Manufacturing PMI touches a 4 month high
Nikkei's Manufacturing Purchasing Managers' Index (PMI) in India has rebounded to a 4 month high of 51.1 in Jan'16 after reporting a 28 month low of 49.1 in Dec'15. This data projects an optimistic outlook. On the other hand, China's manufacturing contracted at the fastest rate since Aug'12 as PMI for the month of Jan'16 is reported at 49.4 against 49.7 in Dec'15.
The Manufacturing Purchasing Managers' Index (PMI) is a composite index which is indicative of the productivity of the manufacturing sector and the economy. It is based on surveys of purchasing executives in more than 300 industrial companies. A PMI of more than 50 indicates an increase in manufacturing sector output while that below 50 is indicative of decreaseing industrial output.
Statistics indicate that production and also the number of new businesses in India have increased. The consumer section, which saw improvement in output as well as new orders, remained the major growth driver. While intermediate goods were more or less stagnant, investment goods saw decline both in output and new orders. Job creation saw mild growth - a positive sign for the economy.
With positive results for India's January PMI, analysts are upbeat about the interest rate cuts by RBI to further accelerate the manufacturing sector and hence the economy.
Chinese manufacturing continued to contract for the sixth straight month recording the fastest contraction in 3.5 years. In a bid to re-balance its economy, China began cutting its capacity in many sectors including steel, where it plans to reduce the capacity by 100-150 million tonnes. This is leading to a negative pressure on commodities and increasing unemployment rates in China
While China plans to cut its production to shift the economy's focus from manufacturing to service sector, India would like to use this opportunity to promote manufacturing through the 'Make in India' initiative.
The Chinese markets traded in red due to weak PMI numbers showing slowdown in the world's 2nd largest economy. The slowdown in Chinese economy affects the global economy negatively; at the same time, inflows in the gold funds have pushed up the prices. However, analysts believe that the gains in gold may not sustain on expectations of US's Federal Bank interest rates hike.