Markit Economics released a lot of Manufacturing PMI reports yesterday (2/9), including Japan, China, UK, German, and the Eurozone. We are going to evaluate each index and interpret it in broader sense to gain understanding on the role they play in the fundamentals of several major pairs.

Markit Economics released a lot of Manufacturing PMI reports yesterday (2/9), encompassed leading countries Japan, China, UK, German, and the Eurozone, as well as some of the Fragile Five of emerging markets. The reports reveal some trouble spots in the countries' fundamental economy. In this edition of, we are going to check each leading country Manufacturing PMI drop and interpret it in broader sense to gain an understanding on the role they play in the fundamentals of several major pairs.

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Markit/JMMA Japan Manufacturing PMI 52.2 vs 52.4

Despite of the many negative opinions on Japan economy in the aftermath of April sales tax hike, Markit/JMMA Japan Manufacturing PMI actually only slipped from 52.4 to 52.2, indicating a still expansive business climate. Last week data revealed that household spending fell 5.9% in July and Annualized GDP Q2 2014 shrank -6.8%. Add to that, inflation rate has largely disappointing, slipped from 3.6% to 3.4% in July, as the impact of April sales tax hike waned.

However, there are hopes still for Japan. Quoted by CNBC, Junko Nishioka from RBS last Friday said that labor market continued recovery and the government public spending are encouraging. The two factors are certainly true. The newly released PMI indicates that job creation is maintained, and new business and output growth increases sharply. Amy Brownbill from Markit inferred that the latest data shows some confidence that the negative effect of the higher sales tax seem to be disappearing.

Important point for forex traders: Businesses in Japan are still struggling. Therefore, hopes for improved Japan economy are not likely to be realized soon. The USDJPY possibly will continue to stay around the multi-year high it currently stays in.

HSBC China Manufacturing PMI 50.2 VS 51.7

Just like Japan PMI, China Manufacturing PMI came following a string of disappointing data from the country that erupted even after the government pledged big stimulus package to reignite the economy. China Manufacturing PMI dropped from July's 18 months high of 51.7 to 50.2 in August. It noted weaker expansion of output and new order, as well as intensified job shedding due to cost reduction policies.

Hongbin Qu from HSBC said, Although external demand showed improvement, domestic demand looked more subdued. Overall, the manufacturing sector still expanded in August, but at a slower pace compared to previous months. We think the economy still faces considerable downside risks to growth in the second half of the year, which warrant further policy easing to ensure a steady growth recovery.

Important point for forex traders: Expect lower export and another trade deficit from Australia and New Zealand in the month of August. The two countries has relatively tight trade relations with China, and lags on the country's business climate could possibly influence Australia and New Zealand's external sector. This week, Australia is scheduled to release July data in Wednesday night/Thursday morning. Forecast is already predicted narrowing deficit from AUD -1683 million to AUD -1510 million, which if comes true might help Aussie to strengthen against the USD.

Markit Eurozone Manufacturing PMI 50.7 vs 51.8

Eurozone PMI fell from 51.8 in July to 50.7 in August, as opposed to the estimated 50.8. German Manufacturing PMI is at 11 month low of 51.4, fell from 52 in July. Meanwhile, France PMI degenerated further under 50 with 15-months low record of 46.9, and Italy PMI fall under 50 for the first time in more than a year. Overall, broad-based slowdown seems to spread all over Eurozone. Job losses are recorded in the big three countries. Meanwhile, inflation in the area continue to disappoint, having fallen under 1% in the last 11-months, and end in August on a mere 0.3%.


EuroEuro Area Manufacturing PMI January 2013-August 2014

These underlying circumstances increased pressures on the European Central Bank to do more to curb declines and shadows the next ECB meeting in Thursday. However, analysts are not expecting any action to be taken by the central bank in that meeting. Quoted by BBC, Jennifer McKeown from Capital Economics predict that, While the Bank is unlikely to act at its meeting next week, it is likely to hint that quantitative easing is firmly on the table.

Important point for forex traders: In this kind of business climate, ECB Meeting will likely drown the EURUSD, unless ECB change its tone. There are various ways to do that, including describing a course of action set at later date (which hopefully includes additional stimulus), lower macro indicator forecast, or another interest rate cut.

Markit/CIPS UK Manufacturing PMI 52.5 vs 54.8

UK Manufacturing PMI plunged from 54.8 to 52.5 in August, its lowest level in 14 months. The number means that manufacturing sector is still expanding, but this is the second consecutive drop of the UK manufacturing index. Growth of output and new orders slows although they are still in expansion.

Rob Dobson from Markit mentioned that, UK industry is not immune to the impacts of rising geopolitical and global market uncertainty, especially when they affect economic growth and business confidence in our largest trading partner the Eurozone.

Despite of that, the report also has one good news: employment in the manufacturing sector rises. This should ease Bank of England worries about UK job market, although now they might shift their sight to the productive sector instead to observe whether non-manufacturing sectors follow the neighboring countries' slowdown trend. UK is still on the road to recovery; it is not there yet.

Important point for forex traders: The Manufacturing PMI report provides insight into the most recent UK economy condition. Based on this, we are fairly certain that the BOE will likely remain employing 'wait and see' strategy. In the next BOE meeting, they are expected to uphold the current policy, and so, it might be not influential enough to change the direction of the GBPUSD.