Chinese Manufacturing Activity Rebounds

Daily Analysis - 03/07/2017

Factory Outlook Brightens as PMI Growth Accelerates

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China's factory activity expanded in June, a leading private survey showed Monday, mirroring the uptick witnessed in the CLIC data released last week. Production and new orders rose, offering further evidence that the world's second-biggest economy continues to defy expectations of an economic slowdown.

Chinese PMI Paints Healthier Economic Picture


The Caixin Manufacturing PMI soared to 50.4 last month, climbing back above the key level of 50.0 that separates growth from contraction. That easily topped a reading of 49.5 forecast by economists while also outperforming the May figure of 49.6 that marked the first contraction in 11-months. Total new orders increased to 51.0 in June - the highest in three months - from the prior month's 50.3. Production also quickened, while the rate of job dismissals eased to its slowest in three months.

Compared with the official measure, the Caixin PMI tends to be a better gauge of activity at smaller private manufacturers in the country. However, there are concerns that the current pickup in activity is merely a temporary bounce in manufacturing.  In the meantime, the Yuan is slightly weaker against the dollar following the announcement, edging back above 6.7800.

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US Consumer Spending Climbs


As inflation cooled, US consumer spending gained modestly in May, suggesting a slow but steady expansion that could still sway the Federal Reserve to lift interest rates later this year. Consumption, which accounts for roughly two-thirds of total US economic output, edged 0.10% higher according to data released by the Commerce Department on Friday.

Income after taxes rose 0.60% in May, helping propel the US savings rate to 5.50% - the highest since September 2016. Consumer prices, excluding the volatile food and energy items, rose 1.40% on a year-over-year basis, versus a 1.50% gain in April. That was the smallest yearly gain since November and brought inflation below the Fed's 2.00% target. S&P 500 futures are marginally higher in early Monday trade, with the index currently hovering around 2425.

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UK Household Savings Experience Sharp Drop


British households are saving less than anytime on record amid the longest contractionary stretch in household real incomes in forty years. Figures from the Office for National Statistics reported on Friday showed that the household saving ratio fell to 1.70% during the first quarter of 2017, coming in well below the 3.30% recorded during the final quarter of last year.

Apart from ebbing at the lowest rate since 1963, the falling rate indicates Britons have been drawing down savings to maintain their standard of living. The ONS further stated that the level of household disposable income dropped by -1.40% during the first quarter of 2017 compared with the prior period – extending the decline for a third straight quarter. GBPUSD is falling after reversing from the strong resistance at 1.3030 earlier to trend near 1.3000.

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Canada GDP Extends Growth Streak


The Canadian economy grew for a sixth straight month through the end of April, with gains reported in most major industries which underscored the Central Bank’s view that a durable recovery is emerging following the oil shock of 2014. Gross domestic product increased 0.20% in April from the month before to CAD 1.72 trillion dollars ($1.32 trillion). The figures were in line with the consensus market expectation. On an annualized basis, GDP rose 3.30% to record the biggest gain since June of 2014.

The services sector, which contributes almost two-thirds to total output, did the bulk of the lifting.  Meanwhile, a decline in manufacturing was offset by strong gains in the commodities sector. The April GDP numbers come just ahead of the Bank of Canada’s upcoming July 12th interest rate decision. The increased likelihood of a rate hike sent the Canadian dollar rallying close to 4.00% against the greenback in June alone, with USDCAD last seen around the 1.2990-mark.

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