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On 29 February 2019 - Global stocks gain Friday but PMI surveys show broad manufacturing weakness

Anne D Picker

Anne D Picker - Econoday

Eurozone inflation subdued ahead of ECB policy meeting; Canadian dollar drops on weak GDP data.

US markets

US stocks closed higher Friday. The Dow advanced 0.4 percent on the day but was flat on the week, the S&P gained 0.7 percent on the day and 0.4 percent on the week, and the Nasdaq outperformed with an increase of 0.8 percent on the day and 0.9 percent on the week. Auto-maker Tesla fell Friday after the company unveiled a cheaper model but advised it does not expect to make a profit in the first quarter, while clothing retailer Gap surged after announcing plans to split off one of its better-performing brands as a separate company. 

ISM and PMI surveys both showed manufacturing conditions moderated in February. The ISM Manufacturing Index fell from 56.6 to 54.2, below the consensus forecast of 55.0, with the survey’s measures of output, new orders and employment all down on January levels. The PMI Manufacturing Index showed a similar decline from 54.9 to 53.0, with respondents reporting steady output but the weakest growth in new orders since June. Data delayed by the government shutdown earlier in the year showed changes in personal income and spending for December that had already been reflected in the previously-released GDP report but also showed that that income fell 0.1 percent in January after increasing 1.0 percent previously, though this largely reflected the impact of non-wage components. Wages and salaries grew 0.5 percent in January after increasing 0.3 percent in December. 

The Canadian dollar sold off heavily Friday after the release of weaker-than-expected economic growth data. Canada’s GDP grew 0.1 percent on the quarter in the three months to December, down from 0.5 percent in the three months to September, with year-on-year growth slowing from 2.0 percent to 1.6 percent, below the 1.6 percent consensus forecast and the weakest growth since mid-2016. Both residential and non-residential investment spending contracted heavily on the quarter, with household spending growth also slightly lower and net exports making only a modest contribution to headline growth. Officials at the Bank of Canada had previously forecast that annualised quarterly growth for the quarter would be a much stronger 1.3 percent, indicating that near-term growth forecasts will be revised lower at their next forecast review and also reinforcing the case for leaving policy rates on hold.

These data reflect observations at the close of trading Friday. Gold fell US$16.90 to US$1,299.20 while dated Brent spot crude fell US$1.24 to US$65.07. The US dollar advanced strongly against the Canadian dollar Friday and made more modest gains against other major currencies. The yield on the US Treasury 30-year bond gained 3 basis points to 3.12 percent while the 10 year note rose 4 basis points to 2.75 percent.

European markets

Most European markets advanced Friday but results were mixed on the week. The FTSE closed up 0.5 percent on the day but fell 1.0 percent on the week, the CAC gained 0.5 percent on the day and 0.9 percent on the week, and the DAX outperformed with an increase of 0.7 percent on the day and 1.3 percent on the week.

Regional manufacturing PMI surveys were the main focus of the European data calendar Friday. The Eurozone survey’s headline index fell from 50.5 in January to 49.3 in February, indicating contraction in the sector, extending the downward trend in the index seen since late 2017, and taking the index to its lowest level in more than five years. Germany was the major contributor to this weakness, with its index falling from 49.7 to 47.6, the lowest level in more than six years. The French manufacturing PMI, in contrast, showed a modest improvement in its headline index from 51.2 in January to 51.5 in February. Both the German and French surveys indicated price pressures moderated in the sector, as did the Eurozone survey. The UK’s manufacturing PMI survey indicates that the sector remains in positive territory, with the headline index falling from 52.6 in January to 52.0 in February, though its measure of business confidence fell to a record low, reflecting ongoing Brexit uncertainty.

Eurozone data showed the region’s unemployment rate was steady at 7.8 percent in February, matching the lowest reading since October 2008. The rate fell in Germany, France and Spain but ticked higher in Italy. The flash estimate for HICP inflation for the Eurozone in February was 1.5 percent, up from 1.4 percent in January, though the underlying measure fell from 1.1 percent to 1.0 percent. With most regional data showing subdued activity, the chances of any significant pick up in price pressures anytime soon look remote, boosting the chances that officials at the European Central Bank may consider additional policy support at its meeting later this week.

Asia Pacific Markets

Asian markets advanced to varying degrees Friday with weekly changes also ranging widely. The Shanghai Composite index was the clear standout in the region, advancing 1.8 percent on the day and closing the week up 6.8 percent. The increase Friday followed the announcement late Thursday by index-provider MSCI that it would raise the weighting of Chinese stocks in its widely-followed emerging markets index from 0.7 percent to 3.3 percent, a move it estimates will increase flows into China’s US$6.7 trillion share market by US$80 billion.

Japanese markets also closed the week higher, with investor demand for trade-related stocks supported by further weakness in the yen. The Nikkei closed up 1.0 percent on the day and 0.8 percent on the week and the Topix gained 05 percent on the day and 0.4 percent on the week. Australia’s All Ordinaries index closed Friday up 0.3 percent on the day and 0.5 percent on the week.

Japan’s unemployment rate increased from 2.4 percent in December to 2.5 percent in January, with employment growth also slowing. Asian manufacturing PMIs surveys for February were mixed, showing conditions deteriorating in Japan, picking up but still weak in the China, and improving in India. The index fell from 50.3 to 48.9 in Japan, the lowest level since August 2016 and the first time since then that the survey has indicated contraction in the sector. This is broadly in line with other Japanese activity data that have shown a subdued start to the new year. The Chinese index rose from 48.3 to 49.9. Although the timing of lunar new year holidays typically impacts Chinese data early in the new year, the January and February data together show clearly that weakness in the Chinese economy seen in 2018 has extended into 2019. The India survey’s headline index, however, continued its recent upward trend, increasing for the fifth time in the last six months from 53.9 to 54.3.

Looking forward

Central Bank activities

Mar 5

Australia

Reserve Bank of Australia Announcement

Mar 6

Canada

Bank of Canada Announcement

Mar 7

Eurozone

European Central Bank Announcement

The following indicators will be released this week...

Europe

Mar 5

Eurozone

Retail Sales (January)

 

Germany

Retail Sales (January)

 

Italy

GDP (Fourth Quarter)

 

Switzerland

Consumer Price Index (February)

 

UK

CIPS/PMI Services Index (February)

Mar 7

Eurozone

GDP (Fourth Quarter Final)

 

Italy

Retail Sales (January)

Mar 8

France

Industrial Production (January)

 

 

Merchandise Trade (January)

 

Germany

Manufacturers' Orders (January)

 

Italy

Industrial Production (January)

Asia Pacific

Mar 5

Australia

Merchandise Trade (January)

 

China

General Services PMI (February)

Mar 6

Australia

GDP (First Quarter)

Mar 7

Australia

Retail Sales (January)

Mar 9

China

CPI (February)

 

 

PPI (February)

Americas

Mar 4

US

Construction Spending (December)

Mar 5

US

ISM Non-Manufacturing Index (February)

 

 

New Home Sales (December)

Mar 6

US

International Trade (December)

 

Canada

Merchandise Trade (December)

Mar 7

Canada

Merchandise Trade (January)

Mar 8

US

Employment Situation (February)

 

Canada

Housing Starts (February)

 

 

Labour Force Survey (February)

Global Stock Markets

 

Index

Mar 1 2019

Daily Change

% Change Daily

North America

United States

Dow

26026.32

110.32

0.4

 

NASDAQ

7595.35

62.82

0.8

 

S&P 500

2803.69

19.20

0.7

Canada

S&P/TSX Comp

16068.25

69.24

0.4

Europe

UK

FTSE 100

7106.73

32.00

0.5

France

CAC

5265.19

24.66

0.5

Germany

XETRA DAX

11601.68

86.04

0.7

Italy

MIB

20694.53

35.07

0.2

Spain

Ibex 35

9267.70

-10.00

-0.1

Sweden

OMX Stockholm 30

1580.22

7.54

0.5

Switzerland

SMI

9412.02

23.08

0.2

Asia/Pacific

Australia

All Ordinaries

6273.84

21.18

0.3

Japan

Nikkei 225

21602.69

217.53

1.0

 

Topix

1615.72

8.06

0.5

Hong Kong

Hang Seng

28812.17

178.99

0.6

S. Korea

Kospi

*

*

*

Singapore

STI

3220.40

7.71

0.2

China

Shanghai Comp

2994.01

53.06

1.8

Taiwan

TAIEX

*

*

*

India

Sensex 30

36063.81

196.37

0.5

*Markets closed
Source: Haver Analytics

Note: all releases are listed in local time.

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