ChartBrief 92 – The Problem With PMIs

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ChartBrief 92 – The Problem With PMIs

So what’s the problem with the PMIs?  I could talk about a couple of things here, such as the divergence within emerging and developing economies, and the divergence between them. I could talk about the topping out of the global manufacturing PMI.  But that’s not it.  The one in the main chart today is the divergence between the ISM manufacturing PMI and the Markit manufacturing PMI.  The June readings had the ISM up 2.9pts to 57.8 and Markit down -0.6pts to 52.1 so a notable difference in level and change.

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For me there's a couple of observations I think are important: 1. Take a 3m rolling average view and regardless of the level the trend is the same i.e. both saw a topping out after the late 2016 surge;  2. The last time there was a big disagreement between them the GDP growth outcome was more or less in the middle (from here that would mean 2-3% growth vs 3-4% implied by ISM);  3. There is an interesting comovement between the China and US PMIs (applies to both official vs ISM and Markit vs Markit) which highlights the shared prospects and currency impacts (recall their currencies are still relatively closely tied, and both saw significant appreciation and subsequent easing in the currency).

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So what do you do with it? The main conclusion is GDP growth will still be respectable, and China/currencies/commodities are still critical to the outlook - for now these factors are behaving.

The two PMIs tell a story of either accelerating GDP growth or muddle along, middle-of-the-road GDP growth.  The truth may well lie somewhere in the middle.

Taking a look at the Markit PMIs, the Chinese and US manufacturing PMIs have for the most part moved in a fairly synchronized fashion. The bounce in the China PMI then may offer some hope on the outlook.

Problem With PMIs

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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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