Summary for the 2nd of October -Weaker manufacturing outlook


Last week’s flash PMI estimates for the EU area and yesterday’ final PMI numbers are indicating that the weakening in the manufacturing sector isn’t country specific, but rather the weakening is across countries. The decline in Germany’s manufacturing sector is less than expected by the financial markets, while the decline in France is higher than expected. The same goes for Spain and Italy. The UK’s PMI index has increased by 0.9 to 48.3 and is more than expected, though 48.3 still indicates a weaker outlook. The US Manufacturing PMI has increased to 51.1 while the ISM index declines by 1.3 percent to 47.8, the lowest value since 2009.

Despite weakening activities in the manufacturing sector for the developed countries, for the developing countries the outlook is still positive. The global PMI value in the manufacturing sector has risen from August to September. Past months’ decline has been due to weaker growth in the global trade. The WTO has updated its global trade forecast and downward adjusted the global trade to 1.2 percent this year from 2.6 percent that was forecasted in April. The update is based on consensus estimates of world GDP growth of 2.3% this year and for the next year.

EU area’s inflation rate is still weak, with a 1 percent growth in September from a year ago, this is expected by the markets. The ECB says that it will keep the interest rates low and continue purchasing debt until the inflation rates increase to 2 percent.

The negative effects of Japan’s current monetary policy are emerging, due to negative interest rates, Japanese banks have become less profitable. The Bank of Japan has several times been announcing that it will cut the purchasing of bonds with long-term maturity. This way, the Bank of Japan will be able to lower the short and medium term interest rates without flattering the yield curve too much. Due to low interest rates environment and the chase for higher returns, the Japan pension fund, GPIF, said that it will increase its holding in foreign debt and loweing its holding in domestic debt.

Indices for 2nd of October
Dow: -1.3 % (1st of October)
S&P 500: -1.2% (1st of October)
Nasdaq: -1.1% (1st of October)
Nikkei: -0.5%  (2nd of October)
Chinese indices: Closed. (2nd of October)
STOXX Europe 600 Index: -2.70% (2nd of October)

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