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Global manufacturing shows green shoots as year draws to an end

Strong PMI numbers in Germany, China lift equities as Stoxx Europe 600 rises 0.4 per cent following earlier gains across Asia

Zurich

GLOBAL manufacturing is looking a little brighter heading into the end of the year, with a pick-up in China and Germany validating calls that global growth is stabilising.

The better factory numbers from China in November filtered across Asian economies including South Korea, Japan and Malaysia, all of which saw their Purchasing Managers' Indexes nudge higher. In Europe, Germany's reading came in stronger than initially estimated, rising for a second month.

The news lifted equities, with the Stoxx Europe 600 up 0.4 per cent following earlier gains across Asia. Bonds fell, with German 10-year yields rising to the highest in three weeks.

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The latest numbers continue a narrative seen across continents in recent weeks that the global economy has reached the bottom of the downturn and is stabilising. Also fuelling the optimism is hope that the US and China - despite mixed messages and ongoing political tensions - are close to signing the first part of a trade deal.

"The market is positioned for a phase-one deal either by the end of this year; or if not, then that the tariff hike for December will be delayed," said Christoph Rieger, head of fixed rate strategy at Commerzbank. "The green-shoots spirit regarding the economy probably has room to extend."

Much of the better mood in Asia was down to China's improved performance. The Caixin index rose to 51.8 from 51.7, following news during the weekend that the official measure jumped to 50.2, the first reading above the key 50 level since April.

In Germany, the factory PMI rose to 44.1 from 42.1 - good news but far from suggesting a strong rebound in growth is in sight. The economy still faces obstacles, particularly in its car industry, and employment in manufacturing continues to fall. If that persists, it could shake the consumer and put a dent in spending, a key pillar of the economy.

Highlighting the ongoing danger, Daimler AG said last Friday it will eliminate more than 10,000 positions. That lifts the tally of job cuts announced this year across Germany's manufacturing sector to more than 100,000, according to Bloomberg calculations.

Mixed signals were not confined to Germany. While Japanese companies increased capital spending from the previous year, corporate profits fell for a second quarter and sales dropped, suggesting that investment could come under pressure in the months ahead. The country's PMI also remains below 50, despite the latest increase.

In South Korea, often seen as a bellwether for global trade, export demand continued to slide in November, dropping more than 14 per cent year-on-year, the sixth straight double-digit decline.

"Considerable challenges remain," said Chang Shu, chief Asia economist for Bloomberg Economics. "Meaningful stabilisation hinges on whether the US and China can strike a phase-one deal." BLOOMBERG

READ MORE: China's manufacturing sector expands in November