China was again the epicentre of Asian disappointment. The official
measure of manufacturing fell to its lowest since mid-2012. The
weakness also encompassed such bellwethers of high-tech trade as
South Korea and Taiwan.
Manufacturing growth also slowed in the euro zone at the start of
2016. Incoming orders showed no meaningful increase, even though
companies cut prices at the deepest rate for a year.
British factories did enjoy a faster start to the year than
expected, but companies cut staff at the fastest rate in three years
and export orders fell despite a weaker sterling <GBP=>.
"It wasn't the best start to the year, but it wasn't awful. Markets
are pricing in a worst-case scenario and we are not seeing that
yet," said Peter Dixon, an economist at Commerzbank.
Stock markets, commodities and oil prices have been battered since
the start of the year by concern the Chinese economy, the world's
second largest, is struggling.
Such concern has eroded expectations for how fast the Federal
Reserve will raise U.S. interest rates, after its first increase in
almost a decade in December. Forecasts for Bank of England
tightening have also been pushed well back.
A dearth of demand and resulting downward pressure on inflation was
why the Bank of Japan felt moved enough to cut interest rates below
zero last week.
Meanwhile, having failed to get inflation anywhere near its target -
and with demand so low - the European Central Bank is likely to cut
its deposit rate in March, and possibly increase its monthly asset
"It's less to do with what is happening with the real economy and
more to do with inflation. It's more of an inflation story than a
growth one," Dixon said.
Markit's manufacturing Purchasing Managers' Index for the euro zone
will bolster those expectations. It sank to 52.3 from December's
53.2, in line with an earlier flash estimate and above the 50 mark
that separates growth from contraction.
January's weakening came as companies offered steep discounts on
their goods. A sub-index measuring output prices plummeted to its
lowest reading since January 2015.
Consumer prices rose just 0.4 percent last month on a year earlier,
official data showed on Friday, nowhere near the ECB's target of
close to but just below 2 percent.
Monday's data foreshadow a U.S. survey later in the day. A
contraction in manufacturing is expected, although a strong outcome
from the Chicago region last week suggests the result may beat
Markets got February off to a cautious start after a rocky January,
as expectations of more cheap money from some of the world's top
central banks were validated by the fresh signs of weak global
[to top of second column]
The official version of China's PMI survey for manufacturing slipped
to 49.4 in January from 49.7 the month before, missing forecasts of
49.6. The services index also disappointed, challenging hopes
consumption would take over from industry as the driving force.
A private survey, the Caixin/Markit China Manufacturing PMI,
underscored the trend by showing factory activity shrinking for an
Japan's results were more encouraging. Its factory barometer slipped
only a tick to 52.3 in January as exports picked up. The gains in
exports relied on a weak yen, hinting at another reason the BOJ
acted so boldly when easing policy last week.
India also recorded an unexpected return to growth. Its erratic PMI
jumped to a four-month high after slumping to a 28-month low in
Other countries in the region were not so fortunate. South Korea's
manufacturing index slipped into contraction. Its exports suffered
their sharpest annual fall since August 2009.
China is South Korea's largest market, taking about a quarter of its
exports. Smartphones, cars, semiconductors and flat-screen displays
all fell in January, boding ill for the companies that usually prop
up the economy.
The story was much the same for another electronics hub, Taiwan,
where factory growth slowed amid lacklustre demand.
Steep falls in selling prices and input costs also underlined the
risks of deflation across the region and the need for yet more
"Shipments being this weak means a recovery in consumption is
urgently needed. If you look at the economy as a whole, this might
boost the need for policy easing," said Lee Sang-jae, chief
economist at Eugene Investment & Securities.
(Editing by Larry King)
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