Dissecting Global PMIs

<p>At the end of the day’s release of several Purchasing Managers Indices, French flash PMIs (manuf & services) were the only ones to disappoint. Each […]</p>

At the end of the day’s release of several Purchasing Managers Indices, French flash PMIs (manuf & services) were the only ones to disappoint. Each of those from China, Germany and Eurozone’s composite PMI showed an increase as well as beat expectations. Here is a charts look where all the major global PMIs stand.

Positives

-         Current global PMIs stand well below the levels of 2007 when equities hit record highs. With US and global indices trading only 5-7% from their record highs and PMIs remaining markedly lower than their 2007 levels, this may imply further upside room for the PMIs will likely feed into a fresh dosage of momentum in equities.

-         All three manufacturing PMIs from the US, UK and China are above 50, for the first time since March 2012.

-         Improving German PMIs (manuf & services) stand on an improving foundation considering two-month highs in Germany’s ZEW (released earlier this week) and an anticipated rally in Friday’s release of the January IFO survey, whose expectations component is already at seven-month highs.

Negatives

-         Since PMIs are lagging behind the equities, pessimists could view this as the lack of real macroeconomic expansion, with equities being primarily guided by central bank liquidity drives.

-         UK services PMI stands out from the other four PMIs by showing continued deterioration.

The current run-up in global equities at the expense of the yen and the US dollar is in line with our generally bullish take for intermarket dynamics since November. Our continued preference for AUD over CAD in the commodity currencies’ space, and expectations for further relative under-performance in gold vis-a-vis oil (not a typo) is likely to underpin the flow for further animal spirits, until we see 97 USD/JPY (support 87), 1.37 EUR/USD (support at 1.3190), 1530 in SP500 (support 1430).

 

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