The release of dismal Purchasing Manager Indices (PMIs) yesterday was ignored by observers as they were regarded as old news.
US manufacturing PMI was released just above the 50 level regarded as the boom or bust line and was in fact at lows not seen since September 2009. Although manufacturing does not appear as important to the US economy as it once was, currently around 12% of GDP, the PMI index topped out in 2014 within months of the peak in US GDP. Yesterday’s release showed new orders at the lowest level since December 2012 and factory output contracted for the first time since September 2009.
In Europe the Euro-area composite PMI also missed expectations for a rise, falling to its lowest level in well over a year. However, more concerning here was the strong showing from Germany and France which leaves the likes of Spain and Italy at very poor levels even with the ECB‘s efforts to aid the region. (Also worrying is the outlook for Italian banks but that’s for another day’s report).
So on to Japan where the manufacturing PMI, yes you guessed, fell, back to December 2012 levels, with output and new orders also contracting further. Abe-san another of your rather fine arrows please sir.
As stated at the start the markets seemed to ignore these releases preferring to look forward to the next Fed meeting on June 15th where chances of a hike have risen considerably over the last two weeks.
“And now for something completely different”
Effective last Friday, six foreign commercial banks were given permission to trade the onshore Chinese currency known as CNY directly in the country's interbank forex market.
This and other steps on the route to liberalisation and deregulation of the still somewhat controlled onshore currency will further facilitate cross-border renminbi flows and should result in the offshore CNH trading closer to the level of the onshore CNY. With renminbi inclusion in the IMF’s SDR basket from 1st October this year, this is a further move to try and eradicate problems to operational issues between the two forms of currency.
Currently CNH cannot be utilised as a perfect hedge against CNY due to the divergence in daily pricing but this continued opening up of the onshore market will ensure that any divergence can be mitigated by the markets once they have more access to the onshore currency, leading, at some future point, to one fully negotiable Chinese unit.