PMI Summary: Global manufacturing growth further cools increasing safe haven demand for US dollar

Purchasing managers' surveys in December in major developed and emerging economies showed that the growth rate of the global manufacturing sector continued to moderate at the end of 2014 with production and new orders both rising at the slowest pace in almost one-and-a-half years.

The dollar continued to rally across the board and even negative data surprises from the US on 2 January, the first active trading day in the new year, could not prevent that as global growth concerns added to the safe haven value of the greenback.

The JP Morgan global manufacturing PMI came in at a 16-month low of 51.6 in December, down from 51.8 in November.

This is, however, the 26th successive month of expansion, and experts at JP Morgan say the near-term outlook is positive.

"The global PMI showed signs of stabilization in December after having pulled back from a more elevated level at midyear. Notably, output gains have bucked the downtrend in the PMI, gaining speed in recent months," said David Hensley, director of global economics coordination at JP Morgan.

"The near term outlook for production is positive, as the slide in oil prices boosts household purchasing power and retail sales," Hensley said.

The dollar index rallied more than 0.85% on Friday and hit a new multi-year high of 91.03, showing the extent of safety seeking flows in the forex market.

According to the Markit survey, US manufacturing PMI for December is 53.9, down from 54.8 and worse than consensus of 54.1. The ISM manufacturing PMI was 55.5, down from 58.7 in November and lower than market estimate of 57.6.

Regions

Details show that North America remained the prime driver of the expansion, as growth stayed relatively muted in both the eurozone and Asia. India on the other hand, could add to the upward momentum.

Markit said there are signs of further slowing in North America as well with the rates of output expansion falling to an 11-month low in the US and 3-month low in Canada. However, Mexico was supportive with growth accelerating to a two-year high.

In Asia, Indonesia and South Korea reported contraction in production, while China stagnated. India continued to perform strongly, with growth hitting a two-year peak. The flash data from Japan showed a modest expansion.

Market said Eurozone manufacturing production rose only marginally and at the weakest pace in a year and a half.

"Solid growth in Ireland, Spain and the Netherlands, alongside mild expansions in Germany, Austria and Greece were partly offset by accelerated rates of contraction in France and Italy," the survey showed.

Elsewhere, growth slowed in the UK and Turkey, Russia stagnated and Brazil contracted, Markit said.

Jobs and prices

According to the December survey, global manufacturing employment rose at a steady pace. There was job creation in the US, the eurozone, Japan, the UK, Canada, Mexico, South Korea, Brazil, Poland, the Czech Republic, and Turkey.

At the same time, price pressures remained muted in December. Average input costs rose at the slowest pace in eight months, while output charges fell for the second time in the past three months.