Flash PMIs Point To Stronger Global Economy

Oct. 31, 2016 7:50 AM ET1 Comment
Topdown Charts profile picture
Topdown Charts
4.75K Followers

Summary

  • In a preview for this week's PMI action, the October "Flash Global PMI" surged, following the trough in May.
  • The strength in the flash PMIs was broad-based across the major developed economies, with the US a notable example. Strong DM is important for the global outlook.
  • The major market implication is a bearish outlook on bonds - a back of the envelope analysis suggests the US 10-year treasury should be yielding at least 2.5%.

The October round of flash manufacturing PMIs has put the global composite (based on US/EU/Japan) at a 12-month high after a growth scare that hit its nadir in May. The strength was broad-based with all three regions improving and beating expectations: US 53.2 (51.6 expected, 51.5 previous), Europe 53.3 (52.7 E, 52.6 P), and Japan 51.7 (50.6 E 50.4 P).

The US was a standout, with its services PMI surging. This could be a sign that firms are starting to act despite political uncertainty (which according to consumer and small business surveys had hit record highs) - with the amount of concern voiced around it, there could be a degree of pent-up demand coming through.

The stronger results overall are also consistent with the tentative improvement we are seeing in our global trade indicators. Either way, the global economy seems to have turned the corner, and it looks to be taking bond yields with it.

Indeed, the charts show the US 10 year has traded reasonably closely with that global PMI, and if the relationship holds (and of course the other "if" is if the global PMI holds on to that rebound or even makes further gains), then bond yields are in for even more upside.

A simple analysis shows the US 10-year bond yield would need to sell off to around 2.5% to close the gap that has opened up. So again, this is bad news for yield-sensitive assets and bonds/duration more broadly.

Bottom line: The "flash global PMI" surged in October on broad strength in the major DM economies, this is bad news for bonds.

This article was written by

Topdown Charts profile picture
4.75K Followers
Topdown Charts is an independent research firm covering global asset allocation and economics - bringing a chart-driven, top-down approach to investors.  -->> Check out our new entry-level service: https://topdowncharts.substack.com/--We take a top-down, global multi-asset perspective to deliver:Actionable investment ideasRisk management inputMeaningful macro insightsCharts to use in your own work--Our clients include Pension companies, RIAs, Hedge Funds, family offices, insurance firms, and wealth managers and Investment Consultants.--Sign up for exclusive insights:  https://topdowncharts.substack.com/===================================================
Follow

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (1)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.