An October rise in the “flash” manufacturing PMI produced by private research firm Markit suggests that the Chinese economy is slowly regaining momentum, consistent with faster real M1 expansion since the spring – see previous post. The key new orders index remains below the supposedly “breakeven” 50 level (49.7) but similar readings historically have been associated with respectable industrial output expansion – see first chart. (The “official” PMI produced by the National Bureau of Statistics – regarded here as more authoritative than the Markit version – will be released at the start of November.)
The scenario of a turnaround in China lifting regional activity is supported by a sharp fall in the proportion of Asian equity analysts downgrading company earnings forecasts in September and October – analysts should reflect firms’ own views about the sales / profits outlook. The “revisions ratio” (i.e. the net proportion of forecasts upgraded over the month) for companies in the MSCI Far East excluding Japan index reached a 19-month high in October, suggesting a reversal of recent weakness in industrial output – second chart.
There was less promise in Eurozone flash PMI and German Ifo surveys for October also released today – headline measures undershot expectations. The Eurozone manufacturing new orders index, however, is holding just above a low reached in May, while Ifo manufacturing expectations rose marginally, breaking a five-month string of declines – third chart. Solid German real money growth continues to suggest that industrialists’ angst is exaggerated and the economy will improve significantly by early 2013 – fourth chart. (September money numbers are due for release tomorrow.)
The UK CBI manufacturing survey for October was mixed but on balance encouraging, with the expected output balance at its highest since April 2011 – fifth chart. (Such expectations are a better leading indicator of activity than order books, which weakened sharply.) Price-raising plans, however, rebounded, signalling a probable reacceleration of CPI goods inflation into early 2013 – sixth chart.