Manufacturing grinds to a halt

Last week's brief resurgence in global indices has come to an abrupt end, with weak manufacturing PMI readings out of China and the UK hitting bullish sentiment once more. 

City of London skyline
Source: Bloomberg

You would be forgiven for believing that we have seen quite enough volatility of late, yet given the release of US jobs data on Friday, this represents traditionally the busiest economic week of the month. Thus traders will have to contend with a raft of crucial economic data points alongside any curveball thrown by the Chinese.

Another day, another sign of weakness from the Chinese economy as the official manufacturing PMI reading fell back into contraction for the first time in six months. The importance of today's announcement is that the slowdown is hitting the larger state-backed firms who typically take longer to feel the pain than the SME's covered by the Caixin measure, which has been in contraction since February. Chinese markets have started the week just as the past three weeks have begun, with widespread selling and the expectation that the worst may not yet be over. There are precious few signs that China is beginning to recover, and while PBoC action can provide a temporary reprieve, we are yet to see  any evidence that it is doing any good to the economy.

UK manufacturing expansion eased in August, with hiring turning negative for the first time in 26 months. Manufacturing exports remain disappointing and as such, the sector is largely reliant upon domestic demand for continued expansion, which points to the relatively small scale nature of UK manufacturing. The idea that the UK will become the manufacturing powerhouse that the likes of Jeremy Corbyn would desire are far away, and services will remain the real growth driver for the foreseeable future.

On a day when UK manufacturing growth slowed to a trickle, the sale of the traditional cooker manufacturer Aga Rangemaster to a US firm highlights the demise of the industry. Already embroiled within a possible £129m takeover from US firm Middleby, today's approach by white-goods manufacturer Whirlpool raises the chances of a bidding war. A staple in many country houses, the Aga name is synonymous with UK industry and while Middleby promised to keep production within the UK, the trend of selling off assets abroad has taken the heart out of UK manufacturing.

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