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BOV Market Watch - Week Ending 04 April 2017
07 Apr 2017
US manufacturing expansion continues in March. According to the Institute for Supply Management (ISM), activity in the US manufacturing sector continued to expand in March for the seventh consecutive month. The headline index was in-line with expectations at 57.2 though lower than the 57.7 registered in February, which was the highest reading since August 2014. ISM said that out of the 18 industries surveyed, 17 registered growth whilst one industry remained unchanged. Furthermore, all 18 industries recorded rises in new orders. Bradley J. Holcomb, chair of ISM’s business survey committee, noted that comments from purchasing managers in some industries are facing difficulties to find workers with certain skills.

Eurozone inflation falls below target in March. Official figures revealed that inflation across the 19-country Eurozone fell more-than-expected to a three-month low in March which was partly related to the timing of Easter. The European Union’s statistics agency, Eurostat, said that the annual consumer price inflation rate slowed to 1.5 percent, from February’s four-year high of 2 percent when it exceeded the European Central Bank’s (ECB) target of ‘below, but close to two percent’ and is likely to reduce pressures on the central bank to rein back its stimulus efforts soon. Jack Allen, a European economist at Capital Economics, said that inflation is now on a downward trend and expects the ECB will continue with the bond-buying programme and leave interest rates unchanged until well into 2018.

German manufacturing reaches almost six-year high. A survey published this week showed that Germany’s manufacturing growth reached an almost six-year high in March, underpinned by a sharp increase in orders for intermediate goods. This indicates that this sector supported economic expansion in the first quarter. Markit’s Purchasing Managers’ Index (PMI) for manufacturing increased to 58.3 in March from 56.8 in February, the highest level in 71 months, whilst the final services index rose from 54.4 in February to 55.6 in March to a 15-month high. Markit’s final composite PMI, which measures activity in manufacturing and services, and accounts for more than two-thirds of the economy, increased from 56.1 in February to 57.1 in March to reach a 70-month high.

UK manufacturing slows in March. UK manufacturing growth remained strong in March but fell to a four-month low as export orders increased at a lower rate and demand for consumer goods weakened against a backdrop of rising inflationary pressures. March’s manufacturing PMI from Markit and the Chartered Institute of Procurement & Supply (CIPS) fell to 54.2 from February's downwardly revised reading of 54.5. This was short of the consensus forecast of 55.0 and was the third month in a row that the index has fallen suggesting that manufacturing growth slowed in the first quarter of 2017. However, intermediate and investment goods sector reported a considerable and accelerated rate of growth. 
China’s manufacturing index fell in March. Chinese manufacturing PMI fell to 51.2 in March from 51.7 in February and below market expectations of 51.5, indicating a slower expansion of activity. This took place as orders for export sales rose at the lowest rate for three months. Caixin said that the levels of production and new orders both grew more slowly. This influenced March’s lower reading. Likewise, the services PMI slowed in March to a six-month low from 52.6 in February to 52.2 in March and below the expected level of 53.2. 

Japan business outlook brightens as recovery broadens. Banks of Japan’s survey showed that Japanese big manufacturers’ business confidence rose for the second consecutive quarter to mark a one-and-a half year high in March. The readings were slightly below economist estimates, but were seen as a sign that the benefits of an export-driven economic recovery were broadening. The Bank of Japan’s “tankan” survey showed that the service-sector sentiment improved for the first time in six quarters and manufacturers remained upbeat on their capital expenditure budgets showing that the economic recovery will gain momentum in the coming months. Yuichiro Nagai, an economist at Barclays Securities said, “The tankan showed a balanced improvement in corporate sentiment at manufacturers and service-sector firms”.

South Africa gets third finance minister in five days. The firing of South Africa’s former finance minister Pravin Gordhan last week sent the South African currency tumbling by close to five percent and increased anger at President Jacob Zuma as a split in the ruling party intensified. The CEO Initiative, an organisation that includes chiefs of Nedbank, Standard Bank, JSE and Investec said, “This decision is likely to cause severe damage to an economy that is in dire need of growth and jobs”. S&P said, “In our opinion, the executive changes initiated by President Zuma have put at risk fiscal and growth outcomes” which resulted in downgrading South Africa’s sovereign debt to junk, from BBB- to BB+.
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