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Chinese manufacturing activity contracted for the first time since September 2012 in January with the NBS PMI gauge slipping to 49.8. The reading was below the 50.1 level of December and expectations for an acceleration to 50.2 with weaker readings for output, new orders, export orders, imports, inventories, employment and the overall business outlook overriding mild improvements in order backlogs and delivery times. While not as weak as the manufacturing gauge service-sector activity also decelerated with the services PMI reading sliding to 53.7 from 54.1, the lowest level seen since January 2014.

US economic growth fell short of expectations in Q4 with an annualised rate of 2.6% reported. The reading was below the 5.0% pace of Q3 and expectations for a slowdown to 3.0% with higher imports, a fall in federal government spending, along with slower export and non-residential fixed investment growth, overriding an acceleration in inventories and consumption. Adding to calls for a less-aggressive monetary policy tightening schedule from the US Federal Reserve core PCE inflation, the FOMC’s preferred gauge on measuring prices pressures, decelerated to 1.1% from 1.4% in Q3. While a disappointing GDP release given it is only the advanced reading, something that is largely based on estimates and limited inputs, it will be interesting to see how the figure evolves as further information arrives in the weeks ahead.

Business conditions across Chicago and surrounds continued to improve in January with the ISM’s PMI gauge rising to 59.4. The reading, higher than the 58.8 level of December and expectations for a decline to 57.5, was led by improvements in new orders, order backlogs and an acceleration in production.

US consumer sentiment was revised lower for January with the final reading of the Thomson Reuters-University of Michigan consumer confidence survey falling to 98.1. The reading was 0.1pts below the flash estimate of 98.2 released earlier in the month with an upward revision to the current conditions measure, 109.3 from 108.3, failing to offset a downward-revision to expectations which slipped to 91.0 from 91.6.

Canada’s economy contracted unexpectedly in November with a decline of 0.2% reported. The fall, the steepest recorded since December 2013, was below the 0.3% expansion of October and expectations for no change overall and left the annual rate at 1.9%, down from 2.3% seen previously.

Eurozone consumer prices deflated at the equal-fastest pace on record in January with an annual contraction of 0.6% reported. The reading was below the 0.2% decline of December and expectations for an acceleration to -0.5% and was the lowest level seen since July 2009. While not as severe as the headline rate core inflation, that which excludes energy and unprocessed food, slipped to 0.5% from 0.7% in December. While not a great outcome there was some better news on the labour market front with the official unemployment rate falling to 11.4% from 11.5% in November.

German retail sales rose 4.0% in the year to December, a result that was ahead of both the 1.0% contraction of November and expectations for an increase of 3.5%. Adding to that result French consumer spending advanced by 1.5% in December, well ahead of expectations for a gain of 0.2%, with the figure the sharpest month-on-month increase seen since February 2012.

Having hit an all-time record high in the previous month Italian unemployment plummeted in December with a decline to 12.9% reported. The reading was well below the downwardly-revised 13.3% rate of November and expectations for an increase to 13.5%. While still a poor reading, in what is at least a positive sign, the decrease was the first recorded since June 2014.

French and Italian producer prices continued to tumble in December with monthly declines of 0.9% and 0.7% reported. In annualised terms French prices have now fallen 2.9% with those in Italy falling by a smaller 1.8%.

Spanish Q4 GDP expanded by 0.7% in Q4, the fastest pace of growth seen since before the global financial crisis. The increase was higher than the 0.5% level of Q3 and expectations for an acceleration to 0.6% and left the annual rate at 2.0%, up from 1.6% seen previously.

UK consumer credit expanded at far slower pace in December with an increase of £578m reported. The reading was below the £1.233b figure of November and expectations for a decline to £1.2b and was the slowest monthly expansion recorded since November 2013. Mirroring the moderation there housing credit also slowed to £1.612b from £1.915b. While below expectations for an expansion of £2b mortgage approvals accelerated to 60,275 from 58,956 in November.

Having hiked interest rates from 9.5% to 17% in December in an attempt to stabilise the rouble Russia’s Central Bank cut rates by 2% to 15% at their January policy meeting. The reduction was not expected by the markets and was in response to an expected reduction in the medium-term inflation outlook. With Russian government debt no longer deemed to be investment grade and massive fluctuations occurring in the rouble on a daily basis, it’s literally anyone’s guess as to whether or not this will actually occur.

 

Monday’s Session Ahead (AEDT)

The ASX 200 will do well to make it 8-consecutive gains in a row tomorrow with SPI futures pointing to a fall of 24pts on the open. The late sell off seen on Friday, coupled with the weak China PMI gauge released Sunday, suggest the falls could well be more than what futures currently suggest. If there is to be turnaround it will likely be led by stimulus hopes, either for  a rate cut from the RBA on Tuesday (although markets largely have this priced) or further easing measures from the PBoC in China.

The AUDUSD finished last week buying .7766. Following the release of weak Chinese data over the weekend it’s likely that the pair will be under early selling pressure.

Australian data releases tomorrow include the AIG performance of manufacturing index (0930) along with the TD-MI inflation gauge for January (1030). Elsewhere in the region we’ll also receive manufacturing PMI gauges for China, Japan, South Korea and India along with Hong Kong retail sales.

Manufacturing activity gauges dominate the economic calendar Monday evening with PMI readings from the US, Canada, Eurozone and UK all scheduled for release. Elsewhere we’ll also receive consumption and incomes data, core PCE inflation along with construction spending figures from the States.

 

Market Map Feb 1 2015

 

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