Global Growth a Drag on Manufacturing Sector

It should be another interesting week in financial markets with a large amount of economic data being released and a couple of central bank decisions thrown in for good measure, including that of the Bank of England on Thursday. The most eagerly anticipated event though comes Friday as the U.S. releases the October jobs report, one of only two that will come before the Fed’s final monetary policy decision of the year.

The week gets underway with a raft of manufacturing data from across Europe and the U.S., following China’s lead over the weekend whether both official and Caixin manufacturing PMIs showed the sector remains in contraction. The official PMI showed new export orders contracting for a 13th consecutive month which is consistent with the cooling global growth that we’ve been seeing but the more worrying thing is that the domestic economy isn’t doing enough to pick up the slack. The PBOC recently announced another batch of stimulus measures but with the data continuing to point to slower growth, more is likely to be needed.

The manufacturing PMIs from Europe aren’t likely to make for much better reading today, although they do at least suggest the sector is experiencing growth, albeit weak and from a low base following a very tough period for the eurozone.

Manufacturing in the U.K. has been cooling for some time now and continues to face difficulties including sluggish growth in the eurozone – the U.K.’s largest trading partner – and the strong pound which makes them less competitive. We saw in the last quarter that along with construction, manufacturing was a drag on the economy and today’s release – seen falling to 51.3 from 51.5 – suggests that is unlikely to change. With the Bank of England still exploring the possibility of a rate hike as well which could strengthen the pound further, the manufacturing industry may continue to face strong headwinds.

The story is expected to be very similar in the U.S., which has also experienced a significant slowdown in the sector over the last year. In fact, the PMI reading is expected to have fallen to 50 which suggests the sector has experienced no growth. While this is likely to weigh a little on the U.S. economy, it is worth noting that as in the U.K., the manufacturing sector is quite small in the U.S. and is therefore unlikely to be a major drag.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.