While you were sleeping: Global manufacturing slows

Tuesday 2nd September 2014

European stocks crept higher, while bonds rose, even as data showed manufacturing slowed in the euro zone, the UK and China, stoking concern about the strength of the global economy.

The latest data also helped cement expectations the European Central Bank will detail plans about a quantitative easing program as soon as this week.

A report showed the final seasonally adjusted Markit euro-zone manufacturing PMI dropped to 50.7 in August, down from 51.8 in July, which was below the earlier flash estimate of 50.8.

“The eurozone manufacturing sector lost further growth momentum in August, with the recovery in production slowing for the fourth straight month to the weakest in the current 14-month sequence of expansion,” Rob Dobson, senior economist at Markit, said in a statement.

“Although some growth is better than no growth at all, the braking effect of rising economic and geopolitical uncertainties on manufacturers is becoming more visible,” Dobson said. “This is also the case on the demand front, with growth of new orders and new export business both slowing in August.”

The UK’s manufacturing PMI also eased in August, falling to a 14-month low of 52.5, according to Markit.

Meanwhile, China’s official manufacturing PMI slid to 51.1 last month, while the HSBC/Markit PMI declined to 50.2, down from an 18-month high of 51.7 in July, below an earlier flash estimate of 50.3.

"Overall, the manufacturing sector still expanded in August, but at a slower pace compared to previous months," Hongbin Qu, chief economist, China & co-head of Asian economic research at HSBC, said in a statement. "We think the economy still faces considerable downside risks to growth in the second half of the year, which warrant further policy easing to ensure a steady growth recovery.”

Europe’s Stoxx 600 finished the session with a 0.3 percent advance from the previous close. The UK’s FTSE 100 added 0.08 percent, while Germany’s DAX gained 0.09 percent. France’s CAC 40 slipped 0.03 percent.

"A concerted slowdown in the China, euro zone and UK manufacturing PMIs … raises alarm bells about global demand conditions," Lena Komileva, chief economist at G+ Economics in London, told Reuters.

"This raises serious questions about the ability of major economies such as the US and the UK, to weather higher interest rates, or in the case of the euro zone to withstand deflationary pressures without further stimulus."

ECB policy makers are set to meet on Thursday after President Mario Draghi last month said further stimulus might be needed to address the slowing pace of inflation.

In a Bloomberg poll, five economists forecast the ECB will cut the refinancing rate by 10 basis points to 0.05 percent at its September 4 meeting in Frankfurt, while the remaining 50 predict no change.

“The ECB will likely maintain a dovish tone at this meeting without any action but we expect some details on its plans to implement an asset purchase program in the coming months," Philip Shaw, economist at Investec, told Reuters.

North American markets were closed for the Labor Day holiday on Monday. Last Friday, the Standard & Poor’s 500 Index closed at a record high 2,003.37.

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