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Manufacturing Provides Relief For The US, Not China

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What's going on?

Surveys of global manufacturing activity were released on Tuesday and the results were illuminating, especially for China and the US – but in different ways!

What does this mean?

Manufacturing is the production of goods (essentially stuff made in a factory, like heavy machinery). In the US, activity still declined (which is bad), but it declined a lot less than it has in previous months. That’s consistent with other recent data that suggests US manufacturing might be rebounding.

However, in China, the data was worse than expected. To counteract the weakness, investors expect that the government will take further efforts to stimulate the economy (like yesterday’s announcement that it’s encouraging more lending by banks).

Why should I care?

The bigger picture: We await confirmation that the US economy is indeed improving. On Thursday, we will get data on “services,” which make up about two-thirds of the US economy. That sector has been showing some signs of weakness in February, so markets will be watching closely for what the data reveals.

For markets: The Euro hit a one-month low versus the US dollar. The recent positive US economic data, like this manufacturing data, is causing investors to think that the US Federal Reserve is more likely to raise interest rates again sometime this year (only a few weeks ago, this was deemed extremely unlikely). At the same time, the European Central Bank is expected to take action that will push interest rates in Europe even lower. To benefit from (expected) higher interest rates, investors have been selling Euros in order to buy US dollars (where interest rates are expected to rise). This has pushed the Euro to a one-month low versus the US dollar.

Originally posted as part of the Finimize daily email.

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