Weekly Global Update for July 6, 2016

June Leading Indicators

Markit Economics and ISM have just released their June PMI leading indicators.

• With the exception of China and Japan most countries’ manufacturing activity increased in June (Chart 1).
• The Global PMI, although weighed down by China and Japan, still increased modestly on a world basis (Chart 2)
• The USA rebounded based on both the ISM and Markit Economics findings (Chart 3).
• The Eurozone saw a significant increase (Chart 4) but it should be noted that most of the June survey was done prior to the UK’s Brexit vote. However, with the exception of France, all major European countries reported a manufacturing expansion (PMI>50) in June (Chart 5).
• Asia was mixed (Chart 6) with China (Chart 7) and Japan (Chart 8) contracting and Taiwan (Chart 9), S Korea (Chart 10, India, Vietnam and Indonesia expanding.

The July European PMI data (released about August 1) will be interesting as it will reflect the impact of the UK’s Brexit decision. In addition global terrorism and political unrest remain major issues but world manufacturing activity seems to be growing.

Source: www.markiteconomics.com
www.instituteforsupplymanagement.org/

North American PCB Business Sales and Orders in May continued ahead of 2015 Levels, but at Slower Rates than in Recent Months (Charts 11-14)

IPC — Association Connecting Electronics Industries® announced the May 2016 findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. Sales and orders in May continued ahead of last year’s levels, but at slower rates than in recent month. The book-to-bill ratio also declined slightly but remains positive at 1.01.

Total North American PCB shipments in May 2016 were 4.4% above the same month last year. Year-to-date growth is up 5.3% for the first five months of the year. Compared to the preceding month, May shipments were down 3.1%.

PCB bookings in May increased a mere 0.1% year-on-year, bringing year-to-date bookings growth down to a positive 4.0%. Orders in May 2016 were down 5.6% from the previous month.

“Business growth in the North American PCB industry remained positive, but growth rates have slowed,” said Sharon Starr, IPC’s director of market research. “Shipments exceeded bookings in May for the first time in six months, which pushed the book-to-bill ratio down another notch, nearly to parity” she added.

Source: www.ipc.org

Custer comments:

• The North American PCB leading indicator points to slower domestic printed circuit growth ahead – after correcting for seasonality (Chart 15).
• On a global basis printed circuit shipment growth will resume (versus the same months in 2015) (Chart16).
• Global PCB growth in 2016 should be in the range of +1 to +2% based upon Custer Consulting Group’s world model. Due to normal seasonal effects we can expect month-to-month increases through late autumn (Chart 17).

Commodity Prices

As global economic growth accelerates commodity prices will likely rise − including oil (Chart 18), copper (Chart 19), tin (Chart 20, gold (Chart 21) and silver (Chart 22).

Source: www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm
futures.tradingcharts.com/

Worldwide Cloud IT Infrastructure revenue grew 3.9% y/y to $6.6 billion on Slowed Demand from Public Cloud in 1Q’16 (Charts 23 & 24)

According to the International Data Corporation (IDC) vendor revenue from sales of infrastructure products (server, storage, and Ethernet switch) for cloud IT, including public and private cloud, grew by 3.9% year over year to $6.6 billion in the first quarter of 2016 (1Q’16) on slowed demand from the hyperscale public cloud sector.

Total cloud IT infrastructure revenues climbed to a 32.3% share of overall IT revenues in 1Q’16, up from 30.2% a year ago. Revenue from infrastructure sales to private cloud grew by 6.8% to $2.8 billion, and to public cloud by 1.9% to $3.9 billion. In comparison, revenue in the traditional (non-cloud) IT infrastructure segment decreased by 6.0% year-over-year in the first quarter, with declines in both storage and servers, and growth in Ethernet switch. Ethernet switch also showed strong year-on-year growth in both private and public cloud, 53.7% and 69.4%, respectively. Storage grew 11.5% year over year in private cloud, but declined 29.6% in public cloud. Conversely, server declined 1.1% in private cloud and grew 8.7% in public cloud.

"A slowdown in hyperscale public cloud infrastructure deployment demand negatively impacted growth in both public cloud and cloud IT overall," said Kuba Stolarski, research director for Computing Platforms at IDC. "Private cloud deployment growth also slowed, as 2016 began with difficult comparisons to 1Q’15, when server and storage refresh drove a high level of spend and high growth. As the system refresh has mostly ended, this will continue to push private cloud and, more generally, enterprise IT growth downward in the near term. Hyperscale demand should return to higher deployment levels later this year, bolstered by service providers who have announced new datacenter builds expected to go online this year. As the market continues to work through this short term adjustment period, with geopolitical wild cards such as Brexit looming, end-customers' decisions about where and how to deploy IT resources may be impacted. If new data sovereignty concerns arise, service providers will experience added pressure to increase local datacenter presence, or face potential loss of certain customers' workloads."

Source: www.idc.com

Exchange Rates versus U.S. Dollar

The Brexit vote destabilized many global currencies but hopefully the effect will be short lived. Here are exchange rate trends versus the dollar for some key countries’ currencies.

• Trade weighted value of U.S. dollar increased slightly (Chart 25)
• Euro was little changed (Chart 26)
• UK pound plunged to near a 30-year low (Chart 27).
• Canadian dollar strengthened slightly (Chart 28)
• Mexican peso continued to weaken (Chart 29).
• Japanese yen has been strengthening since mid-2015 (Chart 30).
• China yuan has been weakening since early 2014 (Chart 31).
• Taiwan NT$ has been very volatile but has strengthened in recent months (Chart 32).
• S. Korean won has been generally weakening since mid-2014 (Chart 33).

Source: research.stlouisfed.org/fred2/

U.S. First-quarter GDP Revised higher to 1.1% (Chart 34)

U.S. economic growth slowed in 1Q’16 but not as much as previously estimated.

Gross domestic product increased at a 1.1% annual rate, rather than 0.8% as reported last month, the Commerce Department said.

Source: www.bea.gov/national/

World Industrial Production Growth by Country

Chart 35 shows industrial production growth (vesus the same month in 2015) for a number of key counties.

Source: www.economist.com