The December round of manufacturing PMIs have revealed a number of trends worth keeping an eye on as we enter 2017. A couple of these I talked about in the2016 End of Year Special Report– such as the turnaround in DM PMIs which led the selloff in bonds, and the rebound in global trade orders which offers prospects of an improvement in global trade growth in 2017. Below is a quick wrap of the December PMI results and some key charts to watch.
1. The Synchronized Upturn
The turnaround in developed economies has been simply remarkable, and while emerging markets have been going in fits and starts, the general direction has been for improvement in the emerging markets composite PMI. The synchronized upturn marks a shift from the de-synchronized growth of the past few years and sees 2017 starting from a much different (better) position than the start of 2016.
2. The Global Trade Rebound?
Very much related to the previous chart, a synchronized economic upturn would be entirely consistent with an improvement in global trade growth. While there’s plenty of political risk from populist protectionism the current economic trends point to improvement in 2017 — keep an eye on this one.
3. Where to Next for Bonds?
A natural consequence of better growth momentum (and thus more inflationary pressures – certainly no more fears of deflation at least!) is higher bond yields. The best days of QE are over in Japan and Europe, and the Fed is now in rate-hike-mode, so it’s understandable that bond yields have jumped, and they could even go higher from here.
The bottom line is 2017 is already looking very different from this time last year, and that means a series of risks and opportunities for investors – whether they know it or not. Each week we’ll be tracking the twists and turns of the global macro environment for investors in the Weekly Macro Themes -click here to enquire about a free trial.
