The release of Global Flash PMIs and partial (or flash) results from the ongoing PMI surveys of key economies around the globe could have an outside impact on the markets in the current situation. Particularly for commodity currencies, which have been fluctuating around economic growth prospects. But markets are aligning with the view that major central banks are shifting towards supporting the economy over inflation. The major exception being the Fed – for now.
A recent survey by S&P Global of investment managers showed that equity investors are primarily basing their outlook on central bank policy in the near term. This explains why central bank moves (and expectations thereof) are having such a large impact on the market. In light of the Global Flash PMIs, global growth concerns are seen driving central bank policy, so leading indicators of economic activity – like PMIs – have gained prominence.
Where’s the Growth?
Naturally, China is a major concern for markets, after reports the economy underperformed in the third quarter. The government’s unprecedented stimulus might change that, with the potentially first indications seen in the PMI figures. Unfortunately, China doesn’t provide advance PMI figures. But we might get some indication through proxy among China’s largest suppliers, such as Australia.
Australia’s October PMI is expected to tick back into expansion at 50 from 49.6 prior, thanks to a boost in services PMI to 51.0 from 50.5 prior. We should recall that the RBA is resisting calls to start easing, arguing inflation is too high, particularly in the service sector. An improvement in the economy could mean rates can stay higher.
Europe, The Sick Man
It used to be said that Germany was the “sick man of Europe” given its economic underperformance compared to its continental peers. However, apparently it is contagious, as now other countries in the Euro Area are falling back into contraction, with France – the second largest economy in the Zone – being noteworthy. As explained yesterday, economic underperformance could lead to the ECB accelerating its rate cut program.
German Manufacturing PMI is expected to remain stable and well into contraction at 40.6. With the composite inching up to 47.8 from 47.5 prior. French Manufacturing PMI is expected to mount a minor resurgence to 45.0 from 44.6, with the composite expected to remain in contraction at 49.0, though a slight improvement from 48.6 prior.
The Anglo Exception
The UK has managed to escape the economic doldrums from other parts of the world, keeping interest rates higher. But a recent surge in uncertainty has left investors and consumers holding back, which could lead to the economy sliding into negative. And that could finally push the BOE to start easing in line with its other major peers. A drop into contraction in the PMIs could be a signal for weakness in the pound, but a firming up of expansion could lead to reduced bets of monetary policy easing.
UK Manufacturing PMI for September is expected to advance marginally to 51.7 from 51.5 prior, contributing to a boost in the composite reading to 53.0 from 52.6 prior.
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