Growth Outside China
November 2017
Macro conditions continue to improve, driven by out-performance in the US and German economies and the US dollar rebounding from lows in September. This was offset by slowing Chinese housing and construction activity. Steel production in China was the lowest since February and house price gains the lowest since April 2016.

China’s non-farm fixed asset investment continues to moderate, growing 7.5% during January to September, after 7.8% growth the first eight months of the year. Government measures to cool a long property boom continue to take hold as house price gains decelerated to 6.3% growth year on year in September, from August’s 8.3% increase. This is partly due to the high base achieved in September 2016. China’s official Manufacturing PMI data lost some momentum in October, dropping to 51.6 from 52.4 in September, driven by a slowdown in output, new orders and new export orders. October Caixin PMI data, which covers smaller businesses, was unchanged from September at 51.0. While below market expectations, the result is hardly weak as manufacturing activity continues to expand at the fastest pace since April 2014. Despite this, AME believes overall activity levels will slightly moderate in the December Quarter. 

German Manufacturing PMI was only slightly down at 60.5 in October after September posted 60.6 – the biggest expansion since April 2011. This is a positive start to the December Quarter as manufacturing sector job creation increased the most since April 2011. German business sentiment surged to a record high in October, with companies extremely optimistic over a noticeable pickup in orders which points to strengthening investments for the December Quarter. Ifo’s Business Climate Index rebounded to an all-time high of 116.7, somewhat muting fears the German economy may have already reached its peak. The manufacturing, construction and retail sectors were most upbeat about December Quarter forecasts.  

The US economy maintained a fast pace of expansion in the September Quarter with 3.0% quarter on quarter growth. The first nine months saw the strongest growth in economic activity since 2014 despite the disruptions due to Hurricanes Harvey and Irma. US exports increased along with inventory investments, while a smaller trade deficit offset the hurricane disruptions in consumer spending and construction activity. 

US PMI was up at 54.5 in October from 53.1 in September. A rebound in October employment is expected from September’s 33,000 jobs loss. The Federal Reserve did not raise interest rates at the beginning of November. The Dow Jones and S&P 500 rose 4.3% and 2.2% respectively in October for seven straight monthly advances. The S&P 500 gains were dominated by tech stocks including Facebook, Apple, Alphabet and Amazon. The rise in the Dow Jones Index was encouraging as it indicated that market activity was not narrowly focussed. President Trump has made some progress with proposals for tax reform after the House and Senate passed a budget plan. The plan proposes a cut in corporate tax from 35% to 20% which has contributed to share market activity.