Markets could have a renewed focus on Friday’s PMI figures, particularly from the US. Typically, the survey is a health check on the economy, and influences risk appetite. But, this is the first bit of data that includes some of the post-election impact. That means traders will likely be very keen to see if there are any important changes in the underlying data.
Donald Trump’s future presidency is somewhat unusual in its likely high impact on forex. Typically, politics is not a major factor for markets, as currencies tend to trade on the basis of interest rates in relatively narrow ranges. However, Trump’s focus on international relations, and particularly on tariffs, are likely to have an important effect on the dollar and America’s trade partners. As a result, their respective currencies are likely to fluctuate more. Which puts increased focus on the PMI figures.
Why It Matters
The dollar has been stronger since November 6 on the back of higher Treasury yields. Markets are pricing in the potential for stronger economic growth, that give the Fed more room to hold rates higher. Additionally, the combined effects of that growth and tariffs raising costs of imported goods, is seen giving the Fed reason to make use of that headroom. So, traders will want to see if there are any signs of this phenomenon actually manifesting in the data as we go through the transition period.
The Purchasing Managers Index is a survey of, well, purchasing managers, to see if they report increased activity or not. It’s a helpful index, because it shows overall whether businesses are more or less optimistic. Optimistic businesses buy more, and vice versa. Additionally, those purchasing managers can see trends in the economy, such as increased prices, which hints at future inflation. Or increased lead time in orders, which suggests supply chain problems. The reverse, a decrease in lead time in orders, suggests rising inventories, a sign the economy might slow down.
What to Look Out For
On the top line, markets expect the trends of the last months to remain intact. That is, manufacturing to be marginally in contraction, while services is well ahead in expansion. But some of the near-term impact of the Republicans gaining sweeping control of the government might start to show up in the PMI data. Such as, for example, businesses trying to get in front of the tariffs by pre-ordering goods.
Traders will likely be interested to see if there are any incipient signs of shipping congestion, which could end up raising prices. PMI figures track export orders, which could show if there are any signs of shifting trade patterns. For example, increased orders from the US, and decreasing orders from Europe could be a sign of a widening gap between those two economies’ growth outlook. That would likely impact the Euro and its pricing against the dollar.
US Flash November Manufacturing PMI is forecast to stay in contraction, but advance to 49.2 compared to 48.5 prior. This could be influenced by companies holding off orders ahead of the uncertainty of the election. Services PMI is expected to remain essentially the same, ticking up to 55.1 from 55.0 prior. The composite PMI reading is projected to remain well in expansion at 54.3 compared to 54.1 in October.