Over the last few months, PMI indicators were closely followed for signs of the effects of tariffs. The survey includes two key elements that are likely to be influenced by increased import levies. Those are pricing and orders. Pricing can show if tariffs are influencing inflation, and orders can hint at potentially slowing economic activity due to higher input costs.
But now that deals are being struck with the world’s major economies, the focus could shift elsewhere. Not away from PMIs, since they are consistently an important leading indicator for the economy. Instead, what could change is what traders are looking to get out of them. Now that prices haven’t been affected all that much, the question is whether the economy will continue at its current pace. If it does or does not, it will have a significant impact on monetary policy and, by extension, the currency markets.
What to Look Out For: China
China’s official NBS Manufacturing PMI is projected at 49.9, up marginally from 49.7 a month ago. That is just not enough to cross the 50 threshold into expansion, a sign that the ongoing trade war could be affecting the world’s second-largest economy. This survey includes mostly large, state-owned companies that have struggled despite massive amounts of government stimulus.
The private Caixin Manufacturing PMI figure is to be released on Friday. It covers a larger range of smaller companies, which could be more agile in addressing the trade situation. It is expected to say in expansion at 50.4, the same as the reading a month ago.
Europe Still Struggling
French July manufacturing PMI is expected to stay stuck in contraction, confirming the 48.4 reading seen in the flash number. Though markets might look past the data and focus on the impact of the recent trade deal with the US. It has received criticism from French officials who say it will slow the economy.
German July manufacturing PMI is expected to improve marginally to 49.2 from 49.0 prior, confirming the flash reading. Officials are expected to revise German growth figures to the upside in the coming weeks. Germany has been largely positive about the trade deal, since it helps protect its key industries.
The Situation Finally Weighing on the US?
The US July S&P Global manufacturing PMI is expected to be confirmed at 49.5, a substantial drop from 52.9 prior. Meanwhile, the ISM manufacturing PMI measure is expected at 49.4, up from 49.0 prior. The explanation for the different values seems to be related to the timing of the survey periods for each.
Since both surveys were carried out before the Japan and EU trade deals were announced, the markets might view the results as a “floor”. That is, if it’s worse than expected, then it might not rattle the markets so much since they expect an improvement due to the trade deals. But, if it’s higher than expected, then it could provide a boost to risk appetite as it suggests the economy was doing OK even before the deals were made.
