Global Manufacturing Under Pressure

Daily Analysis - 01/06/2015

Manufacturing Data Starting In China Highlights Difficulties Facing Exporters


Export giant China has seen much monetary accommodation and fiscal stimulus in recent months aimed at boosting growth while providing the catalyst for a much needed rebound in manufacturing momentum. The latest figures show mixed results as the global downturn sees trade flows impacted globally.

China Manufacturing on the Cusp

Overnight data from China showed two starkly different pictures of Chinese manufacturing. The HSBC Manufacturing PMI released twice monthly has been firmly in negative territory since the beginning of March, highlighting concerns that the government is not doing enough to avert a slowdown in the economy. Meanwhile, the official Manufacturing PMI figure remains expansionary despite printing in contractionary territory for February and March. According to the numbers, the official PMI expanded from 50.2 versus 50.1 in the prior month. Nevertheless, Chinese stocks are swinging back to the upside after the last two-day rout, which saw the Shanghai Composite fall over 10%. Today’s recovery in equity valuations has seen the benchmark rally almost 4.50% as optimism returns to financial markets despite the pessimistic fundamental outlook. Optimism has come on the back of purported talks to boost the program assisting local governments with managing bad debt.


Greece Misses Deadline

Greek talks with creditors ended the weekend no closer to a deal after missing the self-imposed deadline, leaving just mere days until an important IMF repayment. Conflicting leaks from certain sources close to Greece stated that the deal was close, while European related rumors highlighted the distance remaining between Greece and creditors. This week has major repayments approaching, with over EUR 300 million due to the IMF on Friday, followed by another near EUR 350 million due the following week with billions due to treasury holders. Dissension within the Syriza party continues to grow, with members increasingly advocating for a default and Eurozone exit. There is a chance that the party will be split down the middle due to more extremist elements, forcing Alexis Tsipras to form a new coalition or call new elections. The Euro continues to lose the confidence of investors, with EURUSD down -0.33% since reopening.


Iraq Opens the Tap

Today marks the first day that Iraq will begin exporting heavy crude oil from Basrah, adding to concerns about oversupply issues facing crude oil markets. Iraqi production stood at 3.8 million barrels in April, marking the strongest production in over thirty years. Even though WTI was bolstered by the recent resumption in the sliding drill rig count in the United States, price pressures from increased output are not forecast to abate in the near-term. Oil prices have been retreating after Friday’s late session rally which saw WTI gain over $2 per barrel in the span of just a few hours. Potential talks over Yemen have boosted the perception that a political solution might be around the corner for the embattled nation, as rebel Houthi forces engage with the former Hadi Government. The spread between Brent and WTI has widened modestly to $5.30.


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