PMI's everywhere, but it's the UK that catches the eye.......
Monday 2nd November 2015
PMI's everywhere, but it's the UK that catches the
eye.......
The Purchasing Managers Index (PMI) is a survey conducted
amongst companies to gauge levels of activity, new orders etc in a particular
sector. A figure above 50 represents growth, a figure below 50 means
contraction. It's possibly not THE most important piece of data looked at by
analysts, but at the same time it's a long way from the least important and
there's been a raft of releases this morning.
In China, manufacturing PMI for October was revealed as
49.8 (the official version, at least!). Private surveys suggest a lower figure
but even the official number represents a contraction for the 3rd successive
month and would confirm, as if anybody was in any doubt, that China has
"challenges" to face.
In the Eurozone, October manufacturing PMI came in at
52.3, bettering both last month's number and the expectation for October by 0.3
. Anything better than expected is obviously welcome but given the level of
stimulus being pumped in by the ECB's QE programme the data is hardly dynamic.
(Note : In an interview in the Italian press at the weekend, ECB boss Mario
Draghi seemed to pour water on the idea that it was somehow inevitable that the
QE programme would be beefed up in December).
Surprise of the day (so far) comes from the UK, where the
October PMI for the struggling manufacturing sector was posted at 55.5 -- up
from September's 51.8 and a lot higher than the expected 51.3. No evidence of
global headwinds in that number and one has to wonder whether that might be
reflected this "Triple Thursday", the second and less-than-entirely
popular occasion when the Bank of England will release its interest rate
decision, the minutes of the last policy meeting and inflation data all in one
go. No one could expect a hike in rates (that looks to have been put off until
well into next year), but people will want to know whether the decision to keep
rates at 0.5% is still carried by a majority of 8 - 1.
Understandably the immediate effect of the UK number was
to boost Sterling, which for some time has been a beneficiary (along with the
US) of expected interest rate differentials that come with being further
advanced in the economic cycle. All of that is of course logical, but if you're
after an example of how you might take differing short and long-term views on a
currency (or anything else, for that matter)
, have a look at :
Fernando Giugliano makes the case that despite the
markets' apparent sanguinity to Britain's fairly appalling Current Account
deficit, it's an issue that may take heavy toll on the Pound sooner or later.
Quite why everyone is so relaxed on the subject is a little hard to fathom.
It's not as though the UK hasn't had current account crises before .... in
1976, 1985 and 1992 in fact.
Last year the current account deficit reached a post-WW2 high of 5.1% of GDP. It's receded a little since (to about 3.6%) but remains at historically very high levels. One might be tempted to think that given the UK economy's bias towards services over manufacturing the problem must lie in its Trade Gap, the difference in value between what it exports and imports. Not so, in fact. That figure has remained pretty stable over a number of years. The main source of the problem is direct investment income, or more specifically the difference between what UK companies and individuals earn on their foreign investments (down from 3.3% of GDP in 2011 to 0.1% last year) and what investors from abroad earn in the UK (barely changed, comparatively speaking). And a lot of the problems in that area stem from the slide in oil prices (and those of other commodities).
If you think of the UK as an investor, then its portfolio
is heavily overweight the oil and mining sectors. The point being made is that
whilst it's all very well hoping that a European recovery (for example) will
boost UK exports, the current account problems aren't going to go away until we
see a sustained rally in the oil price .... and not too many are predicting
that right now.
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