Global Manufacturing: China, Germany Improve; UK Faces Challenges

China’s manufacturing sector shows signs of recovery, reporting a December Caixin manufacturing purchasing managers’ index (PMI) of 50.8, surpassing market expectations and marking the fourth increase in factory activity over the last five months. The improvement is attributed to a rise in new orders, improving sales, and a seven-month peak in output. While new export orders declined at a slower pace, supply chains faced pressure due to raw material unavailability and overtaxed suppliers.

The German manufacturing sector exhibits positive momentum with a December HCOB manufacturing PMI of 43.3, slightly exceeding expectations and surpassing November’s figure. Despite remaining in contraction territory (PMI below 50), investors are optimistic that the sector has turned a corner. New orders decreased at a slower rate, and business expectations improved. However, employment saw its fastest decline since October 2020 as manufacturers adjusted to lower demand.

The UK manufacturing sector faced challenges, reporting a December S&P Global manufacturing PMI of 46.2, falling below market expectations. Manufacturing activity declined for the 10th consecutive month, attributed to weakening in the intermediate and consumer goods sector. New orders fell for the ninth month, leading to a rapid clearing of backlogs and a 15th consecutive month of declining employment. Despite decreasing input prices, business optimism hit a one-year low due to factors like rising interest rates, high inflation, economic uncertainty, and ongoing geopolitical issues.

Investors are cautiously optimistic about major central banks potentially cutting rates by spring or summer. However, banks warn against over-optimism, emphasizing potential challenges associated with premature or excessive rate cuts.

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