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Daily Agenda: Global Manufacturing Remains Weak

Repsol announces major acquisition in Canada; ruble plunges to new lows; European numbers show slight improvement.

It’s manufacturing purchasing manager index (PMI) day in many economies, with more signs that a global slump is extending through the last few weeks of the year. In China, HSBC initial December manufacturing PMI levels fell for the second consecutive month, registering at 49.5. Any reading below 50 for the index indicates a contraction. Following weak monthly inflation, trade and investment data from the National Bureau of Statistics of China last week, these latest factory activity figures call into question the attainability of official gross domestic product targets for the year. To date, targeted liquidity actions by the People’s Bank of China have failed to stem the pace of slowing industrial activity and consensus forecasts among economists are for fresh measures from the central bank in the first quarter of next year. In Europe, Markit manufacturing PMI for the euro zone’s primary economies were mixed, with French factories falling further into contractionary territory and a rebound in activity in Germany after a weak final November reading. Aggregate composite levels rose modestly with a manufacturing specific index reading of 50.8. For now, the industrial sector offers a silver lining for global growth prospects.

Repsol makes a Canadian play. Repsol, Spain’s largest energy company, announced an agreement today to acquire Canadian based Talisman Energy for $8.3 billion. The merger, which provides a 60 percent premium for Talisman shareholders over the prior month’s average trading level, is a major move in the Spanish company’s push to rebuild its international reserves after Repsol’s assets in Argentina went nationalized.

Oil and the ruble continue their slides. In trading this morning West Texas Intimidate grade crude oil futures fell below $55 per barrel for the first time in five years, while the Russian ruble plunged to more than 70 to the U.S. dollar, a one-day decline in excess of 8 percent. With global energy markets under pressure and the increasing likelihood that Russia may ultimately face a financial meltdown due to outflows, more analysts are drawing parallels between the current emerging-markets set-up and the 1997–’98 crisis.

U.K. prices remain low. Consumer and producer price inflation released by the U.K. Office of National Statistics today reached multiyear lows with costs at the cash register falling to an annualized 1 percent for November versus a prior 1.3 percent, the lowest level since 2002. With energy costs remaining subdued on weak oil prices, consensus forecasts are for no significant change for the month as Bank of England governor Mark Carney continues to hold rates at historically low levels. Separately, the Bank of England today published its biannual financial stability report, which includes concerns about the threat posed to U.K. growth by still-vulnerable European economies.

European data show modest improvement. Aggregate euro zone ZEW economic sentiment numbers slipped sharply for the month while Germany-specific sentiment rebounded, an divergence that mirrored today’s Markit PMI releases. Trade balance data for the 18-nation euro zone saw the monthly surplus rise to €24 billion ($29.9 billion) in October, as lower oil costs continue to moderate import levels.

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