China PMI, US housing Market and FOMC delusion Next week

Week ahead economic calendar [19 - 23 Sept] 
Central bank policymaking under the spotlight
ƒ FOMC and MPC updates to be watched for signs
of further stimulus
ƒ Flash PMIs for China and Eurozone to provide
first insight into September growth trends
The highlights of the week are updates on US and UK central 
bank policymaking and flash PMI surveys for China and 
Eurozone.
The US Federal Open Market Committee (FOMC) decision
on Wednesday will be watched for the possibility of additional
stimulus. Options may include buying more government
bonds, switching from shorter-term to longer-term bonds to
help reduce mortgage and other long-term debt interest
rates, or cutting the 0.25% interest rate it pays on the $1.7
trillion of excess reserves that banks hold at the Fed, as this
should stimulate bank lending.  However, there is a concern
that banks, already under financial strain, could be hurt
further by any reduction in mortgage lending margins or any
lowering of the excess reserve interest rate. Furthermore,
with Bernanke still expecting the recovery to regain
momentum later this year, there is a distinct possibility that
the Fed will do nothing.
The Bank of England elected to do nothing at its September
Monetary Policy Committee (MPC) meeting, but the minutes
from the meeting are likely to  indicate that the MPC grew
increasingly worried about the fragility of the economic
recovery following a raft of weak data. Both Spencer Dale
and Martin Weale have moved away from their hawkish
stances, and others may have joined Adam Posen in voting
for additional stimulus.
The first indicators of the health of the global economy in 
September will be provided by flash PMI data for China and 
the Eurozone. PMIs showed manufacturing roughly
stagnating in both China and the Eurozone in August, down
sharply since the start of the year, while growth of services
slipped closer to stagnation in the Eurozone. Perhaps of
greatest interest will be whether growth in Germany – the
Eurozone’s main growth driver in the early stages of the
recovery – continues to disappoint as the financial crisis hits
confidence. A steep slide in business confidence in the
European banking sector (see chart) suggests that further
weakness in the wider economy lies ahead.

The UK Household Finance Index (HFI), compiled by Markit,
will provide the first insight into consumer spending, savings
and debt trends in September, as well as inflation
expectations, house prices and job security. Households
reported the sharpest deterioration in their finances since the
survey began last month, exceeding even that seen during
the worst point of the recession.
A snapshot of the US housing market will be provided by the
National Association of Home Builders (NAHB) index, which
remained at a very depressed level in August.    
Tuesday
German producer prices data will highlight supply chain price 
pressures. Rates of increase accelerated, both in annual and
monthly terms in July. Next up for Germany is the ZEW
survey. A slump in investor confidence was seen last month.
Elsewhere in the single currency area, Italian industrial
orders and sales numbers are published.
US housing starts will be watched as a guide to the health of 
the housing market and construction industry. Meanwhile,
weekly Redbook and ICSC store chain sales will give a
handle on consumer spending patterns.
Central bank committees in both Hungary and Turkey meet
to determine monetary policy.
Wednesday
Japan publishes its monthly trade report early Wednesday
morning. Markit’s PMI™ manufacturing survey showed new
export business falling for the sixth successive month in Markit Economic Research
August, with respondents attributing this to ongoing yen
strength and subdued demand from China.  
What PMI panellists in Japan linked the fall in exports to..
Source: Markit. Size of words linked to number of times cited by companies.
The minutes from the Bank  of England’s Monetary Policy 
Committee (MPC) August meeting will be eagerly awaited for 
signs that the MPC moved closer to voting for another round
of asset purchases. Public sector borrowing numbers will
highlight whether the government is on track to meet its
deficit reduction target. The government will want a repeat of
the big fall in public sector borrowing recorded in July, but
weaker-than-expected economic growth points to a growing
risk that the target will be missed.
In the US, weekly MBA mortgage applications are released
ahead of existing home sales numbers and the Federal Open 
Market Committee (FOMC) interest rate announcement. 
Despite the clamour for looser policy, the Fed is unlikely to 
announce a third round of asset purchases, known as QE3, 
next week. The Czech National Bank also meets to discuss
monetary policy.  
Thursday
Markit and HSBC publish the Flash China Manufacturing
PMI™ early Thursday morning. Analysts will watch these
numbers closely after business conditions deteriorated for a
second successive month in August.

   All eyes will then be on the publication of the flash PMI™
surveys for France, Germany and the euro currency area as
a whole. August’s Eurozone PMI survey pointed to the
slowest rate of economic growth for two years, as the
region’s recovery almost ground to a halt. The risk of the
Eurozone slipping back into contraction has therefore risen.
September data will round off the Q3 picture. Additionally,
industrial orders and consumer confidence numbers for the
Eurozone are published, while the Confederation of British
Industry (CBI) releases industrial trends data for the UK.
In the US, weekly jobless claims (both initial and continued)
and the Federal Housing Finance Agency (FHFA) house
price index are published.  
Friday 
The week ends on a relatively quiet note, with the publication
of French consumer confidence and business climate data in
advance of Italian trade and retail sales numbers.

NOTE : 1) FOMC is unlikely to make announcement and is likely to
disappoint market. 2) Expect advance declaration by some companies.

India service sectors slows marginally to 53.8---Markit

 India’s services industry grew at the slowest pace in more than two years in August after the central bank’s record interest-rate increases and a weakening global economy restrained consumer demand.

The Purchasing Managers’ Index fell to 53.8 last month from 58.2 in July, HSBC Holdings Plc and Markit Economics said in an e-mailed statement today. That’s the lowest level since June 2009. A reading above 50 indicates an expansion.

Asia’s growth has slowed as a faltering recovery in the U.S. and Europe’s debt crisis hurt the region’s exports, complicating monetary policy for central banks still grappling with price pressures. India’s manufacturing grew at the slowest pace in 29 months in August, a report showed last week, while inflation has exceeded 9 percent for eight straight months even after 11 rate increases by the Reserve Bankof India since mid-March 2010.

“The lagged effects of monetary policy tightening, the elevated level of inflation and the now heightened uncertainty about the global economic outlook” led to the slowdown in services growth, Leif Eskesen, a Singapore-based economist at HSBC, said in the statement. Still, inflation “remains the dominant concern, calling for a few more policy rate hikes before the RBI can call it quits,” he said.

The Bombay Stock Exchange Sensitive Index fell 1.3 percent as of 12:01 p.m. in Mumbai. The rupee slid 0.3 percent to 45.9313 a dollar, according to data compiled by Bloomberg.

China Services

A separate HSBC-Markit report showed the Chinese services index fell to a record low of 50.6 last month as new business growth moderated, adding to evidence the economy is slowing after the government raised interest rates, curbed lending and limited property purchases.

Companies from UBS AG and Credit Suisse Group AG to Morgan Stanley have cut estimates for Indian economic expansion. UBS predicts 7.2 percent growth for 2011-2012, lower than an earlier estimate of 7.5 percent.

India’s Purchasing Managers’ Index for manufacturing fell to 52.6 in August from 53.6 in July, HSBC and Markit said Sept. 2. Service industries in the U.S. probably expanded in August at the slowest pace in more than a year, adding to concern the recovery is losing steam, a Bloomberg News survey showed before a report this week on the Institute for Supply Management’s non- manufacturing index.

Moody’s Forecast

The South Asian nation’s economy may expand 7.5 percent to 8 percent in the financial year through March while inflation may ease to about 7 percent over the year, Moody’s Investors Service Senior Analyst Atsi Sheth said in a report today.

“Given current global uncertainty, and the continuing transmission of the RBI’s tightening over the last year, the risks to both forecasts are on the downside,” Sheth said. Still, a slower growth rate in the 7 percent range wouldn’t change Moody’s assessment of the country’s sovereign credit outlook, she said.

Reserve Bank of India Governor Duvvuri Subbarao raised the benchmark repurchase rate by 0.5 percentage point to 8 percent on July 26. While threats to growth could increase if global financial risks amplify, the “immediate challenge to sustaining growth” lies in taming inflation, the central bank said Aug. 25.

“There has been a moderation in growth but it has not collapsed,” Samiran Chakraborty, a Mumbai-based economist at Standard Chartered Plc, said before the report. “Controlling inflation will take priority over growth concerns and we will see the central bank raising rates.”

Commercial loans given by banks such as ICICI Bank Ltd. rose 20.22 percent from a year earlier as of Aug. 12, according to data compiled by Bloomberg, exceeding the central bank’s 18 percent projection. Mobile-phone operators including Bharti Airtel Ltd. added 7.64 million customers in July, a 1.28 percent increase from the previous month, according to the Cellular Operators Association of India.

The 69 % Brits are Pessimistic about the Next 12 months

The Britain's House hold are negative about the coming Year.
In the recent Survey, conducted by the Markit, when asked, ' How do you think your Household's financial situation will have changed 12 months from now?
About 69% said it should be worst than present.

 Households are more downbeat about the UK economic outlook in August than was reported last month. Exactly 69% of British households anticipate worse economic conditions in one year’s time, up from 61.6% in July. Just 15.2% of respondents expect conditions to improve, down from 19.3% in July. Scotland is the most pessimistic region, while the East of England is the least downbeat. London saw the sharpest deterioration in sentiment (net balance down from -33.4% to -60.0% in August).


Makit is an agency, which carries Economic survey's in many countries. The Purchase Managers Index, popularly known as PMI for Services and Industry. In India, Markit-HSBC conduct the PMI Survey. The survey is credited with a reference by the Reserve Bank of India, and is looked upon by the Equity Market Participants.

Flash PMI from Markit Release dates

22 Aug 00:01 21 Aug 23:01 22 Aug 00:01 London UK Household Finance Index - tim.moore@markit.com
23 Aug 03:30 23 Aug 02:30 23 Aug 10:30 Beijing Flash China Manufacturing PMI HSBC alex.hamilton@markit.com
23 Aug 08:00 23 Aug 07:00 23 Aug 09:00 CEST * Flash France PMI - jack.kennedy@markit.com
23 Aug 08:30 23 Aug 07:30 23 Aug 09:30 CEST * Flash Germany PMI - tim.moore@markit.com
23 Aug 09:00 23 Aug 08:00 23 Aug 10:00 CEST * Flash Eurozone PMI - chris.williamson@markit.com
30 Aug 09:00 30 Aug 08:00 30 Aug 10:00 CEST Austria Manufacturing PMI Bank Austria andrew.harker@markit.com
30 Aug 09:10 30 Aug 08:10 30 Aug 10:10 CEST Germany Retail PMI - tim.moore@markit.com
30 Aug 09:10 30 Aug 08:10 30 Aug 10:10 CEST France Retail PMI - jack.kennedy@markit.com
30 Aug 09:10 30 Aug 08:10 30 Aug 10:10 CEST Italy Retail PMI - phil.smith@markit.com
30 Aug 09:10 30 Aug 08:10 30 Aug 10:10 CEST Eurozone Retail PMI - trevor.balchin@markit.com
31 Aug 00:15 30 Aug 23:15 31 Aug 08:15 Tokyo Japan Manufacturing PMI JMMA alex.hamilton@markit.com

China in whirlpool and Lead footing growth

The Markit  Reports :  PMI data suggest industrial production growth has further to fall

 .. Weaker price pressures likely in H2 2011

Latest data from the National Bureau of Statistics (NBS) show industrial output growth easing from an annual rate of 15.1% to 14.0% in July. The slowdown in part reflects monetary tightening by the authorities in a bid to curb inflation. Although it is clear that the current cycle of interest rate and reserve ratio hikes is having the desired cooling effect on growth, the same cannot be said for inflation. Consumer price inflation hit 6.5% in July, the steepest pace for 37 months.
However, HSBC PMI™ survey data, compiled by Markit, show that policy tightening may be having an even greater effect, which is yet to feed through to official production and inflation numbers.

Electricity Consumption tapers.... A lagging Indicator of Slow down


Like the PMI™, electricity consumption also suggests that economic growth may have slowed sharply in recent months, and more so than the official industrial production data suggest (note that the PMI and electricity consumption have followed similar trends so far this year and both contrast with official production data).
                               Choking of Export and Import

The latest PMI™ survey findings also show new export orders falling in China for a third successive month during July. Growth of new export orders soared towards the start of 2010 according to both the official data and PMI series, with the latter depicting a gradual easing in the underlying trend in growth since then.

The pace of import growth has also come off the boil since the start of the year, with the PMI™ Quantity of Purchases Index – measuring the amount of semi-manufactured goods and raw materials acquired by manufacturers – signalling a second successive month-on-month decline in purchasing activity (in line with lower output requirements). As a result, firms reduced their stocks of purchases at the fastest rate for 28 months during July.

                                   Has inflation peaked?
A moderation in the demand for inputs has meant that suppliers have been increasingly unable to push up the prices they charge manufacturers for inputs. This, coupled with recent steep falls in commodity prices and a higher base effect, augers well for consumer price inflation, with the PMI™ Suppliers’ Delivery Times Index consistent with an easing in the headline rate of inflation going forward. The index has acted as a good leading indicator of consumer price inflation

China PMI Falls Below 50 and Europe Stagnates---Markit -HSBC Flash PMI

                              HSBC Flash China Manufacturing PMI™
Chinese manufacturing production declines at fastest rate since March 2009
• Flash China Manufacturing PMI™ at 48.9 (50.1 in June). 28-month low.
• Flash China Manufacturing Output Index at 47.2 (49.8 in June). 28-month low.
Data collected 12–19 July.
The HSBC Flash China Manufacturing Purchasing Managers’ Index™ (PMI™) is published on a monthly basis approximately one week before final PMI data are released, making the HSBC PMI the earliest available indicator of manufacturing sector operating conditions in China. The estimate is typically based on approximately 85%–90% of total PMI survey responses each month and is designed to provide an accurate indication of the final PMI data.

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:
“Headline flash PMI fell below 50 for the first time since July 2010, suggesting slowing momentum of manufacturing activities. This implies that June's rebound in industrial production was just temporary. We expect industrial growth to decelerate in the coming months as tightening measures continue to filter through. That said, resilience of consumer spending and continued investment in a massive amount of infrastructure projects should support a nearly 9% rate of GDP growth in the rest of the year.”
                                          Markit Flash Eurozone PMI
               Eurozone growth slows to near-stagnation in July----- Markit PMI

    Flash Eurozone PMI Composite Output Index(1) at 50.8 (53.3 in June). 23-month low.
􀂃 Flash Eurozone Services PMI Business Activity Index(2) at 51.4 (53.7 in June). 22-month low
􀂃 Flash Eurozone Manufacturing PMI (3) at 50.4 (52.0 in June). 22-month low.
􀂃 Flash Eurozone Manufacturing PMI Output Index(4) at 49.5 (52.5 in June). 2-year low.
                                         Data collected 12-20 July
The Markit Flash Eurozone PMI® Composite Output Index, based on around 85% of usual monthly replies, fell from 53.3 in June to 50.8 in July. The latest reading was the lowest since August 2009 and signalled a near-stagnation of private sector output, the rate of growth having slowed sharply in each of the past three months. The month-on-month fall in the Output Index in July was the largest since November 2008.
 ***Manufacturing output declined – albeit only marginally – for the first time since July 2009, while activity growth slowed sharply in services to the weakest since September 2009.
The deterioration in the survey’s output indicators reflected weaker order book trends. Across both sectors, new business showed only a very marginal increase in July, registering the smallest rise since demand for goods and services first started growing again back in September 2009. Levels of incoming new business fell in manufacturing for the second month in a row, declining at the fastest rate since June 2009 – with new export orders dropping for first time since July 2009. Service sector new business meanwhile showed the weakest rise since November 2009, the rate of growth having lost almost all of the strong momentum seen earlier in the year.

Forward-looking indicators failed to improve. Expectations of service sector activity in the coming year were unchanged compared to June – which had seen the lowest level of optimism since July 2009. At the same time, the ratio of manufacturing new orders to inventories, which acts as a guide to near-term output developments, fell to the lowest since April 2009.
The rate of expansion across both sectors slowed in both Germany and France, dropping especially sharply in the former. Germany saw the weakest rate of growth in two years, while French growth was the slowest since August 2009. Elsewhere, outside of the two largest countries, output fell for the second successive month, and at the steepest rate since August 2009.
Employment growth held up well in the face of the near-stagnation of both output and order books, running below the rate seen earlier in the year but up marginally compared with June. Minor upturns in the rate of job creation were seen in both manufacturing and services, with the former continuing to see the stronger rate of growth. Staffing levels rose in France and Germany, but fell overall across the rest of the region.
Backlogs of work fell for the first time since November 2009. Although only slight, the decline suggests that headcounts may be reduced in coming months unless inflows of new work revive. Manufacturers reported a steeper drop in outstanding work than service providers.
Price pressures eased during the month. Average prices charged for goods and services rose at the weakest rate for six months, while input price inflation across the two sectors dropped to a 12-month low.

Week Ahead From Markit

India's service PMI by Markit- Fall to 55 from 59.2 --- May 2011

 India's services sector expanded at its slowest pace in 20 months in May as soaring prices and interest rate hikes gnawed at new business growth and reduced the level of optimism ---- Markit

The seasonally adjusted HSBC Markit Business Activity Index, based on a survey of over 400 firms, slipped to 55.0 in May from 59.2 in April, marking its twenty-fifth successive month above the 50 level that divides growth from contraction.

While the latest reading underlines a reasonably solid pace of growth in the services sector, its decline is an indication that continuous rate rises aimed at containing inflation are putting the brakes on India's rapid expansion.

"The easing momentum for business activity and new business is evidence that policy tightening and high inflation is filtering through to growth," said Leif Eskesen, chief economist for India & ASEAN at HSBC.

All sub-indexes saw a fall when compared to April, with the exception of input costs and employment.

New business received by service companies remained strong but the pace of expansion slowed with the sub-index falling to its lowest level since October last year.

Among the sub-indexes, business expectations saw the steepest fall to 67.8 in May from 72.8 in April, as respondents, though confident of the sector's performance over the next 12 months, slightly tempered expectations as economic uncertainty loomed.