With risk-off flows once again dominating lately, investors are looking for signs that might point to some kind of recovery. Next week sees a series of data points that could help dent the recent safe haven moves. But chief among them could be the PMI figures that come out at the start of the month.
Traders are really interested to know just how much of an impact tariffs will actually have. And with purchasing managers having to respond and even anticipate the impact of higher prices, the survey of their situation gives valuable insight. Up until now, the trend has been that businesses have tried to “front load” orders to get raw materials before they were hit with tariffs. But now going into the third month of Trump’s presidency, there could be additional information on how the higher import costs are affecting businesses.
It’s Not as Bad as It Looks
Markets were initially shocked when the Fed’s GDPNow tracker projected back in February that the US would see negative growth in the first quarter. That is a far cry from the expected acceleration from a pro-business White House. The indicator still remains in the negative, but data that has been coming out so far suggests that the fears might have been a little exaggerated. But, without a clear indication that the late February and early March sell off was oversold, markets could stay in a holding pattern.
With that in mind, the preliminary measures of PMIs that came out a week ago showed positive signs. Optimism is growing in European businesses, even though they still remain in contraction. What might be key is China, which has borne the brunt of the tariffs, and if its economy continues to expand, it could mean that the concerns over the impact of the trade wars are a bit overblown. Though that could also be explained by the support from the central government in the form of stimulus.
What to Look Out For
China’s official NBS manufacturing PMI comes out on Monday, with the measure expected to advance slightly into expansion to 50.5 from 50.2 prior. But, this includes a heavier concentration of large, state-run enterprises which presumably would see more benefit from the stimulus measures.
Attention might turn to Tuesday’s Caixin manufacturing PMI release, expected to decline slightly to 50.7 from 50.8 prior. That’s still above the 50 level that separates contraction from expansion. But the Caixin measure includes a higher concentration of export-oriented companies, so the impact of tariffs might be seen better with this measure.
After the flash number in Germany rose by surprise, the expectation is that Final German Manufacturing PMI will be confirmed at 48.3. This has helped provide some support for the Euro, as an accelerating economy would be seen as keeping rates higher.
Then we jump across the Atlantic to the US ISM Manufacturing PMI which is expected to slip back into contraction ato 49.7, down from 50.3 prior. The drop is expected to be led primarily by new orders, a sign that US businesses are holding back in the face of tariff uncertainty. But, markets could be relieved if this indicator manages to stay positive.