Asian equity markets were mixed on Thursday following a slew of economic data. The Hang Seng Index finished +0.81% higher while the CSI300 finished -0.79% weaker as Chinese Manufacturing PMI (MoM Aug) surpassed expectations to remain stable at 49.9 with an actual reading of 50.4 while non-manufacturing PMI for the same period was 53.5 compared with July’s reading of 53.9. Readings above 50 signal economic expansion and this adds to the improving data we have seen out of China over the past few months adding weight to view that stimulus by policy makers is having the desired effect.
Japanese equity markets closed higher with the Nikkei & Topix indices up +0.23% & +0.59% as the JPY/USD continued to weak against the U.S. dollar during the Asian session. The Nikkei manufacturing PMI (MoM) increased slightly in August to 49.5 from 49.3 in July, the sixth monthly contraction in factory activity. While readings below 50 signal contraction this was the smallest monthly drop since March and there were some further positive signs including output rising for the first time in six month while new orders and new export orders fell at a softer pace. The Yen reversed initial losses to finish 0.13% stronger and the Nikkei 225 looks set to open flat this morning with futures down just 10 points.
The British Pound jumped +1.04% weighing on the FTSE100 which finished -0.52% weaker shown on the first chart below, while the FTSE250 climbed +0.66% on better than anticipated manufacturing PMI. Gains in the Pound tend to weight on the FTSE100 relatively to the FTSE250 given FTSE100 companies have a significant amount of overseas earnings which is impacted by the currency fluctuations while FTSE250 companies tend to be more domestically focused.
The data showed an increased to 53.3 in August from 48.3 In July, the biggest increase in the headline PMI figure in 25 years as companies reported a solid inflation of new work. Recent data out of the U.K. has been very positive, benefited from the weaker Pound as well as stimulus from the Bank of England. While this is very encouraging and suggests there will not be a near-term recession as many predicted, myself included, I would warn that the toughest challenges lie ahead.
The real test will begin once article 50 of the Lisbon treaty is triggered and negotiations begin, until then we won’t really be able to assess the full implications of the decision to leave the EU. We have already seen EU leader such as Germany’s Angela Merkel and France’s Francois Hollande come out publicly and state the U.K. cannot cherry pick the best parts of the EU while not accepting the free movement of people and a key focus will be passporting rights for London’s financial services sector that allow it to sell products across the single market.
There was little key data out for the remainder of Europe with key benchmarks mixed as the Euro Stoxx 600 was flat, up just +0.04% while the DAX finished -0.55% lower.
Over to the U.S. the dollar was weaker, down -0.38% measured against a basket of currencies with the S&P500 finishing flat while the Nasdaq100 gained +0.27% following ISM manufacturing PMI data that missed expectations. The ISM survey dropped to 49.4 in August from 52.6 in July and missing expectations of a reading of 52.0. The sub-components of employment declined from 49.4 to 48.3, new orders dropped to 49.1 from 56.9 previously and prices paid fell from 55 to 53. While this is a disappointing it won’t registered on the FOMC’s radar with the focus being on tonight non-farm payroll data.
At the same time a separate report showed that construction spending (MoM Jul) was flat at 0% missing estimates of a 0.5% increase, slightly down from 0.9% in June. Initial jobless claims for August 27th was in line with expectations of 265,000 with a reading of 263,000, readings under 300,000 are seen as consistent with a heathy labour market. Meanwhile continuing claims for August 20th was slightly higher, up to 2.159 m with forecasts to remain unchanged at 2.145m.
Commodity prices were generally lower despite the weaker dollar, both WTI & Brent crude oil declined -2.62% & -2.39% respectively, as did copper -0.05%, natural gas -3.29% and the Reuters CRB index -1.11%. Precious metals spot gold and silver did benefit from the weaker dollar, up +0.38% & +1.24% respectively.
Locally the S&P/ASX 200 finished weaker on Thursday, down -0.32% and the market looks set to open weaker again this morning with ASX SPI200 futures down 12 points in overnight trading. Retail sales (MoM Jul) which are an important indicator for consumer spending and inflationary pressures disappointed on Thursday, remaining unchanged from June against expectations of an increase of +0.3%.
Data releases:
- U.K. Construction PMI (MoM Aug) 6:30pm AEST
- U.S. Trade Balance (MoM Jul) 10:30pm AEST
- U.S. Non-farm Payrolls and Unemployment Rate (MoM Aug) 10:30am AEST
- U.S. Average Hourly Earnings (YoY Aug) 10:30pM AEST
- U.S. Factory & Durable Goods Orders (MoM Jul) 12:00am AEST
This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. 