In our first note for 2017 we are not ready to draw any significant conclusions for global currency markets. It is evident that a significant correction in the USD has occurred in the first week of the year. This may reflect significantly stronger than expected economic indicators in a range of countries other than the USA, suggesting that a cyclical upswing in the global economy is underway since around Q4 last year, helping lift support for global asset prices and investment outside of the USA. It may reflect a natural cooling in the outlook for the Trump-effect on the USA economy after a surge of optimism late last year. It may reflect a spillover from a rebound in Chinese yuan engineered by a squeeze in offshore CNH liquidity. CNH volatility around the turn of the year is starting to look like a regular occurrence, after similar developments a year earlier.
Signs of recovery broaden in Asia
China’s Caixin services PMI that reflects more private-sector firms (released on Wednesday 4 Jan), rose to 53.5 in Dec, a high since July-2015 (17 months). The government non-manufacturing PMI (released on Sunday 1 Jan) dipped in Dec to 54.5 from a high in November since June 2014, but was still a relatively robust result.
As the chart below shows, the Indian services PMI failed to recover much from its slump in November triggered by disruption created by the government’s poorly implemented currency note replacement intended to crack-down on the black market.
China’s Caixin manufacturing PMI (released on Tuesday 3 Jan) rose to 51.9 in Dec, stronger than 50.9 expected) a high in over three years of data available on Bloomberg since Sep-2013. China’s government PMI (released on Sunday 1 Jan) that includes more state-owned enterprises dipped to 51.4 from its high in November since July-2014.
The chart below shows a rapid recovery in the Taiwanese PMI in the last two months to a high in at least three-years of 56.2. A solid recovery in the Korean PMI to 49.4 in Dec. However, the Indian PMI slumped for a second month to a low in 12 months of 49.6 from a high in October since Dec-2014 of 54.4. (Most Asian PMIs released on Tuesday/Wednesday 3/4 Jan).
The Malaysian and Indonesian manufacturing PMIs were less impressive than their northern Asian neighbours. And the Philippines, while at a stronger level, was down for a third month in December.
Singapore’s electronics PMI continued its recovery from a low early last year to a high in December of 49.5 since October 2014. Its overall manufacturing PMI has followed suit, albeit rising more gradually, to a high of 50.6 in Dec since Nov-2014. The Nikkei sponsored Singapore PMI dipped in Dec to 52.0.
The chart below also shows the highly erratic Australian manufacturing PMI that has risen from a low last year in August of 46.9 to a 55.4 in December, a high since July.
Stronger Export trends in Asia
Korea is the first Asian country to report exports in December. With a weak end to 2015, year-over-year comparisons may exaggerate the appearance of strength, but Korean exports rose 6.4%y/y in Dec, above 4.6% expected, a high growth rate since April-2014.
The chart below also shows Taiwanese exports and export orders. In November, Taiwanese exports rose 12.1%y/y, a high since Jan-2013 (released on 7 Dec). Orders rose 7.0%y/y in Nov, above 5.0% expected (released on 20 Dec).
Indonesia’s exports surged 21.3%y/y in November, supported by higher commodity prices rebounding from a low base in late 2015.
Thailand’s exports rose over 10%y/y in November, a high growth rate in almost four years. Vietnam’s exports rose 8.6%y/y in December a 12 month high growth rate.
Singapore’s non-oil domestic export growth rose to 11.5%y/y in November, equaling its previous high since March 2015.
Industrial production recovers in advanced Asian countries
Industrial production rose at the highest annual rate in Taiwan in November (8.8%y/y) since Oct-2014, in Korea (4.8%y/y) in at least three years, and Singapore (11.9%y/y) since Mar-2014.
Australian PMI and business credit recover
Australian PMI data tends to be erratic. Nevertheless, it is notable that manufacturing and service sector readings have recovered from lows for the year in August. Manufacturing is up from 46.9 in Aug to 55.4 in Dec. Services is up from 45.0 in Aug to 57.7 in Dec, a high since May 2007. The construction PMI has been relatively weaker in recent months (46.6 in Nov); its December reading is due on Monday 9 Jan.
Australian PMIs
The AiGroup that release the PMI data wrote that respondents to the services PMIs survey noted “increased orders from the mining sector; a lower value for the Australian dollar; interest rates remaining stable and (for regional services) good agricultural harvests. Overall, there was a sense of increased confidence from respondents across many services sub-sectors.”
Australian credit growth (released on 30 Dec) showed rising momentum for business and housing investor credit growth. Business credit growth has risen on a 3mth moving average basis from a low in August to a high in November since May. Housing investor credit growth has been building momentum since around mid-2016 to a high since Sep-2015.
Total credit growth 5.4%y/y, business credit growth 4.9%y/y, housing credit growth 6.3% (investor 5.6%, owner-occupier 6.7%)
Global services sector firms
The Global services PMI was steady in Dec at 53.3, remaining at a high in just over a year. The emerging market services PMI rose to 51.8 in Dec, a high since August.
India continued to be the main drag on the emerging market PMI, with a rise in Russia to 56.5, a high in at least three years, and firmer results in Brazil and China.
The UK services PMI (Released on Thursday 5 Jan) rose to 56.2 in Dec, above 54.7 expected to a high since July 2015. The Eurozone services PMI was revised up from its initial reading of 53.1 to 53.7 in Dec, down a touch from a recent high of 53.8 in November.
The US Markit services PMI was also revised up from an initial reading of 53.4 to 53.9 in Dec, but this was down from 54.6 in Nov and a recent high of 54.8 in Oct. However, the more closely watched and broader non-manufacturing ISM measure was stable at 57.2 in Dec, stronger than 56.8 expected, remaining at a high since October 2015.
The chart below also shows the Japanese services PMI rising to 52.3, a high since January 2016.
Global manufacturing picks up
The Global manufacturing PMI rose to 52.7 in Dec, a high since Feb-2014. The emerging markets manufacturing PMI rose to 51.2 in Dec, a high since July 2014.
In the large emerging countries, Russia’s manufacturing PMI firmed to 53.7 in Dec, a high in at least 3 years. However, weaker results were seen in Brazil and especially India.
In the UK, the manufacturing PMI rose to 56.1 in Dec (released on 3 Jan), a high since June 2014. In the Eurozone (unrevised in 2 Jan from the initial reading), the manufacturing PMI rose to 54.9 in Dec, a high in at least three years.
The USA market manufacturing PMI rose to 54.3 in Dec, revised slightly higher from an initial reading of 54.2 (released on 3 Dec), a high since March 2015. The more closely watched manufacturing ISM report rose to 54.7 in Dec, above 53.8 expected, a high since Dec-2014 (released on 3 Jan).
The chart below also shows the Japanese manufacturing PMI that rose to 52.4 in Dec, revised up from an initial reading of 51.9 (released on 4 Jan) to a high since Dec-2015.
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