Nascent recovery in global manufacturing PMI matters
- After rising for four consecutive months, the JPMorgan global manufacturing PMI unexpected fell by 0.6 to 50.4 in December.
- This was driven primarily by developed markets. The US manufacturing ISM dropped from 48.1 to 47.2, the lowest reading since 2009, with weakness in the key production, new orders and employment subcomponents. The German manufacturing PMI remains mired at a level (43.7) consistent with ongoing industrial recession.
- On the other emerging market readings were stronger, with manufacturing PMIs in global trade bellwethers Korea and Taiwan both unexpectedly rebounding above 50 and the official Chinese manufacturing PMI holding just above 50.
But central banks remain in an accommodative mode...
- The People’s Bank of China cut the reserve requirement ratio for deposits at financial institutions by 0.5%, to 12.5%, releasing RMB 800bn (approx. US$ 115bn) of liquidity into the banking system.
- The minutes of the December FOMC meeting made it clear that the bar to a resumption of rate hikes is very high, as participants “generally expressed concerns” about a shortfall in inflation versus the 2% target.
Allowing the risk rally to continue into 2020
- Developed market indices such as the European Stoxx 600 and the US S&P 500 recorded fresh all-time highs at the start of the week, albeit they have come moderately off the highs on rising geopolitical tensions following the assassination of a senior Iranian military official by a US drone strike.
- Nevertheless, reaction seems quite localised and primarily confined to oil (Brent moving up to multi-month highs close to $70/bbl) and precious metals (gold coming within touching distance of $1,600/oz for the for the first time since early 2013.