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Strong Global Manufacturing Readings

09/03/2013

While major U.S. equity exchanges were closed Monday in observance of the Labor Day holiday, several global manufacturing readings were released. Those readings, in particular those for China and the United Kingdom, provide evidence that manufacturing is in the midst of a rebound from the contraction levels of earlier this year.

Here in the U.S., the electronically traded futures markets responded positively to the news, setting a supportive tone for today’s start of U.S. trading for the month of September. By late morning Monday, the e-Mini S&P 500® Futures Index was trading +15.00 at 1646.50. Other pro-risk assets also had a favorable response, with copper up nearly 2% and silver up nearly 3%.  In the wake of the global manufacturing reports, the Japanese yen resumed its prevailing bear trend, down nearly 1%.

Heading into September, there are some well-known challenges for the market, ranging from this Friday’s labor report, a potential Lawrence Summers FOMC Chairman nomination, and the ongoing geopolitical discourse surrounding Syria. However, I expect the global manufacturing figures released in the past 48 hours was welcomed news for those FOMC members who support reducing the amount of monthly asset purchases at the September 17-18 FOMC meeting. I still expect that tapering will be announced on September 18.

This morning, the U.S. ISM manufacturing report for the month of August will be released. The consensus estimate is for 54.0, which would be down from July’s surprisingly strong 55.4. Most importantly, investors should monitor the new orders to inventory ratio, which last month expanded 11.3, (with new orders at 58.3 and inventories at 47), from the previous month’s +1.4.

Let’s take a look at the recently released global manufacturing readings…

China

  • August manufacturing PMI (Figure 1) advances to 51.0, ahead of July’s 50.3 and consensus estimate of 50.6
  • The August reading is highest since April 2012’s 53.3
  • New orders rose to 52.4 in August from 50.6 in July
  • Investors should watch steel and coal related equity names as the overall bearish sentiment I have maintained for those groups during 2013 is now neutralized

Brazil

  • August manufacturing rose to 49.4 from 48.5 in July

Asia Pacific

  • India’s August manufacturing fell to 48.5 from 50.1 in July
  • Indonesia’s August manufacturing fell to 48.5 from 50.7 in July
  • Taiwan’s August manufacturing rose to 50.0 from 48.6 in July
  • South Korea’s August manufacturing rose to 47.5 from 47.2 in July 

Europe

  • Sweden’s August manufacturing rose to 52.2 from 51.3 in July
  • Hungary’s August manufacturing rose to 51.7 from 49.0 in July
  • Italy’s August manufacturing rose to 51.3 from 50.4 in July
  • The United Kingdom’s August manufacturing rose to 57.2 from 54.6 in July
  • Germany’s August manufacturing fell to 51.8 from 52.0 in July
  • France’s August manufacturing was unchanged at 49.7 from July’s 49.7
  • Spain’s August manufacturing rose to 51.1 from 49.8 in July

Figure 1 China PMI, April 2012 to September 2013
9-3 Terranova 1.1
Source: Bloomberg

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