It seems like the earliest impacts of the new trade order are here with us. Earlier today, data from Japan showed that the country’s manufacturing sector recorded the slowest growth in 20 months in July. The data from Nikkei showed that the manufacturing PMI for July was at 51.6, which was lower than the expected 53.2 and the June’s data of 53.0. This was an indication that the activities in Japan were slowing down as the third quarter started.
Japan is mostly a manufacturing industry with sectors like high technology, fashion, and chemicals forming a larger share of the economy. The country derives most of its income on exports, with companies like Toyota being a major factor of the economy.
Today’s PMI of 51.6 brought the number closer to the 50 mark which is the critical factor for PMIs. If the current trade rhetoric continues, the number could continue moving lower. The implication is that the Bank of Japan (BOJ) will continue holding the interest rates at the historic low levels. This is because raising interest rates during a period of low economic activity would be undesirable.
After the data was released, the USD/JPY pair was little moved as traders waited for the US GDP numbers which are expected to be released on Thursday. Remember, just last week, the US president attacked the Fed for raising rates while other central banks were reluctant to raise.
The manufacturing PMI story was different in France where the data showed an increase in manufacturing activity in July. The PMI data from Markit Economics showed that the PMI was at 53.1, which was higher than the expected 52.6. In June, the PMI was at 52.5. This data ends a downward trend that started in December when the PMI hit 58.9. The negative data was in services. The PMI in services in July was at 55.3, which was lower than the expected 55.7. These PMI data measures the activities of the purchasing managers. A rise in activity means that the managers are increasing their purchases, an indication that they are doing well.
The positive manufacturing data was repeated in Germany. The PMI in the EU’s largest economy grew to 57.3 in July, which was better than the expected 55.5 and last month’s 55.9. This was a good news for a country which has had a difficult year so far. Its chancellor has been in conflict with her American counterpart. She also faced a major challenge with her coalition partners.
Like in France, then PMI had a challenge in the services sector. The PMI for the services industry grew by 54.4, which was lower than the expected 54.6. Nonetheless, the services industry in Germany is slightly lower than the manufacturing industry.
Combined, the EU manufacturing PMI was also positive. The data showed that the manufacturing activity in the region rose to 55.1, which was higher than the expected 54.7. It was higher than last month’s 54.9. As with Germany and France, the services PMI of 54.9 missed the analysts’ forecast of 55.0. After the data was released, the Euro jumped against the dollar and other currencies because it showed an improving manufacturing sector.
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