Chinese manufacturing data fails to please as markets soften

Share Markets:

Sentiment started off on a soft note, reflecting disappointing manufacturing data from China, then Europe.

Most indices in Europe finished weaker. However, the mood lifted on the back of stronger-than-expected data in the US.

The divergence in outlooks, largely between Europe and US, was particularly evident overnight. The S&P500 and Dow were higher.

Interest Rates:

US treasuries strengthened (yields fell) overnight, despite the run of economic data generally supported the view of an improving US economy. Yields on 10-year US bonds initially fell, but then rose to be 3 basis points lower at 2.33%.

Australian bond yields (based on futures) were relatively unchanged. Yields on 3-year bonds rose 1 basis point to 2.56%, while yields on 10-year bonds were unchanged at 3.30%.

Foreign Exchange:

The US dollar index was little changed, and remains near multi-year highs. The Australian dollar was also little changed, but touched a low of 0.8567 overnight. It recovered later on to trade just above 86 US cents.

Commodities:

US economic data was supportive of most commodity prices overnight, including oil and gold. Oil prices were also stronger on speculation that OPEC will cut output.

Australia:

No domestic data to report from yesterday.

China:

The HSBC manufacturing PMI fell from 50.4 in October to 50.0 in November. The result was below consensus estimates of 50.2. Despite the fall, the index is pointing to just a modest slowing in activity.

That being said, uncertainty about the Chinese outlook remains reflecting the downturn in the property market.

Europe:

The EU composite PMI dropped to 51.4 in November from 52.1 in the previous month. It reflected a fall in the manufacturing reading from 50.6 to 50.4 and a drop in the services number from 52.3 to 51.3.

The disappointing data points to a broad based weakness in the Eurozone economy in the fourth quarter of the year.

Japan:

The trade deficit unexpectedly narrowed from -¥960.6bn in September to -¥710.0bn in October. The improvement reflected both stronger growth in exports and weaker growth in imports.

Annual growth in exports stepped up from 6.9% to 9.6% in October, the strongest since February. It suggests that the weaker yen is flowing through to stronger exports.

New Zealand:

ANZ Job ads fell 0.3% in October, but followed two consecutive monthly increases. The level of job ads remain elevated pointing to a healthy job market.

The unemployment rate stood at 5.4% in the September quarter, a 5½ year low.

Producer output prices fell 1.1% in the September quarter, largely due to a fall in the price of dairy. Input prices also fell, dropping 1.5% in the quarter.

United States:

US CPI was unchanged in October (consensus -0.1%), which left the annual rate steady at 1.7%, for the third consecutive month.

The core index (excluding food and energy) was up 0.2% (vs consensus of 0.1%) in the month for an annual pace of 1.8%. While inflation remains relatively well-contained, core monthly inflation was the strongest in five months, and reinforces expectations that the Fed could raise interest rates.

The Philadelphia Fed business survey surged to a 21-year high of 40.8 which sharply outpaced estimates (consensus was 18.5).

It followed two consecutive readings in the low-20 range, and points to elevated activity in manufacturing for the region in the month.

In contrast, the U.S. Markit flash PMI slipped 1.2 points to 54.7 in November, and down from the 57.9 all-time high.

The November print is the lowest since the "snow-related setback in January," according to the report.

US existing home sales slightly beat estimates of -0.4% with a 1.5% October rise to 5.26mn sales. Sales are now at a one-year high.

The leading index rose 0.9% in October, above expectations for a 0.6%, adding to positive signs for the US economy.

Initial jobless claims fell 2k to 291k (median 280k) for the week ending November 15. It saw the four-week moving average edge up slightly from 285.8k to 287.5k, but still close to the recent low in late October.



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