● Manufacturing downturn persisted in October, but at the softest pace in six months (PMI: 49.3; Sep: 47.9)

- Improvement driven by an increase in new orders and output indices amid challenging external environment.

● Output index and overall new orders rose to a 1-year and a 6-month high, respectively

- Primarily supported by strength in domestic demand amid new product launches.

● Export orders fell for a second consecutive month

- Tapered external demand, particularly in China and Europe, as economic activities were dampened by global trade feuds and Brexit-related worries.

● Business outlook strengthened, leading to rising employment

- Optimism underscored by better sales prospects in the next 12 months, which subsequently incentivised firms to expand their operating capacities and increase stockpiles.

- Job creation picked up to highest since April, in part to cope with the 14-month high backlogs of work.

● Input cost charted its first drop (MoM) since March

- Driven by discounts from suppliers and lower commodity prices (Brent: USD59.6/barrel; Sep: USD62.8/barrel). In response, firms reduced selling prices at the fastest pace since January 2015, backing our benign inflation outlook for the year (0.7%; 2018: 1.0%).

● Mixed manufacturing performance across regions

- Eurozone (flash: 45.7; Sep: 45.7): ninth successive month of decline, steepest drop since 2012 on the back of continued decrease in new orders and exports.

- US (flash: 51.5; Sep: 51.1): the highest reading in 6 months underpinned by improved exports and sentiments, as President Trump announced a phase-1 US-China trade deal.

- China (51.7; Sep: 51.4): strongest expansion since February 2017 along with improved sentiments in part due to the release of new tariff exemption lists by the US, covering over 400 Chinese goods.

● Cautious outlook for the sector retained

- Despite recent positive developments surrounding the US-China trade feud, the impact of existing tariffs would still weigh on global trade and growth in the immediate term.

- As a relatively-small open economy, Malaysia stands to experience negative spillovers towards its domestic activities, with GDP growth forecasted to moderate to 4.5% in 2019 (2018: 4.7%).

Source: Kenanga Research - 4 Nov 2019