PMI data sparks a recovery
Resource Hotspot 304
Global commodity and equity markets surged overnight following the release of the latest data from the manufacturing sector – which indicates activity is expanding at a solid pace and has accelerated in both China and the U.S. during the past month. This will help to dissipate recent fears in global equity markets that a major economic slowdown is unfolding during the second half of 2010.
While one month’s data may be inconclusive, and consensus expectations remain biased towards sluggish growth during the remainder of the year, the risk now is that manufacturing activity is stronger than expected. Accordingly, we are likely to witness a reduction in short selling activity – supporting stronger commodity and equity prices.
The key data series that were released by the manufacturing sector was the monthly Purchasing Managers Index or PMI (the PMI correlates well with industrial demand and hence commodity demand).
The PMI data for the key economic regions is outlined below:
Source: ISM, Markit, SR
| Headline PMI by Area |
US | Eurozone | Japan | China |
|---|---|---|---|---|
| Jan-08 | 50.7 | 52.8 | 52.3 | 53.2 |
| Feb-08 | 48.3 | 52.3 | 50.8 | 52.8 |
| Mar-08 | 48.6 | 52.0 | 49.5 | 54.4 |
| Apr-08 | 48.6 | 50.7 | 48.6 | 55.4 |
| May-08 | 49.6 | 50.6 | 47.7 | 54.7 |
| Jun-08 | 50.2 | 49.2 | 46.5 | 53.3 |
| Jul-08 | 49.5 | 47.4 | 47.0 | 53.3 |
| Aug-08 | 49.3 | 47.6 | 46.9 | 49.2 |
| Sep-08 | 43.4 | 45.0 | 44.3 | 47.7 |
| Oct-08 | 38.7 | 41.1 | 42.2 | 45.2 |
| Nov-08 | 36.6 | 35.6 | 36.7 | 38.8 |
| Dec-08 | 32.9 | 33.9 | 30.8 | 41.2 |
| Jan-09 | 35.6 | 34.4 | 29.6 | 45.3 |
| Feb-09 | 35.8 | 33.5 | 31.6 | 49.0 |
| Mar-09 | 36.3 | 33.9 | 33.8 | 52.4 |
| Apr-09 | 40.1 | 36.8 | 41.4 | 53.5 |
| May-09 | 42.8 | 40.7 | 46.6 | 53.1 |
| Jun-09 | 44.8 | 42.6 | 48.2 | 53.2 |
| Jul-09 | 48.9 | 46.2 | 50.4 | 53.3 |
| Aug-09 | 52.9 | 48.2 | 53.6 | 54.0 |
| Sep-09 | 52.6 | 49.3 | 54.5 | 54.3 |
| Oct-09 | 55.7 | 50.7 | 54.3 | 55.2 |
| Nov-09 | 53.6 | 51.2 | 52.3 | 55.2 |
| Dec-09 | 54.9 | 51.6 | 53.8 | 56.6 |
| Jan-10 | 58.4 | 52.4 | 52.5 | 55.8 |
| Feb-10 | 56.8 | 54.2 | 52.5 | 52.0 |
| Mar-10 | 59.6 | 56.6 | 52.4 | 55.1 |
| Apr-10 | 60.4 | 57.6 | 53.5 | 55.7 |
| May-10 | 59.7 | 55.8 | 54.7 | 53.9 |
| Jun-10 | 56.2 | 55.6 | 53.9 | 52.1 |
| Jul-10 | 55.5 | 56.7 | 52.8 | 51.2 |
| Aug-10 | 56.3 | 55.1 | 50.1 | 51.7 |
Source: ISM, Markit, SR
Note: a reading above 50 indicates manufacturing sector growth and below 50 represents contraction.
The rise in the official Chinese PMI to 51.7 could be influenced by seasonal factors rather than being a step change in the manufacturing activity, although it was ahead of expectations. Similarly, the U.S. PMI surprised on the upside. At the same time European manufacturing appears to be holding up relatively well, despite the headline figure easing during the month. In contrast the Japanese PMI continues to slide, with a strong Yen probably contributing to weaker exports and industrial production.
Commenting on the data, the U.S. Institute of Supply Management stated “Manufacturing activity continued at a very positive rate in August as the PMI rose slightly when compared to July. In terms of month-over-month improvement, the Production and Employment Indexes experienced the greatest gains, while new orders continued to grow but at a slightly slower rate. August represents the 13th consecutive month of growth in U.S. manufacturing.”
