
Asia
We saw upside surprise in last week’s Hong Kong trade data for June and today South Korea reported a beat in its export data for July. Exports jumped 19.5% y/o/y, above the forecast of up 15.9%. The big numbers we’ve seen this year come off easy comparisons after nearly 2 years of declines but also reflects the improvement in global trade that we’ve seen. Big gains were seen in two of their specialties, ships and semi’s. Exports to China grew 6.6% y/o/y, to Japan by 5.1%, to India by 79%, to the US by 7%, and to the EU by 10.2%. It was only to Latin America and the Middle East that saw declines. Imports were up by 15%, about as expected. The Kopsi closed up by .8% in response to the upside and is just off record highs in spite of all the drama out of North Korea. The Kospi is still cheap but we await what, if anything, will happen to the possible shake up of the conglomerate culture in South Korea that has depressed ROE’s, dividend yields and thus valuations.
In Asia we also saw a slew of manufacturing PMI’s for July that were very mixed. Notwithstanding the strength in South Korea’s export figure, their PMI fell 1 pt and is back below 50 at 49.1. China’s private sector weighted Caixin index was up by .7 pts to 51.1 while the estimate was for no change. Caixin said “Companies indicated that both output and new orders rose at the fastest rates for five months, helped by a solid upturn in new export sales.” Price pressures picked up to 4 month highs, “however, companies maintained a relatively cautious stance towards employment” as this component fell. Also of note, there was a “subdued level of confidence towards the business outlook, with optimism towards the year ahead dipping to an 11 month low.” There is a clear bifurcation between state and private companies and large one’s relative to small and medium sized firms.
Also in the region, India’s manufacturing PMI fell 4 pts to 47.9, Indonesia’s was down by .9 pts to 48.6, Thailand fell by almost 1 pt to back below 50 at 49.6, Vietnam’s fell by .8 pts to 51.7 and was down too in the Philippines. Gains were seen in Taiwan and Malaysia. Japan’s final read after last week’s initial was down at 52.1. Bottom line in this region, while global trade has definitely rebounded which in particular helps Asia, these PMI’s are still straddling around the flat line of 50, give or take.
Europe
Europe’s final manufacturing index for July was 56.6, a touch below the first print and estimate of 56.8 and is at a 4 month low although it remains at a good level with all 8 countries in this survey seeing growth. Germany’s PMI moderated to a 5 month low but France saw a 3 month high. The Netherlands was where the biggest upside came as their index is at a 75 month high. As for what Mario Draghi cares about, price pressures eased in July but Markit also said “companies continued to struggle to meet order book growth, with capacity constraints both at factories and their suppliers becoming increasingly widespread in recent months.” Thus, possibly expect inflation to follow. On the modest drop in manufacturing, the euro is slightly lower but remains above $1.18 vs the dollar. European stocks are benefiting from the weaker euro today following the recent weakness.
The UK manufacturing PMI in July was up almost 1 pt to 55.1 and above the forecast of 54.5. This level is about in line with the year to date average of 55.3. Strong export growth led the gains but “the domestic market also remained a positive contributor to order books, although not to as a great an extent as signaled earlier in the year.” There was some relief on the price side as both input and output prices fell. The BoE tells us their most recent thoughts on Thursday. Just as the Bank of Canada has done, it’s time for the BoE to at least take back its emergency post Brexit rate cut. The pound is little changed in response to the data.
Also of note in Europe was that the eurozone economy grew by .6% q/o/q and 2.1% y/o/y as expected and follows .5% and 1.9% in the prior quarter. On a y/o/y basis this was the quickest pace of growth since Q1 2011. This is further reason for the ECB to announce next month a new tapering plan.
Lastly in Europe, Germany reported its jobs data and the number of unemployed fell by 9k, 4k more than expected while their unemployment rate held at 5.7% as forecasted, the lowest since reunficiation. With the slightly softer euro, the DAX is up but not far from its lowest level close yesterday since late April. Here is a one year chart of the DAX vs the SPX and you can see the impact of this last leg up in the euro with the DAX in orange: