Daily Insight
Group Economics Macro & Financial Markets Research
02 September 2016
UK manufacturing shakes off Brexit, global trend still sluggish Macro & Financial Markets Research team Tel: +31 20 343 5616 nick.kounis@nl.abnamro.com
Global Macro: UK PMI rebounds, other regions mixed – The manufacturing PMI surveys painted a rather mixed picture of the global goods sector. Most striking, was the sharp rebound seen in the UK manufacturing PMI. It more than reversed its post-Brexit collapse, rising to 53.3 in August from 48.3 in July. The survey suggests that the UK manufacturing sector has shaken off the Brexit shock surprisingly quickly. The fall in sterling may be helping, as well as increasing expectations that the UK-EU negotiations and eventual Brexit is a long way off. In any case, it is too early to say the economy is out of the woods. The PMI for the much larger services sector (published on Monday) should give us a more definitive take. Elsewhere around the world, manufacturing PMIs were rather mixed, with the overall world PMI actually slipping back from already low levels (to 50.8 from 51 in July). Whereas the Asian PMIs were generally strong (see below), the eurozone PMI fell (to 51.7 from 52), as did the US Market PMI (to 52 from 52.9). The bellwether US ISM manufacturing index even fell below the 50-mark. The weakness in the US manufacturing sector is surprising given signs that the inventory correction is coming to an end and final demand is firming. So the softness could prove short-lived. Overall though, global economic growth continues to look rather lacklustre. (Nick Kounis) Asia Macro: PMIs illustrate region’s resilience – Manufacturing PMIs published on Thursday underlined Asia’s economic resilience. China’s ‘official’ PMI for August rose to 50.4, the highest level since October 2014. Caixin’s PMI for China fell back from 50.6 in July to 50 in August, although remaining clearly above the levels seen in the first part of this year. Still, divergence remains large. The manufacturing PMI is currently above the neutral 50 mark in India, Vietnam, China (NBS) and Indonesia, but clearly below 50 in South Korea and Malaysia. Strikingly, Taiwan’s PMI rose to a 18-month high in August (51.8), while South Korea’s PMI fell to a one-year low of 48.6. Both countries are dependent on the global business cycle. This discrepancy likely also reflects the difficult episode that Korea’s shipping sector is going through. Meanwhile, regional growth in Q2 came in at 6%, with China stabilising, India slowing (remaining the fastest grower) and the rest of Asia picking up. An easing of financial conditions and policy stimulus is offsetting the ongoing weakness of external trade. All in all, we expect regional growth to slow only very gradually in 20162017. For more information please see our note Asia Outlook – Headwinds have faded (Arjen van Dijkhuizen) European Banks: EU vs US on collision course in Basel 4 discussion - Dutch newspaper Het Financieele Dagblad published on Thursday an interview with employees of the Dutch central bank who are deeply involved in the discussion on Basel 4 (or Basel 3.5). The main message is that there are still large gaps between the viewpoints on the US and European sides. The main topic of debate is the use of internal based risk models (IBRM), which the US prefers to limit, using standardised models instead. Indeed, the US calls for a rule that the capital needs calculated using IBRM cannot be lower than 90% when a standardised approach is used. The European counterparties have set this floor at 60%. Overall, the US approach would result in a large increase in capital needs for European
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