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10 August 2020

Global Markets Record Manufacturing Rebound

James Rowbury, Investment Research Coordinator, Redmayne Bentley

The release of the latest manufacturing Purchasing Managers’ Index (PMI) figures, encouraged a strong start to August in global markets. As economies around the world maintained a path to recovery, some continued to show signs of a struggle, underlining the critical impacts of the pandemic.

As part of the UK’s economic recovery plan from Coronavirus, the government has announced a new investment which will involve over 300 projects in order to build homes, infrastructure and create new jobs. The projects will receive part of the £900m Getting Building Fund, first announced by the Prime Minister in June. The investment is to create up to 85,000 jobs, provide up to 45,000 homes and reduce 65 million kilogrammes of CO2 emissions. The funding will “give a much-needed boost” to the UK’s economic recovery and will provide affordable and good-quality homes, states Housing Secretary, Robert Jenrick. 

As Coronavirus lockdown measures eased and factories reopened, at least in some areas, the UK’s manufacturing activity grew at its fastest rate in nearly three years in July. The seasonally-adjusted IHS Markit/CIPS PMI surged to 53.3, up from 50.1 in June; this was just below the earlier estimate of 53.6. The Eurozone also saw an improvement as the manufacturing PMI rose to 51.8% in July, beating estimates of 51.1. IHS Markit highlighted a 27-month PMI high for Spain, a 25-month high for Italy and a 22-month high for France. Also seeing an improvement in manufacturing activity was the US, as figures showed a PMI of 50.9 points in July, up from 49.8 in June. However, this did not meet the estimate of 51.3.

Meanwhile, as the government relaxed guidance regarding working from home, workers across the UK have slowly been returning to offices. Since the announcement, in London, footfall was only 2% higher, reflecting how the number of visitors and office workers remained low. The overall footfall is 68% lower compared to this time last year. The Prime Minister encouraged companies to allow staff back into offices in order to help the struggling hospitality sector and increase activity in city centres. Nevertheless, many companies, such as NatWest, have announced that most of their staff will not return to offices until 2021.

In Japan, the business activity index reached 45.4 in July, up slightly from 45.0 in June. The minor increase indicates a tentative turnaround from the economic disruption caused by the pandemic. Following a survey, 21% of business owners reported an expansion in business activity whereas 26% reported a drop. The growth reported by the minority was driven by a gradual recovery in domestic demand, as the country lifted the state of emergency. Nevertheless, Japan’s PMI is still under the 50 mark at 44.9.

Meanwhile, as the Chinese economy continues to recover from the Coronavirus pandemic, the services sector remained in growth during July. The seasonally-adjusted business activity index was slightly down in July, recording 54.1, down from 58.4 in June. Nevertheless, the figures are above the 50.0 mark suggesting there has been growth rather than decline. The nation’s PMI came in at 54.5 in July, showing a slight drop from 55.7 in June.

Elsewhere, controversy surrounded US President Donald Trump’s approval of Microsoft buying the social media app TikTok. In an unprecedented move, he now wants a cut of the deal for the US Treasury, in exchange for approving the acquisition. The White House could ban TikTok for all American users if an acquisition deal does not take place by 15th September. The new deadline and the request for a payment have added further pressure on both parties to agree on all the technical details involved in the complex deal. The President suggested that Microsoft should buy 100% of the business rather than 30%. Talks could result in Microsoft purchasing TikTok’s service in the US, Canada, Australia and New Zealand. Over the last week the company has gained 6.75%, boosting investor sentiment.

Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. Past performance and forecasts are not reliable indicators of future results or performance. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned.
Global Markets Record Manufacturing Rebound
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