Global factory check-up to reveal extent of 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 up-tick in a global index of manufacturing — to the highest level since mid2022 — 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.
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 percent.
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 percent target.
On Wednesday, the Fed will release the minutes of its Jan. 30-31 policy gathering, at which officials left borrowing costs unchanged and signalled that a cut wasn’t likely at the March meeting. Further north, Canada’s consum- er-price growth is expected to have inched down to a yearly 3,3 percent rate from 3,4 percent 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.