Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: China’s recovery gathers steam. Eurozone still deep in recession. UK sees improvement but still contracting. Brazil close to recession. It is time for the Boris? Paris needs to be given London’s crown says central banker.
China’s recovery gathers steam
The news from China this morning was good.
You may know there are two PMIs, or Purchasing Managers’ Indices, in China. There is the official version and the one produced by HSBC/Markit.
You will probably recall that for China a reading over 50 suggests a rise in growth in the manufacturing sector. Over the last year or so, the two PMIs have been either under or around 50, suggesting the Chinese economy was slowing fast.
This morning both indices for November were published and they were both over 50. The official version rose from 50.2 to 50.6, a seven month high. The HSBC/Markit version rose from 49.5 to 50.5 a 13 month high.
So is that it then? Is China’s downturn drawing to an end?
Frankly, we have been here before. Earlier this year economists were talking about relief over evidence China was avoiding a hard landing. And then along came data suggesting that China’s economy was slowing again.
The fact that the HSBC/Markit measure has hit a 13 month high is good, of course it is. But the recovery appears to be focused on larger companies, which are benefiting directly from government spending.
A sustained recovery requires SMEs to enjoy growth too. And so far the jury is out on whether this is happening.
Eurozone still deep in recession
Meanwhile, the latest PMIs on the euro economy point down.
You may recall that the flash PMI, which is an early estimate, was out a week or so ago, and it was not good at all. Well the full set was out this morning, and it was… the same.
The manufacturing PMI for the entire euro area was 46.2, which was awful and yet stood at an eight month high. Yes, that’s right. 46.2 is well into contraction territory, but such has been the dreadful performance of late that this actually represented an improvement.
Across the region, the PMIs for Austria, the Netherlands, and Italy were down. In Ireland, Germany, France and Greece they were higher than last month.
Only in Ireland, however, is the PMI over 50 – with a score of 52.4. In Greece the index stood at 41.8.
Drilling down, the biggest concerns relate to the Netherlands and Austria – with six and five month lows respectively. The most encouraging news relates to Spain. Although the Spanish Manufacturing PMI stood at just 45.3 in November, this was in fact a 15 month high.
UK sees improvement but still contracting
Meanwhile, the PMI from Markit/CIPS for UK manufacturing rose from 47.3 in October, a three month low, to 49.1. The index has been below 50 for seven months in a row.
David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “The most that we can say about November’s manufacturing performance was that it was simply less bad than the previous month. Although the sector is stabilising, it is still being battered on two fronts – with depressed domestic demand and weak demand from key markets overseas – particularly Europe and the US.”
He added: “Regrettably, until on-going macro issues have been addressed, the situation is unlikely to change dramatically.”
Brazil close to recession
Moving away from PMIs, the latest data on Brazil’s’ GDP was out on Friday – if you are interested the PMI is out later today.
Brazil’s economy expanded by just 0.6 per cent quarter on quarter in Q3, which is an annual rate of 0.9 per cent.
What is disturbing about the figures is that the Brazilian government implemented a huge fiscal stimulus this year, and the central bank cut rates by 5.25 percentage points.
It seems that government spending had a big impact on consumer spending – private consumption was up 0.9 per cent, but investment was down 2 per cent. In other words, Brazil’s imbalances are as serious as ever.
According to Capital Economics, wages have been outstripping productivity for some time now, and households’ balance sheets looks stretched. For Brazil’s growth to pick-up in a sustainable way it needs more investment.
It is time for the Boris?
A new series on ‘Sky News’ kicks off this week. Presented by Ed Conway, it looks at the discrepancy in economic performance across the UK.
Apparently, while the North, the Midlands, Northern Ireland, Scotland and Wales have been suffering from the economic slowdown, in London and the South East there wasn’t even recession this year.
To be honest, this tallies with anecdotal evidence. Wander around London and many towns in the South East and you can’t help but ask what the fuss is about.
Maybe the UK suffers from what’s called the Dutch Disease. It was named after the discovery of North Sea oil pushed the Dutch Guilder up so high that Dutch manufacturing could no longer compete internationally.
Maybe for the UK it has been a double whammy. First there was North Sea oil, now there is London’s rise to pre-eminence. And by the way, if you go to the cinema much, you may have noticed that London is appearing in more films. It even got a short showing in the latest ‘Twilight’ film, not that anyone connected with this article saw it, you understand.
But from vampires to vampire squid, the fact is that the investment banks have helped to catapult London into a position it has not occupied since Victorian times – or perhaps the swinging sixties. And this has pushed up the pound.
But the side effect has been the increasing difficulty faced by traditional industries.
Maybe the UK needs two currencies, a Boris for London and the South East, and a Ken Barlow for the rest of the country.
Paris needs to be given London’s crown says central banker
And finally… manna from heaven. At least it’s manna from heaven if you are trying to write a column such as Bull and Bear.
The Governor of the French central bank Christian Noyer has called for stripping London of its position as the hub of all financial dealings in the euro.
Mr Noyer told the ‘FT’: “We’re not against some business being done in London, but the bulk of the business should be under our control. That’s the consequence of the choice by the UK to remain outside the euro area.”
Up to a point he is right. There are indeed problems associated with trading euros outside of the euro area. For the UK this is a disadvantage of not being in the euro, and in times the markets may elect to choose a financial centre outside the UK.
But this is not Mr Noyer’s decision. It is not up to him to strip London of anything. He couldn’t even if he tried.
And if the markets do decide to migrate their euro dealings away from London, do you think they will choose Paris?
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees