4/3/15: Irish Manufacturing & Services PMIs: February 2015

With all recent work-related excitement, I have delayed analysis of the Irish PMIs until now. So here's a look at the latest numbers.

Services PMI slipped slightly from the dizzying 'knowledge development box'-induced highs of 62.5 in January (62.6 in December) to still dizzying 61.4 in February. The slip-up is a minor hiccup on otherwise uninterrupted 'walk along the ceiling' the series been performing since April 2014. 3mo average performance of 62.2 in 3 months through February 2015, compared to already impressive 61.9 for 3mo average through November 2014 and up 1.9 points on vertigo-inducing 3mo average through February 2014.

Of course, these are strange numbers. More telling, probably are m/m changes. In last two months, PMIs posted m/m declines that now fully offset preceding 2 months rises. So things are flat in terms of growth momentum. One wonders how much of the level performance is attained by forex valuations? And how much is attained by MNCs activities in a handful of sub-sectors, as opposed to the firms trading in the indigenous economy? How much of the activity is down to tax optimising activities of the MNCs vs how much of it is down to actual and real activity by the MNCs? Alas, we won't ever know the answer to these questions.

Reports don't mention forex or currency valuations. Investec did comment that increases in employment were recorded in all four of the "segments of the services industry surveyed by this report (TMT, Business Services, Transport & Leisure and Financial Services)". But we have no comparatives or even levels reported to us on employment or any other subcomponent of PMIs anymore.

Manufacturing PMI, meanwhile, posted an acceleration in growth from 55.1 in January 2015 to 57.5 in February 2015, more than offsetting m/m loss of 1.8 points in January 2015. 3mo average through February 2015 was 56.5, which is marginally stronger than 3mo average through November 2014 at 56.2 and 3.4 points ahead of 3mo average through February 2014.

Again, we have no idea what is driving these strong figures and what the breakdown is between MNCs and indigenous firms. How much of this performance down to 'contract manufacturing' - a new MNCs trick that is so distorting our national accounts, even IMF had to comment on it? How much is down to usual activities of double-Irish-knowledge-box etc?

Chart combining the two indices (in terms of their deviations from 50.0 expansion line):

And a chart showing continued close co-movement in two sectors PMIs along with evolution y/y and 24 months:

Overall: numbers are high and impressive. Questions remain as to what these numbers are really telling us, but on their surface they do suggests that somewhere serious growth is happening in something. May this translate into real growth in the Domestic Demand...

4/3/15: Composite Activity Indicators for BRIC & Russia: February

Having covered Manufacturing PMIs (http://trueeconomics.blogspot.ie/2015/03/2315-bric-manufacturing-pmi-february.html) for BRICs and Services PMIs (http://trueeconomics.blogspot.ie/2015/03/4315-bric-services-pmis-stronger-growth.html), let's take a look at the data for combined metrics of two sectors.

First, table below summarises the changes in Manufacturing and Services PMIs across all BRICs:

Markit - the source of both PMI data sets - also reports Composite PMI of their own. My data is based on same inputs but takes a more simple approach of combining the two data points for each country. This allows me to take each economy aggregate performance across the sectors and group these economies into BRIC group by weighing their combined PMIs score by each economy's relative position in the global economy.

Here are the results:

And for BRICs excluding Russia:

The above charts show two things:

1. BRICs overall contribution to global growth is positive but weak, although it registered an improvement in February 2015 compared to January.
2. Russia acts as a drag on global and BRICs growth. Major divergence between Russia and other BRICs started in January 2014, which, incidentally tells us that the talk about Russia not belonging to BRIC group on the basis of some structural or trend considerations is bonkers. Until January 2014, co-movement between BRICs ex-Russia and Russia is very strong and divergence from January 2014 on is clearly linked to geopolitical crisis and oil price collapse, rather than due to structural decoupling between BRICs ex-Russia and Russia.

4/3/15: BRIC Services PMIs: Stronger Growth and Russia Divergence

I covered BRIC Manufacturing PMI earlier this week: http://trueeconomics.blogspot.ie/2015/03/2315-bric-manufacturing-pmi-february.html

Now, let's take a look at the Services sectors performance.

• Russia Services PMI are covered in detail here: http://trueeconomics.blogspot.ie/2015/03/4315-russian-services-and-composite.html
• Brazil Services PMI came in at a surprising 52.3, breaking four months streak of sub-50 readings and rising strongly up on 48.4 in January. 3mo average through February 2015 is at 49.9 against the 3mo average through November 2014 at 49.3. An improvement on 3mo basis, but down on year ago 3mo average through February 2014 (50.7).
• China Services PMI came in at 52.0, a slight improvement on relatively weak performance in January (51.8). 3mo average through February is at 52.4 against 3mo average through November 2014 at 53.4 and against 3mo average through February 2014 at 50.9. There is very little of anything spectacular in Chinese data so far.
• India Services PMI came in at 53.9 a rise on 52.4 in January 2015. On 3mo average basis, current average through February 2015 is at 52.5 against previous 3mo average through November 2014 at 51.2 and against 3mo average through February 2014 at 47.9. 

Summary: Services PMIs have deteriorated over the last five months in Russia and deteriorated very sharply, signalling massive contraction in the Services sectors in the economy, mostly concentrated on financial services. Meanwhile, Services PMIs posted strengthening is India (surprise reversal of downward momentum over October 2014 - January 2015 period). China still showing some weaknesses, but positive growth in the sector, while India is clearly on a rebound with PMIs increasing over the last 3 months and now standing at the highest level since June 2014.

As the above clearly shows, Russia is a major point of divergence for Services sectors within the BRIC economies. This is not new, but the divergence is getting sharper and sharper. We are not yet at 2009 rates and levels of decline, but we are getting there.

Composite BRICs PMIs will be covered in the next post.

4/3/15: Russian Services and Composite PMIs signal continued deterioration in the economy

Services PMI for Russia for February 2015 came in at a disappointing - nay disastrous - 41.3 down from January 43.9 and marking the fifth consecutive month of contraction. 3mo average through February is now at 43.7 which is much worse than already poor 3mo average through November 2014 (47.5) and is down massively on 3mo average through February 2014 (51.5). February reading is the lowest in 71 months.

Composite PMI came in at 44.7 - marking a sharp contraction in the economy, down from 45.6 in January 2015. February was the 5th consecutive monthly sub-50 reading and  the lowest for 69 months. 3mo average for Composite indicator is at 45.8, which is down on 3mo average through November 2014 (49.2) and sharply down on 3mo average through February 2014 (50.8).

Chart above shows continued downward trend in all three series since around October 2012, preceded by a weak growth trend from the point of recovery after the Global Financial Crisis in and around Q4 2009 through Q3 2012. The current sub-trend of accelerated decline in composite and services PMIs (August 2014-present) is, dynamically, very similar to the sub-trend over October 2013-May 2014 and similar, again to the sub-trend over January 2013 through July 2013. Dynamically, all indication are that over the next 4-6 months we will see both services and composite indicators hitting mid-30s and manufacturing PMI falling toward high 30s, as consistent with the economic contraction rate closer to 4-5 percent over the year.

Note: Russian manufacturing PMIs were covered here: http://trueeconomics.blogspot.ie/2015/03/2315-russian-manufacturing-pmi-february.html

4/3/15: Core biases in Hedge Funds returns

My second post on the topic of measuring hedge funds returns for LearnSignal blog, covering the issue of biases in measurement, induced by timing and risk considerations is now available here: http://blog.learnsignal.com/?p=161

3/3/15: Those 'tanked' Russian Forex reserves

So, according to some Western media, Russian forex reserves have tanked in February 2015. What happened, folks?

At the end of January 2015, Russian forex reserves stood at USD376.208 billion. Of which USD327 was in currency and liquid assets form. The latest data, given to us is for February 20, 2015 when, according to the Russian Central Bank, the reserves dropped to USD364.6 billion - a drop of 3.11% or USD11.6 billion. That's a lot of cash. But is not qualifying it as 'tanked'. Here's a chart plotting all reserves changes m/m

So (incomplete still) data for February puts drawdowns from the Forex reserves at USD11.61 billion against 12 mo running average monthly drawdown of USD10.73 billion. February marks the fourth biggest drawdown in 12 months. Again - large, significant, but 'tanking'?!

What is more critical is the source of drawdowns: how much of this is due to repayment of corporate and sovereign debt? How much is down to changing dollar value of other assets held? How much taken in form of loans to companies and banks (at least in theory or in part - repayable)? and so on.

No, the numbers are not catastrophic. Although they are unpleasant. Just as the gloating in the media is unpleasant: if the U.S. were to cut its external deficit by 2/3rds - what would be the headlines in Western media? And now note: February drawdowns from the forex reserves marked:

• 2/3rds reduction in drawdowns compared to December (real disaster of a month); and
• Large chunk of these drawdowns probably (we will know later for sure) went to fund debt reductions of Russian banks, companies and sovereign.

2/3/15: BRIC Manufacturing PMI: February Marks Slowdown in Growth

BRIC Manufacturing PMIs (individual countries data published by Markit) have posted some renewed weakness in February compared to January.

• Russian Manufacturing PMIs are covered here: http://trueeconomics.blogspot.ie/2015/03/2315-russian-manufacturing-pmi-february.html
• Brazil Manufacturing PMI came in at 49.6 - signifying shallow contraction, down from 50.7 in January. 3 mo average through February is at 50.2 (barely signalling any growth), which is an improvement on 3mo average through November 2014 (49.3) but is weaker than 3mo average through February 2014 (50.5). 
• China Manufacturing PMI is at 50.7, an improvement on January's 49.7 and breaking previous two-months streak of sub-50 readings. 3mo average is at 50.0, which is weaker than 50,2 3mo average through November 2014, but an improvement on 3mo average through February 2014 (49.5)
• India Manufacturing PMI slipped to 51.2 in February from 52.9 in January, with 3mo average through February at 52.9, which is stronger than 3mo average through November 2014 (52.1) and 3mo average through February 2014 (51.6).

Table below and chart summarise the trends:

2/3/15: Russian Manufacturing PMI: February 2015

Russian Manufacturing PMI (based on HSBC/Markit data) improved from 47.6 in January (sharp contraction that is marked by a statistically significant sub-50 reading) to 49.7 in February (also contractionary, but at a much weaker rate and statistically not significantly different fro 50.0).

According to Markit release, "Russian manufacturing business conditions deteriorated only fractionally in February, as stronger domestic demand drove an increase in new work and production rose slightly. The latest HSBC PMI® data compiled by Markit also signalled weaker – but still severe – inflationary pressures during the month, reflecting the ruble’s recovery from record lows. That said, overall growth of new orders was weak as new export business continued to decline sharply, and employment extended a survey-record sequence of decline to 20 months."

This marks third consecutive month of sub-50 readings, with 3mo average through February 2015 standing at 48.7, weaker than 50.8 3mo average through November 2014, but somewhat better than 3mo average of 48.4 recorded for the 3 months through February 2013. So year on year rate of decline in Manufacturing activity slowed down, but conditions remain weak and are still close to weakening.

2/3/15: EU Exporters: No More Than 20-30% Will Return to Russian Markets

A very interesting note reporting comments by Russia's head of Rosselkhoznadzor (organisation that certifies food imports and grants food market access to foreign exporters) on the post-sanctions regime for Western exporters into Russia. The full text is here: http://www.interfax.ru/russia/426955 in Russia.

The core point is that head of Rosselkhoznadzor expects the return of just 20-30% of EU exporters back to the Russian market once Russian sanctions on food imports are lifted. And that is 20-30% "at most". Quoting from Interfax report, the head of Rosselkhoznadzor thinks that "Products from the EU will find it difficult to return to Russian markets, because we will be forced to cut back on the number of European producers, allowing only 20-30% of previously active suppliers back into the market. The rest will be able to supply [exports to Russia] only after they restore [market] trust".

In another report (http://www.interfax.ru/business/427220), President Putin's press secretary stated today that Moscow is considering allowing imports of agricultural raw materials that serve as inputs for production of food in Russia, as long as actual production takes place in Russia. The statement relates to the President Putin's promise made in Budapest last month that Russia can expand cooperation with Hungary in food trade. According to the press secretary statement, this can only be done by relaxing sectoral restrictions as Hungary (or any other country) cannot be privileged in trade relations with the EU under the WTO rules.

Подробнее:http://www.kommersant.ru/doc/2677352

2/3/15: Religious Restrictions and Hostilities: Russia 2008-2013

A very interesting data set from the PewResearch mapping "Restrictions and Hostilities in the Most Populous Countries" by year: http://www.pewforum.org/2015/02/26/restrictions-and-hostilities-in-the-most-populous-countries-2013/ based on the report on Religious Restrictions and Hostilities, published last month: http://www.pewforum.org/2015/02/26/religious-hostilities/

Two charts showing relative evolution of restrictions and hostilities in Russia between 2008 and 2013:

28/2/15: A sad day for Russia.

Tonight, in Moscow, a gunman shot dead one of the most charismatic and experienced leaders of Russian liberal opposition, Boris Nemtsov.

Here is the best obituary I have read so far (in Russian) from any source: Western or Russian: http://kommersant.ru/doc/2677630

It sums up perfectly the vision of Nemtsov, the memory of his public life that I have in my own mind.

He was legendary as the Governor of Nizhniy Novgorod - both in his managerial and reformist roles and in his ability to speak openly about his views on Yeltsin Presidency. He was given a tough lot as a Deputy PM in 1997 and he did the job, honestly and to his best ability. He was relentless in trying to build a fully functional opposition within the liberal wing in Russian politics, and he never succeeded in doing that - not for the lack of trying or the lack of talent, but for the lack of liberal tradition and culture in Russia. Despite that, he and his fellow thinker, Garry Kasparov, remained and will remain respected by many, including those who did not support them.

There is a political 'weight' to every public intellectual and leader. Nemtsov had that. Nemtsov had huge public support in the 1990s, and despite the fact that he had little popular backing after 1997, he held high moral and intellectual ground and never traded away idealism of his opposition to President Putin for pragmatism of having a shot at gradual reforms. This waining of popular support for him and his causes is sad, because he was a talented, bright, experienced, hard working politician Russia needed and needs. And he brought into public ideas and ideals that Russia needed and needs - ideas and ideals of alternative, of functional opposition.

There is an 'integrity' weight to every public intellectual and leader too - a combination of honesty, openness, transparency and willingness to learn, accept and acknowledge mistake. In that currency, Nemtsov was pure gold. And that Russia will always have as a memory of him.

The White House statements - http://www.whitehouse.gov/the-press-office/2015/02/27/statement-president-murder-boris-nemtsov - and I would say it is also pitch-perfect: "Nemtsov was a tireless advocate for his country, seeking for his fellow Russian citizens the rights to which all people are entitled.  I admired Nemtsov’s courageous dedication to the struggle against corruption in Russia... We offer our sincere condolences to Boris Efimovich’s family, and to the Russian people, who have lost one of the most dedicated and eloquent defenders of their rights."

Boris Nemtsov is survived by his four children, and his mother. May he rest in peace!

27/2/15: Deflation and Retail Sales: Ireland 2015...

Deflation harms consumer demand?

So Irish retail sales are up 8.8% y/y in volume and 5.5% in value, implying people are buying on lower prices, not delaying buying for lower prices. And...

Irish consumer prices are shrinking (deflation).

Note, the above retail sales figures are reflective of total sales. Core sales, excluding motors were down 0.1% in value and volume m/m, but up y/y by 4.8% in volume and 0.9% in value.

More granular: