Global Manufacturing Slows

Daily Analysis - 02/09/2015

Weak Manufacturing Growth Across Major Economies Keeps Markets Cautious

Data from across the world’s major economies pointed to weaker-than-expected growth in the manufacturing sector with China and the US manufacturing PMI’s declining more than expected. While the Chinese manufacturing PMI fell below the 50 threshold, indicating contraction, the US ISM manufacturing index hit a 2-year low.p

Dow Jones Starts September Subdued

The Dow Jones Index started a new trading month on a very bearish note as the Index fell -2.84% for the day, shedding about 469 points over the course of the session. The decline in the index comes amid renewed risk-aversion and dented sentiment as traders were cautious on the back of slower manufacturing growth from China and overall weakness in manufacturing PMIs stretching from the United States to the United Kingdom. The Japanese Yen experienced substantial gains, reflecting the softness in equity prices and growing concerns that a risk-off environment is around the corner. Despite the safe-haven flows, the Swiss Franc was trading relatively flat for the day. The S&P500 gave up -2.85% while the German DAX lost -3.10% for the day as the negativity circled the globe.

US ISM Manufacturing Prints 2-Year Low

The Institute for Supply Management manufacturing index of national factory activity missed estimates yesterday, printing at a 2-year low of 51.1, down from 52.7 a month ago. The fall in the ISM manufacturing index comes amidst a global downturn in the manufacturing sector. The new orders subindex declined sharply to 51.7 from 56.5 previously while the prices paid index declined to 39 from 44, highlighting the weakness facing the outlook. The ISM employment index which is closely watched as it feeds into the overall unemployment data also disappointed, falling to 51.2 from 52.7. The US Dollar was trading mixed across the board with EURUSD gaining 0.95% while USDJPY and GBPUSD both fell before briefly rebounding overnight. Commodity currencies generally trended lower against the Greenback.

Australian GDP Misses Forecasts

Second quarter gross domestic product data from Australia showed lower than expected growth in the economy. Rising a mere 0.20%, second quarter expansion showed a sharp deceleration in economic activity, missing the median forecast expectations of 0.40% and down from the previous quarter's 0.90% rate of growth. The 0.20% GDP growth rate in the second quarter marks the slowest pace of GDP expansion since June 2012. The RBA decided to leave interest rates unchanged at 2.00% at its meeting yesterday while keeping the door open to more accomodative monetary policy down the road depending on further data. The Aussie dollar fell -1.39% yesterday versus the US dollar, falling briefly below the lows at 0.7013. However, following the GDP number, earlier losses were reversed with AUDUSD modestly higher, up by 0.20% in the mid-Asian trading session.

ADP Nonfarm Employment Due Later

Today's economic calendar will see the private payrolls numbers from ADP, the largest payroll process in the United States. Expectations are for the ADP payrolls to rise to 201K, up from 185K print from the prior month. Given that last month's nonfarm payrolls number from the Bureau of Labor Statistics managed to post a relatively healthy number of jobs, expectations are for the ADP to revise its previous month's numbers upwards. While the ADP private payroll data is not necessarily an accurate predictor of the official nonfarm payroll numbers due Friday, the news release could no doubt bring some volatility to the currency markets today. ADP's data comes ahead of this Friday's nonfarm payroll data for the month of August. It will be the last employment report before the FOMC meeting in two weeks time which could prove the beginning of a shift in monetary policies.