Global factory check-up is about to reveal extent of nascent recovery

Connie Queline

Global factory check-up is about to reveal extent of nascent recovery

Manufacturing will get a temperature check from closely-watched measures of activity for Europe and Asia, an opportunity to gauge whether a nascent recovery in factory output is gaining traction.

A recent uptick in a global index of manufacturing — to the highest level since mid-2022 — has spurred expectations the sector has reached a turning point after a broad consumer shift away from purchases of goods in favour of services.


“We believe that manufacturing activity has troughed and should improve on the back of resilient global growth and the arrival of central bank rate cuts in 2024,” Goldman Sachs Group economists led by Jan Hatzius wrote in a note.

Purchasing managers indexes are due in the coming week for the UK, euro zone and Japan. While still projected to remain in contraction territory, economists expect a modest improvement in the February PMIs for the euro zone and the UK.

“The Covid pandemic created big swings in the manufacturing cycle, with the pendulum swinging from a huge boost in goods demand to a subsequent bust,” economists at Danske Bank wrote earlier this month. “We now believe the pendulum is starting to swing back, supported by a turn in the inventory cycle and a moderate improvement in goods demand.”

Still, in a sign that the industrial sector remains under pressure, US factory production decreased in January for the first time in three months, reflecting declines in the output of motor vehicles, machinery and metals. S&P Global’s index of US manufacturing in February is seen coming close to stagnating.

Elsewhere, the Federal Reserve and European Central Bank publish minutes of their January deliberations, European finance chiefs meet in Belgium, and monetary policy authorities in Turkey, South Korea and Indonesia are predicted to keep interest rates unchanged.

US Economy and Canada

The US economic data calendar is sparse this holiday-shortened week. In addition to February manufacturing and services figures from S&P Global, the National Association of Realtors on Thursday will release data on sales of previously owned homes. Economists forecast a modest increase in closings as mortgage rates remained below 7%.

Investors will monitor comments from Federal Reserve officials including Vice Chair Philip Jefferson and governors Lisa Cook and Christopher Waller, among others, to gauge the appetite for rate cuts in the wake of strong inflation data.

Many policymakers, including Chair Jerome Powell, have said they’re not in a rush to start lowering rates until they’re convinced that inflation is on a sustainable path back to their 2% target.

On Wednesday, the Fed will release the minutes of its Jan. 30-31 policy gathering, at which officials left borrowing costs unchanged and signaled that a cut wasn’t likely at the March meeting.

Further north, Canada’s consumer-price growth is expected to have inched down to a yearly 3.3% rate from 3.4% in January. The hotter-than-expected US inflation print already pushed back market bets on rate cuts by the Bank of Canada, with a first move now fully priced in by September. Markets will keep an especially close eye on the core figure.

Data on Canadian retail trade for December and a flash estimate for January are also due.


The Year of the Dragon gets underway in China, with markets looking for help via rate cuts or liquidity injections. The People’s Bank of China disappointed on Sunday, opting to keep its one-year policy rate steady to keep a floor under the yuan after US CPI data cooled expectations about a near-term rate cut by the Fed.

Commercial banks are forecast to trim their benchmark lending rates two days later, with the 5-year loan prime rate expected to slip to 4.10%.

Meanwhile, Chinese travel and spending during the Lunar New Year holiday exceeded levels from before the pandemic, adding to signs that consumption in the world’s second-largest economy is improving.

Elsewhere, the Bank of Korea will probably stand pat on policy, with a focus on how dovish officials sound after inflation slowed more than expected in January.

The Bank of Indonesia is seen holding its benchmark rate steady to maintain support for the rupiah, while the Reserve Bank of Australia releases minutes from its February meeting — where its tone was surprisingly hawkish.

Thailand’s GDP growth probably accelerated year-on-year in the fourth quarter. Australia gets wage data that may show growth picking up again. Japan, South Korea, Malaysia and New Zealand see trade figures, and Singapore, Hong Kong and Malaysia report consumer inflation data.

Europe, Middle East, Africa

ECB data on Tuesday will show whether growth in negotiated wages eased from a record high at the end of 2023. Policymakers are highly focused on workers’ pay as they debate whether to start cutting rates in April or June. Consumers’ inflation expectations for the euro area are due on Friday.


An account of the ECB’s January policy meeting due on Thursday will be parsed for more insight into the governing council’s thinking. Additional comments may emerge from a gathering of euro-area finance ministers and central bankers in the Belgian city of Ghent at the end of the week.

Financial statements from the ECB and the Bundesbank due Thursday and Friday will probably show pressure on their bottom lines resulting from their rapid rate-hiking campaign.

Germany’s monthly Ifo survey isn’t predicted to brighten the mood as business confidence is seen hovering around the current low level. That may feed expectations that Europe’s biggest economy is headed for a another contraction in the first quarter.

Outside of the currency bloc, UK Parliament’s Treasury committee questions Bank of England Governor Andrew Bailey and his colleagues on inflation and interest rates. Swedish inflation data is about to reveal a rebound in January while Denmark publishes figures on fourth-quarter growth. Further east, Poland is expected to report improving consumer confidence and industrial output.

In the Middle East, Israel releases gross domestic product numbers for the fourth quarter on Monday, a period almost entirely shaped by the war against Hamas. Analysts estimate the economy contracted around 15% year-on-year as the government called up hundreds of thousands of military reservists and consumer spending slumped.

Two days later, in South Africa, Finance Minister Enoch Godongwana will deliver his budget speech. With revenue collection undershooting targets, and demands growing on the public purse ahead of elections later this year, it will likely be his toughest spending plan yet. Investors will watch to see if he taps foreign reserves and raises taxes to close the funding gap and rein in debt.

On the same day, data will likely show inflation quickened for the first time in three months in January, to 5.3%, amid higher gasoline prices. The rate is currently at 5.1%.

A day later, Rwanda is set to hold its key rate at 7.5%, with inflation back within the central bank’s 2% to 8% target band since December.

In Turkey, the central bank will make its first rate decision under new Governor Fatih Karahan. Analysts expect him to follow the guidance of the MPC at the previous meeting, which signaled that an aggressive period of monetary tightening since June was over. The key rate will probably be kept at 45%.

Latin America

Brazil’s economy has been slowing since the first half of 2023 but GDP-proxy data for December on Monday may show a slight year-end uptick. Analysts surveyed by Brazil’s central bank expect Latin America’s biggest economy to grow 1.6% in 2024, down from a forecast 3% expansion last year.

By contrast, activity figures from Argentina may show the steepest month-on-month contraction since the pandemic as President Javier Milei begins to deliver on his promised “shock therapy” for South America’s No. 2 economy, which is seen shrinking for a second year in 2024.

In Mexico, the final fourth-quarter output report, February mid-month consumer prices data and Banco de Mexico’s Feb. 8 meeting minutes are the standouts from a raft of data and reports due over the coming week.

The post-decision communique of the meeting — where Banxico kept its key rate at 11.25% — appeared to put a cut on the table for the March meeting provided data in the meantime was supportive.

All of which is to say that there’ll be considerable focus on the bi-weekly CPI report. The early consensus is for a slight deceleration in the headline print from 4.87%, while the core reading down-shifts from 4.75%.

The central banks of Uruguay and Paraguay have both been cutting rates since mid-2023 but a recent uptick of inflation may give policymakers pause at their respective meetings.

© 2024 Bloomberg


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