Turning up?

By Mike Peacock
September 2, 2013

Manufacturing PMI surveys for euro zone countries and Britain will be the latest litmus test of the durability of fledgling economic recoveries.

Even the readings from Spain and Italy have shown improvement over the summer so it may well be that they are the most interesting given we’ve already had flash readings for the euro zone, Germany and France which showed business activity across the currency bloc picked up faster than expected in August.

Having exited recession in the second quarter, further euro zone growth now looks likely in the third.
Britain’s recovery looks more solid still following a 0.7 percent leap in GDP in Q2. Its PMI will be augmented by Bank of England figures on its funding for lending scheme, whereby banks are offered cheap money on the proviso they lend it on to smaller companies.

Bank lending remains constrained but generally improves once economic recovery is underway rather than leading it.

China’s PMI, released earlier, showed factory activity expanded for the first time in four months on the back of stronger domestic demand. With the United States enjoying Labor Day holiday, its equivalent report is not due until tomorrow. A data-heavy week in the U.S., culminating in non-farm payrolls on Friday, will go a long way to deciding whether the Federal Reserve will begin easing back on its money-printing programme this month.

That prospect has caused an extreme level of emerging market turbulence since May but are the BRICS now on the move? Well, up to a point Lord Copper.

Last night, they declared that a proposed development bank with $50 billion in capital had been agreed although Moscow said it would take many months yet before the details were settled, including who pays in what.

More broadly, with some emerging economies battered by the prospect of U.S. money-printing drying up, there is little sign of common purpose. On Friday, India said it was seeking coordinated intervention in offshore foreign exchange after the rupee dropped 20 percent against the dollar in the past three months.

But Brazil rejected outright involvement in any intervention and other major emerging economies, including Russia, would not comment. The BRICS leaders will meet informally at the G20 St. Petersburg summit later in the week.

That summit will inevitably dominated by Syria but there’s a lot more besides. Canadian officials said emerging market volatility – now most acute in India – was definitely on the agenda and said it was not just down to the Fed.

Over the weekend, partly for electoral purposes, Angela Merkel said she would push the G20 to make progress on regulating financial markets and tackling tax avoidance. Germany, however, appears to have lost its battle to agree binding new debt goals for the world’s most important nations. Instead the focus will be on fostering more growth.

Merkel’s only television clash with SPD opponent Peer Steinbrueck ahead of Sept. 22 elections does not appear to have produced a game-changing moment.

A poll conducted after the debate gave Steinbrueck the edge, with 49 percent of respondents saying he won and 44 percent backing Merkel. That is unlikely to derail her. The big question is what form of coalition she is likely to lead.

Stock markets are on the up after the robust Chinese data and in response to Barack Obama delaying any military strike against Syria.

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