Macro Roundup (Aug 2)

SHANGHAI, Aug 2 (SMM) – This is a roundup of global macroeconomic news last night and what is expected today.

Last night

The US dollar index inched up to 94.7 overnight after the Federal Reserve concluded a two-day meeting on monetary policy and kept interest rates unchanged. The decision on interest rates was widely expected, but the central bank upgraded its view on the economy, calling it "strong".

Both LME and SHFE base metals fell across the board overnight. LME nickel plunged 4.8%, copper and zinc tumbled over 3% with aluminium, tin and lead down over 1%. SHFE nickel tumbled 2.9%, copper fell 1.5%, zinc lost 1.23%, aluminium shed 0.96%, lead edged down 0.62% and tin dipped 0.22%.

China’s Caixin manufacturing purchasing managers’ index (PMI) declined to 50.8 in July from June’s 51.0, lower than the expected 51. A reading above 50 indicates expansion, while a reading below that signals contraction.

The country’s economic activity fell to an eight-month low for July as new export orders fell at the steepest pace in more than two years. Manufacturing output and new business growth slowed in July from June, which drove companies to continue to cut employment.

Eurozone Markit’s July final manufacturing PMI only nudged up to 55.1 from June’s 18-month low of 54.9, unchanged from an initial reading and still above the 50 level that separates growth from contraction.

“A marginal uptick in the PMI provides little cause for cheer given it is the second weakest number for more than one-and-a-half years. Worse may be to come,” said Chris Williamson, chief business economist at IHS Markit. “The survey responses indicate that the slowdown likely reflects worries about trade wars, tariffs and rising prices, as well as general uncertainty about the economic outlook,” he added.

Private payrolls in the US increased by 219,000 in July, more than the expected 186,000, ADP and Moody's Analytics said on Wednesday. Job growth in July was also revised up to 181,000 from 177,000.

"The job market is booming, impacted by the deficit-financed tax cuts and increases in government spending," said Mark Zandi, chief economist of Moody's Analytic. "Tariffs have yet to materially impact jobs, but the multinational companies shed jobs last month, signalling the threat."

US Markit manufacturing PMI dropped to 55.3 in July from June’s 55.4, slightly lower than the expected 55.5.

Williamson said: “The US manufacturing sector continued to expand in July, but shows increasing signs of struggling against headwinds of supply shortages, rising prices and deteriorating exports.

"The latest survey showed output rising at a rate roughly equivalent to an annualised 1% pace of expansion, which is the weakest since late last year. While a weakening of new export orders for a second successive month suggested foreign demand has waned compared to earlier in the year, the slowdown can be also in part attributed to increased difficulties in sourcing sufficient quantities of inputs. Suppliers’ delivery delays were more widespread than at any time in the survey’s history. With producers often scrambling to buy enough raw materials, suppliers enjoyed greater pricing power. Not surprisingly, with tariffs also kicking in, cost pressures spiked higher again.

"Some relief for manufacturers came from strong domestic demand, which meant firms were increasingly able to pass higher costs on to customers. Average prices charged for goods consequently rose at the steepest rate for seven years, which is likely to feed through to higher consumer prices in coming months."

Meanwhile, the Institute for Supply Management’s July manufacturing index for the US was 58.1, below expectations of 59.5 and July's 60.2.

The US crude oil inventory grew by 3.8 million barrels over the week ended July 27, data from the Energy Information Administration (EIA) showed. Inventories of refined oil inventory also sharply rose 2.98 million barrels while gasoline stocks decreased by 2.54 million barrels over the week.

Day ahead

Key factors to watch today will be US initial jobless claims last week, factory orders and durable goods orders in June.