European Association of the Machine Tool Industries where manufacturing begins Inside this edition... 0 Executive Summary 1 Machine Tool Orders 1.1 Orders per Country 1.2 Peter Meier s Forecast CECIMO Statistical Toolbox November 2010 Edition 2 Macro-economic indicators in the EU & correlation with MT orders 2.1 GDP 2.2 Interest Rates - Euribor 2.3 New Orders of Capital Goods 2.4 Industrial Production in Manufacturing 2.5 Gross Fixed Capital Formation (GFCF) 2.6 Capacity Utilisation in the Investment Goods Sector 2.7 Bank Lending Survey 2.8 Foreign Exchange Rates CECIMO aisbl 66, avenue Louise 1050 Brussels Belgium Tel: +32 2 502 90 Fax: +32 2 502 60 82 www.cecimo.eu For more information: information@cecimo.eu 3 Business Expectations 3.1 Business Confidence Indicator in Europe of OECD 3.2 Purchasing Manager Indexes (PMI) 4 MT-IX 5 Machine Tool Indicators 5.1 External Trade NB: only the highlighted indicators are available in this edition of the toolbox
Executive Summary Following the sharp rebound in the European economy, companies in the EU are demanding more financing from their banks, the recent study from the European Central Bank shows. As the huge amounts of money evaporated from the system together with the write-offs for so-called toxic assets, there is a gap to be filled in. It seems this is the right moment for the central bank to step in. Over recent weeks, the hottest topic has been the announcement of the US Federal Reserve to extend its buy-back program by issuing additional billions of dollars. They argue that money needs to be pumped into the system in order to create the stimulus for the struggling US economy. The better the world s largest economy performs, the better for the world, they say. Sceptics say that the move is pointless and will spur the growth in prices or lower the dollar value in other currencies. Although the other worldwide monetary institutions follow the same path as the US, the role of dollar in the world s economy is one of a kind. Firstly, it is the major reserve currency for many countries, especially China. It is expected that Chinese foreign reserves may reach 2.5 trillion USD or even 3 trillion USD by the end of this year. Secondly, the US dollar is commonly used for pricing in international trade. A greater supply of dollars on the market means that relatively rare assets like commodities or other currencies may become more expensive. Subsequently, any holdings of USD are less valuable. On the other hand, cheaper local currency allows exporters sell their products at a lower price in other currencies in order to get a constant value for their money. It therefore follows that imports become less price-competitive. As the foreign exchange rates have a profound impact not only on trade, but also on the broad economical context, we ve decided to start analysing the trends in the Toolbox. The recent recovery in the economy seems to have slowed down in recent months. This touched the car industry; the most important customer of MT industry. Some car manufacturers temporarily stopped production in plants across Europe. The overall number of new cars registered in Europe contracted by almost 10% y-o-y in September. For the first three quarters there were over 10.25 million cars registered, which is 4.3% lower against the same period in 2009. Despite contraction in new registrations, it seems that the car industry has a bright future ahead. High fuel prices and massive political support are the major drivers for shifting from petrol to other fuels to run cars. Though looking the same, electric, hybrid, fuel-cell driven cars are completely different from what we are used to seeing on the streets. The eco-friendly and more efficient change spurs new investment not only in car plants but also in infrastructure. The new wave in the car industry has just begun. China, which is heading to become the largest car market in the world, wants the annual production capacity of electric motor vehicles to reach 1 million units by 2020. The program is supported by funding allocated to launching production and subsidies for buyers to encourage purchase. The European car manufacturers estimate the share of new electrically chargeable vehicles at 3-10% in 2020-2025, which means between 450,000 and 1,500,000 units. 2.2 Interest Rates EURIBOR The cost of borrowing money jumped in October by almost 15% against September over a period of 3 months and by nearly 7% over a period of 12 months. Thus, the October 3MEURIBOR indication is at 16 months high or at the highest since the 2Q2009. Surpassing the 1% mark also means that CECIMO Statistical Toolbox November 2010 2
Executive Summary the market price for money increased above the reference level of 1% at which the ECB lends money to banks. This growth could be explained by possible withdrawal of lending support in the next year. 2.3 New Orders in Capital Goods August saw a significant growth in the index of new orders of capital goods. The indication of over 105 points is the highest value since September 2008. As a consequence, the 12-month moving average is at its highest level in 6 quarters. Comparing this with the lowest level recorded in 4Q2009, the current number is almost 12% higher. The more stable index of durable consumer goods achieved a level of 108.43 points in August, i.e. a 26-months high. 2.7 Bank Lending Survey The survey conducted by the European Central Bank between 13 th September and 1 st October 2010 shows a significant increase in demand for credit. The 4Q indication (which refers to the 3Q2010) confirmed the upward trend in the number of banks mentioning increased demand for credit. More importantly, the net demand for loans from companies turned positive in 3Q after more than two years being negative. The improvement in net demand for loans was in a similar range for large firms as for small and medium sized enterprises (SMEs). However, the ECB reports that the demand for net loans by large firms has remained weaker than demand from SMEs since the second half of 2009. 2.8 Foreign Exchange Rates The major currencies have been outperforming the euro since the end of 2009. However, since the 4Q this year the common currency rebounded, mostly against the USD. The price of EUR and CHF increased just slightly. The European currency is still in the downward trend which started at the beginning of 2008. The uncertainty about the financial standing of some Eurozone countries contributes largely to the strength of CHF, JPY or to a lesser extent, the USD against the EUR. On the other hand, some monetary stimulus measures that have just been launched in other regions seem to keep the market relatively balanced. 3.1. Business Confidence in Eurozone The October value of OECD s Business Confidence Indicator confirms the upward trend among companies in the Eurozone. Moreover, the recent values are even touching the 2007 all time highs. October was the 7 th month in a row as the BCI is above the reference level of 100 points. 3.2 PMI Index October saw the rate of expansion in Eurozone manufacturing production accelerate for the first time in three months. PMIs signalled expansion in almost all of the nations covered. The only exception was Greece, where the rate of deterioration accelerated. Readings for Spain and Ireland rose back above the neutral 50 mark after dipping below in September. Manufacturing output and new orders rose for the fifteenth successive month in October. Rates of increase improved from the lows seen in September and were well above the earlier flash estimates. The investment and intermediate goods sectors continued to lead the recovery, whereas the consumer sector continues to stall growth, Markit Economics reports. 4 MT-IX October was the third consecutive month displaying a growing CECIMO MTIX. The upward trend also applies to the 12M average of the CECIMO MTIX as well as to Global MTIX. Since the beginning of this year the recovery of CECIMO MTIX is rather fragile. From a technical point of view, the index is required to cross the 150 mark significantly for us to consider the growth as robust. Compared with the bottom level observed in February 2009, CECIMO MTIX is now 84% higher. Looking back at the peak of 2007, the current indication is much less than half of the all-time high. * * * * * CECIMO Statistical Toolbox November 2010 3
2.2 Interest Rates EURIBOR 6% 150 5% 4% EURIBOR 12M 3M average MT ORDERS 12M moving average 130 110 3% 2% 1% 81% correlation between Euribor 3M & 12-month moving average of MT orders 3M EURIBOR 3M average 73,7 90 1,50% 1,01% 0% 50 Q1 99 Q2 99 Q3 99 Q4 99 Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 EURIBOR is the rate at which euro InterBank term deposits are offered by one prime bank to another prime bank. For more information: www.euribor-ebf.eu Source: Euriobor.org and national CECIMO Statistical Toolbox November 2010 4
2.3 Orders of capital goods 130 155 orders index (index 100 = 2005) MT orders (index 100 = 2005) 120 12-month moving average of orders of capital goods 135 110 An 83% correlation between 12-month rolling orders of capital goods and 12-month rolling orders of Machine Tools since 1998 115 100 12-month moving average of orders of durable consumer goods 95,4 94,2 95 90 12-month rolling MT orders 85,6 73,7 75 80 59,9 55 Q4 2010 Q3 2010 Q2 2010 Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q1 2008 Q4 2007 Q3 2007 Q2 2007 Q1 2007 Q4 2006 Q3 2006 Q2 2006 Q1 2006 Q4 2005 Q3 2005 Q2 2005 Q1 2005 Q4 2004 Q3 2004 Q2 2004 Q1 2004 Q4 2003 Q3 2003 Q2 2003 Q1 2003 Q4 2002 Q3 2002 Q2 2002 Q1 2002 Q4 2001 Q3 2001 Q2 2001 Q1 2001 Q4 2000 Q3 2000 Q2 2000 Q1 2000 Q4 1999 Q3 1999 Q2 1999 Q1 1999 Q4 1998 Q3 1998 Q2 1998 Q1 1998 Source: Eurostat and national associations CECIMO Statistical Toolbox November 2010 5
2.7 Bank Lending Survey 60% Net demand for loans MT orders 180 40% There is an 86% correlation between the net demand for loans + 6 months and the Quarterly MT orders since 2003 160 140 20% 120 0% 89 7% 100 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 80-20% 60 40-40% % of banks mentioning increased demand for credit (if negative, it means a falling demand for credits) % of banks mentioning increased demand for credit (if negative, it means a falling demand for credits) + 6 months MT orders 20-60% 0 Source: European Central Bank CECIMO Statistical Toolbox November 2010 6
2.8 Foreign Exchange Rates 150 CECIMO Foreign Orders Index Units per 1 EUR (quarterly average) 1,7 1,6 CHF 130 110 90 CECIMO Foreign Orders USD 1,39 100JPY 1,5 1,4 1,35 1,3 1,2 1,14 1,1 Not strong, but positive correlation between the foreign orders index and the strength of the euro against major currencies suggest that both exchange rate and MT orders follow the performace of the economy 1 0,9 50 0,8 10-04 10-03 10-02 10-01 09-04 09-03 09-02 09-01 08-04 08-03 08-02 08-01 07-04 07-03 07-02 07-01 06-04 06-03 06-02 06-01 05-04 05-03 05-02 05-01 04-04 04-03 04-02 04-01 03-04 03-03 03-02 03-01 02-04 02-03 02-02 02-01 01-04 01-03 01-02 01-01 Source: Eoanda.com and national associations CECIMO Statistical Toolbox November 2010 7
3.1 Business confidence MT orders (100=2005) Business Confidence 106 150 130 There is 85% correlation between BCI Europe+ 6 months and smoothed MT Orders in CECIMO 8 since 2001 Business Confidence with 6 month time-lag MT Orders 12M moving average 102,3 104 102 100 110 98 96 90 94 Business confidence shows a long-term trend in industrial production (with a 6-month time-lag). An increase over 100 means expansion; a decrease above 100 means a downturn; an increase below 100 is an upturn and a decrease below 100 is a slowdown 73,7 92 90,2 59,9 90 50 88 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09 Q2 09 Q1 09 Q4 08 Q3 08 Q2 08 Q1 08 Q4 07 Q3 07 Q2 07 Q1 07 Q4 06 Q3 06 Q2 06 Q1 06 Q4 05 Q3 05 Q2 05 Q1 05 Q4 04 Q3 04 Q2 04 Q1 04 Q4 03 Q3 03 Q2 03 Q1 03 Q4 02 Q3 02 Q2 02 Q1 02 Q4 01 Q3 01 Q2 01 Q1 01 Source: OECD and national associations CECIMO Statistical Toolbox November 2010 8
3.2 PMI: GLOBAL PMI 65 Global MT orders 120 Eurozone 60 MT orders 73,7 54,6 55 53,7 50 Nov 10 Oct 10 Sep 10 Aug 10 July 10 Jun 10 May 10 Apr 10 Mar 10 Feb 10 Jan 10 Dec 09 Nov 09 Oct 09 Sept 09 Aug 09 Jul 09 Jun 09 May 09 Apr 09 Mar 09 Feb 09 Jan 09 Dec 08 Nov 08 Oct 08 20 45 40-30 35 30-80 Source: Markit Economics and national data CECIMO Statistical Toolbox November 2010 9
3.2 PMI: EUROPE PMI 63 59,2 58 56,6 54,6 53 53 51,2 48 43 38 Nov 10 Oct 10 Sep 10 Aug 10 July 10 Jun 10 May 10 Apr 10 Mar 10 Feb 10 Jan 10 Dec 09 Nov 09 Oct 09 Sept 09 Aug 09 Jul 09 Jun 09 May 09 Apr 09 Mar 09 Feb 09 Jan 09 Dec 08 Nov 08 Oct 08 Eurozone Germany Italy Spain Switzerland 33 28 Source: Markit Economics CECIMO Statistical Toolbox November 2010 10
3.2 PMI: ASIA 65 PMI 59 57,2 54,8 53 48,6 47 47,2 46,7 41 China India Japan S. Korea Taiwan 35 29 Nov 10 Oct 10 Sep 10 Aug 10 July 10 Jun 10 May 10 Apr 10 Mar 10 Feb 10 Jan 10 Dec 09 Nov 09 Oct 09 Sept 09 Aug 09 Jul 09 Jun 09 May 09 Apr 09 Mar 09 Feb 09 Jan 09 Dec 08 Nov 08 Oct 08 Source: Markit Economics CECIMO Statistical Toolbox November 2010 11
4 MT-IX 3 MT-IX (index 100 = January 2005) MT orders (Index 100 = 2005) 1 320 2 There is a 84% correlation between MTIX 12 month moving average and CECIMO orders CECIMO MTIX CECIMO orders 150 130 220 CECIMO MTIX 12-month moving average 110 1 89 90 GLOBAL MTIX 140 129 120 122 50 20 30 Oct-10 Jul-10 Apr-10 Jan-10 Oct-09 Jul-09 Apr-09 Jan-09 Oct-08 July-08 April-08 Jan-08 Oct-07 July-07 April-07 Jan-07 Oct-06 July-06 Apr-06 Jan-06 Oct-05 Jul-05 Apr-05 Jan-05 Oct-04 Jul-04 apr-04 Jan-04 Oct-03 jul-03 apr-03 Jan-03 Oct-02 jul-02 apr-02 Jan-02 Oct-01 jul-01 apr-01 Jan-01 CECIMO weighted market capitalisation = 44% of the global market capitalization of 24 Machine Tool companies (this being the global market share of the production of machine tools in CECIMO) Source: Bloomberg and CECIMO calculations CECIMO Statistical Toolbox November 2010 12