Developed Market Manufacturing PMI Still Points To Higher Yields

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Developed Market Manufacturing PMI Still Points To Higher Yields

The latest round of flash manufacturing PMIs for May saw the Eurozone in the lead up +0.3 to 57.0 and USA trailing behind, down -0.3 to 52.5 and Japan off -0.7 to 52.0 and left the composite flash Developed Market manufacturing PMI down slightly.  It highlights the slight loss of momentum seen in the global economic rebound that got underway last year, as we looked at last week with the OECD leading indicators.

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While the fact is that the composite DM manufacturing PMI has rolled over, it’s still at solid levels, and provides a case for at least stable if not slightly higher bond yields, as shown in the chart below.  It will be important for the PMI to hold at these levels should bond yields head higher.  Supporting that case would be solid global trade growth, rising property prices in the major economies, and still stimulative monetary policy.  So my base case would be that the global economic expansion continues, upside risk remains for inflation, and therefore my bias would be to expect higher bond yields, all else equal.

The rebound from the slowdown last year saw a synchronized acceleration in the manufacturing PMIs of the major developed market economies, but this has given way to more desynchronized growth.

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While the composite Developed Markets manufacturing PMI has rolled over from the peak, it remains much stronger than a year ago, and is still supportive for higher bond yields at this point.

Developed Market Manufacturing PMI

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Article by Callum Thomas, Top Down Charts

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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.
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