Good news yesterday for Australia from our top two commodity export markets with signs the Chinese economy has resumed growing, and continuing confidence in Japan among business about the current expansion.
For the first time in seven months’ China’s two monthly surveys of its huge manufacturing sector are telling us the economy is growing (slowly, admittedly) and not contracting.
For a short while, the news helped steady a weak stockmarket and kept the Aussie dollar over 94 USc.
It later jumped even further, to 94.50 after the usual monthly statement from RBA Governor Glenn Stevens revealed no change in interest rates.
The dollar charged to just under 95 US cents in overnight trading with more good news about manufacturing in Europe and especially the US.
The final version of HSBC/Markit’s manufacturing Purchasing Managers’ Index (PMI) came in at 50.7 in June, just slightly below a preliminary reading of 50.8 for last month, but still well above May’s final reading of 49.4.
And China’s official Purchasing Managers’ Index rose to 51 in June from May’s 50.8, according to the country’s National Bureau of Statistics.
The HSBC/Markit survey covers small to medium businesses, while the government one looks at large companies.
It was the first time since December that the final HSBC/Markit survey and the government report had both reported a reading above 50 (the level that separates growth from contraction).
HSBC said it was "the first improvement in business conditions” in six months and due to the strongest expansion in 15 months for the report’s “total new work” subindex, with new export orders rising for a second month in a row.
"The rise of both PMIs suggests that the growth momentum has been picking up due to the recent pro-growth policies, including increasing the infrastructure investment and accelerating the budgeted fiscal spending. The rising G3 demand and intra-Asia trade flows have provided positive impetus as well,” economists at ANZ wrote yesterday.
"Combining these factors, we believe that China’s GDP growth in Q2 will likely come in above 7.5%, compared with 7.4% in Q1," ANZ forecast.
“This confirms the trend of stronger demand and faster de-stocking,“ HSBC’s chief China economist Hongbin Qu said in a statement with the survey.
“The economy continues to show more signs of recovery, and this momentum will likely continue over the next few months, supported by stronger infrastructure investments.”
In Japan, the quarterly tankan survey of business sentiment from the country’s central bank came in a little weaker than expected for the April-June quarter, but stronger than forecast investment plans at the biggest manufacturers offset the small fall in near term confidence.
Large companies across all industries said they would be boosting capital spending by 7.4% over the rest of the current financial year, up 0.1% from the forecast at the start of the June quarter.
The sentiment index for Japan’s largest manufacturing companies slipped to +12 from +17 in the June quarter.
The tankan results represent the percentage of executives reporting "favourable" conditions minus those reporting an "unfavourable" environment.
Elsewhere in the survey, large non-manufacturers saw a result of +19, falling from +24 in March.
Medium-sized manufacturers fell to +8 from +12, while small manufacturers fell to +1 – just barely in "optimistic" territory – from +4. Medium non-manufacturers fell to +10 from +17, with a forecast for +8 in three months, while small non-manufacturers dropped to +2 from +8.
The quarterly poll of over 10,000 companies gives the most comprehensive picture yet of how corporate Japan feels about the pressures from a rise in the national sales tax rate to 8% from 5% on April 1.
While there are signs of a weakness in confidence, the small improvement in spending plans tells us that Japanese companies remain confident the government’s ambitious reflation strategy remains on course and valid.
The 7.4% planned rise in investment plans from large companies in all sectors (traditionally the drivers of Japanese industrial production and spending) was the strongest report in seven years.
And big manufacturers plan to increase investment by 12.7%, which is the highest since the June 2006 tankan.
