Against the backdrop of weaker demand both in Europe Asia, it is just as well that the world’s largest economy is showing some economic resolve. Indeed, it could be argued that the ability of the United States to demonstrate such resilience into the teeth of this global economic headwind is actually quite impressive.
On a day when various manufacturing indices across Europe and Asia made for fairly depressing reading, the ISM index for March popped up to 53.4, above the 6mth average and in excess of expectations. Production and orders were relatively buoyant, while the employment component registered a 9mth high. Video:
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Commenting on the figures, a spokesman for ISM claimed that the first quarter had shown consistent growth. The recent decline in oil prices, together with growth figures such as these, are supporting risk appetite.
Commentary
Improving British fortunes. Like London buses, for what seems like an eternity there is no good news on the economy whatsoever, and then suddenly four encouraging stories come along at once.
Defying the contraction evident throughout Europe, the British manufacturing sector is expanding – the PMI for March was much stronger than expected, rising to 52.1, with the previous month being revised upwards as well. A survey of CFOs conducted by Deloitte showed much more optimism in the first quarter than in Q4 of last year, aided in particular by a significant improvement in credit conditions. That said, many remained reluctant to expand either hiring or investment, having reduced both during a very trying 2011. Separately, a survey by the CBI found that financial services firms expect to increase headcount in the current quarter, helped by the improved tone in equity markets. Finally, house prices rose last month for the first time since mid-2010, according to Hometrack; buyers were urged to complete purchases ahead of the expiry of a stamp-duty exemption for lower-cost properties. All of this is further cause for celebration on the part of those with a bullish disposition towards the pound. Cable burst through 1.60 yesterday on the way to a five-month high of 1.6063, although it subsequently drifted lower in the afternoon. Sterling is the best-performing major currency over the past month. More news like this and the gains will likely continue.
The continuing retreat in global manufacturing. The global manufacturing sector continued to retreat in March. All of the major European economies recorded a PMI reading of below 50 last month. In France, the final reading for March was revised down very sharply from an already very weak preliminary figure. In China, the PMI produced by HSBC and Markit Economics was again below 50. In Japan, the Tankan index for large manufacturers was much weaker than expected in Q1 and in Australia the manufacturing index calculated by the Australian Industry Group and PricewaterhouseCoopers also fell below 50 in March. In contrast, the United States stands tall as the major exception to this reversing trend. Over the past couple of quarters, despite slowing demand offshore, the PMI has remained comfortably above 50.
Some big moves in the yen crosses. Significant yen-buying has been in evidence now that the new financial year is underway, resulting in some outsized gains against other majors. USD/JPY reached 83.30 yesterday not long after a rather soft Tankan report, but thereafter buyers seized the ascendancy. Overnight it fell to a low of 81.56. , EUR/JPY dropped from the 111 area to near 109 at one point, GBP/JPY fell from 133 to a low of 130.76, and AUD/JPY fell to a low of 85 from yesterday’s high near 87. It remains to be seen whether these yen gains are sustainable. Policy-makers in Tokyo will be desperately hoping that they are not.
Europe’s shame on youth unemployment. It just keeps on getting worse for Europe’s youth, at least in terms of their employment prospects. Both Spain and Greece now have a youth unemployment rate above 50%. In Portugal, Ireland and Italy, roughly one-third of the youth labour force is without work, and in the UK, it is 22%. The exception in Europe? Yes, it is Germany once again. Perhaps the rest of the Continent needs to take a close look at why Germany excels here where others fail. Without jobs for the young, surely this inhibits the capacity of an economy to pay tomorrow’s pensions for the increasing bulge of the population headed for or already in retirement. Youth unemployment in Europe is another manifestation of Europe’s accelerating financial and economic malaise.
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