Manufacturing makes the world go round

There is a fair amount of noise coming out of the world’s markets this morning, with the buzzword being manufacturing and the fact it is making the world go around.

From Japan to Europe to the UK (which is on tear in fact – registering its fastest pace in two years), they are either retuning to, or are in expansion. The figures from the east were then backed by figures out of the US, with the ISM manufacturing index climbing to a three-month high of 50.9 as the manufacturing price inflation index shot up to 52.5 from an estimated 50.5 and last month’s read of 49.5.

These are good signs for the world’s two largest consuming regions. The fact Europe looks like normalising and could emerge from what is a record-long recession for the region, will be a massive benefit the global economy.

From an Asian-centric view, Europe is the largest consumer of Chinese goods; if manufacturing is up in Europe it will flow into confidence and consumer spending. This will eventually flow to the suppliers of China such as Singapore, Malaysia, Taiwan and Australia.  

This news of stabilisation did drive the global markets yesterday, from Asia to the US, with all seeing green; the only market that didn’t respond to this news was the ASX 200, and the thorn in the side of the local market is China’s current data.

Yesterday saw a fairly meek PMI figure out of China. 50.1 is barely above water, and considering last month’s figure was 50.8, the recent statements from the newly appointed government suggest we should start to get used to a slower China.

It is this statement ‘China won’t sacrifice the environment and social development to ensure short-term growth’ that suggests President Xi is happy with the current state of affairs. He also said this in a conference in Germany on Friday: ‘China needs to grow at about 7% to double per capita gross domestic product by 2020 compared to the 2010 level’, which was another legitimisation of the structure adjustments that are occurring. The wringing out of speculative lending and a spiking SHIBOR rate are all something we will need to get used to in the short term as China adjusts itself for longer-term prosperity.

As it is the first Tuesday of the month, all eyes turn to Martin Place, and the 2.30pm AEST rates decision. There are still a lot of economists and analysts alike calling on the central bank to move rates, however most are calling for this later in the year (November seems to be the consensus). Today however only three of the 28 economist surveyed believe we will see a move this afternoon.

The swaps market agrees with this assessment and is only pricing in an 18% chance of a 25 basis point cut. The main reasoning for this call is the fact that the AUD has fallen 10% over the last eight weeks; estimates have this fall equating to a 25 basis point cut and the fact federal election is now on the cards, it is expected to stay as historically the RBA does not alter monetary policy inside three months to an election.

Moving to the open, we are calling the ASX 200 up a mild 13 points to 4723 (+0.27%) as we pick up the pieces from awful session yesterday. One saving grace from yesterday’s trade was the fact that volumes were light - about two thirds of the 30 day moving average - and that is not unsurprising considering most would have been finalising FY13, and the end of Q2 today should be different.

BHP Billiton’s ADR is pointing higher today to $31.33, up 39 cents as global commodities jump up on the manufacturing data and should be the prop in the market today considering the light positive call. The defensives were slammed yesterday and that could continue today heading into the rates decision.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.