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Home Capital Market

Global economy: U.S. factory actgivity approaches 2-1/2- year high: COVID-19 hitting supply chains

Business 360 by Business 360
February 6, 2021
in Capital Market, World
0
Global economy: U.S. factory actgivity approaches 2-1/2- year high: COVID-19 hitting supply chains

Factory activities in the U.S. expanded slowly in January 2021, after rising to a two-and-a-half-year high in December amid the continued surge in new COVID-19 infections. According to the Institute for Supply Management (ISM) PMI survey, manufacturing PMI moderated to 58.7 points in January (December: 60.5 points) driven by the decline in new orders index to 61.1 points (December: 67.5 points) and production index to 60.7 points (December: 64.7 points).

Meanwhile, the employment index rose to the highest level since June 2019 (52.6 points vs. December: 51.7 points), indicating that companies are generally hiring rather than reducing their workforce. 

Financial analysts at Cordros Capital say the weakness in the manufacturing sector is reflective of the impact of the rising number of COVID-19 infections, resulting in absenteeism and short-term shutdowns to sanitize facilities.

‘’Looking ahead, we align with the views expressed by the Chairman of the ISM Manufacturing Business Survey Committee that until the rising number of COVID-19 infections abates, the labour market difficulties will continue to restrict the expansion in the manufacturing secto’’.

Preliminary flash estimates from the Eurostat showed that the GDP for the Euro Area contracted by 5.1% y/y in Q4-20 compared to a decline of 4.3% y/y recorded in Q3-20. This was due to the renewed surge in COVID-19 infections as well as the reeling impact of the containment measures on economic activities.

Accordingly, economic activities fell by 6.8% in 2020FY (2019FY: +1.3%) – the worst contraction since the current series began in 1995. Compared to the previous quarter, we highlight that the economy declined by 0.7% (Q3-20: +12.4%) on a seasonally adjusted basis, as the lighter-introduction of COVID-19 containment measures during the period weighed on contact intensive sectors as well as household spending. 

Activities are expected to remain dampened albeit at a slower pace in Q1-21, due to the continued uptrend in COVID-19 cases as well as the associated restrictions, while recovery underpinned by wide administration of vaccines, gradual lifting of restrictions, and ultra-loose monetary policy and fiscal stimulus amid improved external demand are expected as the global economic activities normalizes over the medium term.

Meanwhile, global stocks mounted a massive rebound from last week’s rout as investors’ sentiment were lifted by progress in vaccine distribution and the decision of U.S Democrats to commence the process of approving President Biden’s USD1.9 trillion coronavirus relief bill.

Consequently, US (DJIA: +3.6%; S&P: +4.2%) stocks posted robust gains buoyed by expectations of fiscal stimulus and better-than-expected data on the job market.

In Europe, the STOXX Europe (+3.5%) and FTSE 100 (+1.5%) were on track for weekly gains, as improved vaccine rollouts lifted optimism about a stronger economic recovery. In Asia, the Nikkei 225: (+4.0%) and SSE: (+0.4%) were on course for weekly gains, as sentiments were bolstered by the rally on Wall Street amidst rosy earnings announcements by Japanese companies.

Emerging markets (MSCI EM: +4.4%) stocks were supported by gains in India (+9.7%) and Brazil (+3.6%) while Frontier (MSCI FM: +1.0%) market stocks were on track for their fifth consecutive weekly gains, buoyed by gains in Kenya (+1.8%).  

Source: Reuters

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