The euro area continues to have momentum. Manufacturing confidence increased to 51.9 from 51.1, exceeding market expectations (51.5) and reaching its highest level since June 2014. New orders increased even more markedly, by 1.3 point, to 52.2, and inventories declining 0.7 point, the resulting gap between the two series, which tends to indicate the pace of demand flows in upcoming months, rose to 5.3 from 3.2 in February, its highest level since April 2014. The regional breakdown shows that Germany led the upside surprise, while the French PMI disappointed and an improvement is expected for Italy, Spain and Ireland.
In the US, the 'flash' manufacturing PMI registered a modest improvement, increasing to 55.3, 1.0 point higher than February but below the market consensus (54.6). The result confirms a reversion of the trend that showed a moderation of the index until January. As a matter of fact, new orders increased 1.8 points, to 56.4; similarly, inventories moved up to 51.0 from 50.7, due to an increase in the gap between new orders and inventories to 5.5 from 3.9. This leaves the door open for further improvements in manufacturing activity in the coming months. On balance, our US economists read the March flash manufacturing PMI positively and are looking to the March ISM release for confirmation of the trend.
Manufacturing sentiment in Asian economies was weaker. In China, the Markit 'flash' manufacturing PMI fell to 49.2 in March from a final reading of 50.7 for February. This is the largest single-month decline in 24 months and leaves the index at an 11-month low. The new order index declined to 50.4 from 51.5 (according to our SAWD adjustment procedure), while inventories fell to 49.4 from 50.4. Therefore, our SAWD-adjusted series of the gap between new orders and inventories declined to 1.0 from the previous 1.1. The deteriorating PMI confirms that the downside risks for China growth that our economists have highlighted have started to materialize. They recently revised down our 2015 GDP growth forecast to 6.8% from 7%, in view of likely weaker-than-expected Q1 growth.
Similarly, in Japan, the headline 'flash' manufacturing index was lower at 50.4 in March, compared with February's 51.4, its lowest level since May 2014. New orders were notably weaker at 49.5 from 51.1 in February, while inventories were higher, moving to 51.0 from 50.1. The gap between these two series turned negative, falling to -1.5 from 1.0 in February. This suggests that Japan could still have further weakening.
Barclays notes....
- Our initial estimate for global manufacturing confidence in March is -0.16, almost the same as in February (-0.15). However, the result shows a divergence between the main Asian and western economies.
- The weak performance in China and Japan was offset by better results in the euro area and the US. The new orders global aggregate index registered a modest improvement, to -0.22 from -0.37.
- Meanwhile, inventories declined, especially in China and Europe, leading to an improvement in the global difference between new orders and inventories, which, despite remaining in negative territory, moved up to -0.29 from -0.44. This implies that manufacturing confidence may have passed its bottom and should improve in the coming months.
