FXTRADING Economic Data Summary (Asia-Pacific | 02/03)

US manufacturing returns to expansion

The US ISM manufacturing index jumped sharply in January and moved back above the expansion–contraction threshold, ending nearly a year of contraction. This shift was not a marginal improvement, but rather resembled a phase-type rebound following synchronized repairs across multiple sub-indices, indicating that corporate production momentum is accelerating and that a recovery in demand is beginning to filter through to the real economy.

From a structural perspective, production activity strengthened noticeably, with new orders showing particularly strong expansion, suggesting that a rebound in end demand and inventory cycle adjustments may be occurring simultaneously. While the employment index has not yet fully exited contraction territory, downside pressure has eased, indicating that firms are becoming more cautious rather than pessimistic in their hiring decisions. FXTRADING analysis believes that the rapid improvement in US manufacturing reinforces the view of strengthening economic momentum at the start of the year. The support to growth appears to be driven more by demand recovery than by cost pressures, which helps reduce policy risks associated with uncontrolled re-inflation, but also implies that markets may need to reassess earlier pricing assumptions that were based on prolonged manufacturing weakness.

Japan manufacturing returns to expansion

Japans manufacturing sector achieved a long-awaited return to expansion at the start of the year, with the PMI rising above the expansion threshold, marking a substantive improvement in operating conditions. This development not only brings an end to the previous period of weakness, but also represents the most pronounced rebound seen in nearly two years, tentatively suggesting that the manufacturing cycle may be shifting upward from its trough.

At the same time, rising raw material and input costs are closely linked to the recent weakening of the yen, and some firms have already begun passing these costs downstream. FXTRADING analysis suggests that while Japans manufacturing sector has begun to emerge from its low point, the recovery remains at an early stage. Its sustainability will largely depend on whether exchange-rate dynamics and cost pass-through remain moderate, making these factors key variables for both policy assessment and market evaluation going forward.

Eurozone manufacturing recovery remains slow

Eurozone manufacturing continued its modest improvement trend at the start of the year, with the overall PMI edging higher but remaining in contraction territory. This indicates that the recovery process is still slow, reflecting a easing of downside pressures rather than a broad-based strengthening. The pace of order contraction has moderated, and business confidence has improved slightly, suggesting that the most pessimistic phase may have passed, but the foundations of recovery remain fragile.

From a country-level perspective, regional divergence remains pronounced. Some economies have seen clear improvements in manufacturing activity, with certain cases even returning to expansion, while core economies, despite signs of stabilization, are recovering only gradually. At the same time, other countries continue to face manufacturing headwinds, and some previously more resilient economies are beginning to show signs of cooling. FXTRADING analysis believes that eurozone manufacturing is currently in a phase of bottoming out without firm stabilization, with regional divergence and cost constraints making it difficult to generate a unified upward momentum. In the near term, a low-speed recovery appears more likely than a rapid rebound.

UK manufacturing stands out

UK manufacturing demonstrated relatively strong resilience at the start of the year, with the PMI rising to a recent high, indicating simultaneous improvement in production activity and demand conditions. Against a backdrop of continued external uncertainty, this performance provides a more positive signal for the economic outlook at the beginning of the year, reflecting improving corporate sentiment toward orders and market prospects.

However, increases in the minimum wage, rising labor costs, and higher raw material prices are jointly compressing corporate profit margins. If cost pressures continue to be passed on to end markets, they could restrain the pace of subsequent expansion. FXTRADING analysis suggests that UK manufacturing has shown a relatively leading recovery profile, but its sustainability will depend on whether cost pressures remain contained. The rebalancing between growth and inflation is likely to remain a key focus for the market going forward.