Euro zone manufacturing growth improves in December

The Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) slipped to 48.2 in December, below market expectations for a slight pick-up to 49.0 and down from November’s 48.6. The European Central Bank has so far failed to get inflation anywhere near its 2 percent target ceiling despite ultra-loose monetary policy and the sub-50 output price index will increase pressure on the Governing Council to ease further. The non-manufacturing PMI rose to 54.4, from 53.6 in November.

“The figures showed signs of stabilization in China’s economy”, said Zhang Liqun, analyst with the China Federation of Logistics and Purchasing.

The increase reflects expansions in, among other things, production, new orders and employment.

The bleak Caixin PMI came on the back of China’s official PMI data, which showed a reading of 49.7 in December, up slightly from the 49.6 registered in November which was a three-year low.

“The drop in the PMI was broad-based, with consumer, intermediate and investment goods producers all reporting declining growth in output”. Incoming new work has also contracted for the first time since October 2013.

“Falling commodity prices gave manufacturers scope to cut their output charges further, which they will hope will support continued growth in new orders early in the New Year”, Markit economist Jack Kennedy said.

Despite being modest, the rate of expansion was the quickest since August. For this reason, expect FXI to continue trending lower in 2016, making it an attractive short position at current levels.

While traditional low-priced manufacturing ran out of steam, high-tech manufacturing bucked the trend.

New orders decreased at a marked rate and one that was stronger than the average over the current ten-month sequence of contraction. “That said, the rate of job creation was little-changed from the marginal pace seen in the previous month”, the release said. Ending a 25-month sequence of growth, production plummeted in December.