brazil’s services sector
  • South Africa’s manufacturing sector
  • Saudi Arabia’ overall economy.

Tags: Acceleration, Brazil, Cape Town, Economy, Global Economic Activity, Global Growth, Global Services, Greece, Jp Morgan, Manufacturing Sector, Pmis, Pockets, Postcard, Robust Growth, Saudi Arabia, Scorecard Services, Services Pmi, Services Sectors, Slowdown, South Africa
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Growth Falters, with Exception of Japan – Global PMI Scorecard (Oct 2011)

Monday, November 7th, 2011

Growth in global economic activity faltered in October after accelerating in September. The global manufacturing sector slipped into recession territory while growth in the services sector slowed markedly.

The JP Morgan Global Composite Index fell to 51.4 after rising to 52.0 in September from 51.5 in August. The drop in the composite PMI is mainly attributed to a significant drop in my calculated GDP-weighted PMI for the Eurozone to 46.6 from 48.7 in September. Germany’s composite PMI at a 27-month low indicates that economic activity in the private sector has virtually stagnated while economic activity in France, Italy and Spain at 28 to 30-month lows has contracted severely. Growth in the U.K. weakened considerably to stagnation levels.

My GDP-weighted Composite ISM PMI for the U.S. in October eased to 52.4 from 52.7 in September, indicating continued but below-par growth.

Growth in China also eased on a non-seasonally as well as a seasonally adjusted basis.

Japan was the exception to the rule among developed economies. According to Markit, Japanese private sector activity rose for the first time since February as the composite output index breached the neutral 50.0 threshold. The composite PMI jumped from a contracting 47.0 to a highest reading of 52.4 since data were first compiled in September 2007.

Economic activity in emerging economies improved somewhat. Brazil has returned to growth again. Growth in India and Russia edged up marginally while the contraction in Hong Kong eased markedly.

Sources: Markit; CFLP*; ISM**; US Business Activity Index***; Plexus Asset Management.

The JP Morgan Global Services PMI for October eased to 51.8 from 52.6 in September on the back of a significant deepening in the contraction in the Eurozone and especially France, Italy and Spain. The Germans are holding out, though, and have managed to eke out some growth from contracting in September. The services sector in the U.K. continues to exhibit some growth but at a reduced rate, while growth in Ireland accelerated slightly. Australia’s services sector is under the water again while growth in the services sector in China is weakening. The U.S.’s ISM non-manufacturing PMI continued its slightly weaker trend with the PMI marginally lower at 52.9 from 53.0 in September. However, it surprised the market on the downside as the consensus was for a rise to 53.5. The Business Activity Index fell sharply from a robust 57.1 to 53.8.

Among the BRICS countries Brazil made a huge turnaround as its services PMI jumped to 53.6 from 50.5 in September. Russia experienced a slight acceleration in growth but the contraction in India’s services sector has deepened.

Tags: Activity Index, Adjusted Basis, Brazil, Business Activity, Composite Index, Composite Output, Contraction, Emerging Economies, Eurozone, Exception To The Rule, Global Economic Activity, Global Services, India, Ism, Jp Morgan, Lows, Manufacturing Sector, Output Index, Private Sector Activity, Scorecard, Services Pmi, Stagnation
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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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