Macroeconomic update: Will the recovery persist?

1:30 PM 2 December 2019
  • PMIs suggest a pick-up in growth globally
  • Markets discounting a very optimistic scenario
  • US looking forward to a strong NFP report  
     

Europe – better data, bigger expectations

For the second time this year we see a major pick up in manufacturing PMIs across the globe. The previous one occurred in March/April but was quickly dispelled. Now the hope is that companies were able to chew through inventories and will be able to increase activity again. For sure a concerted global easing helps and indeed we see all these PMI gains being due to higher orders. That’s a good sign. However, after years of expansion fueled by cheap credit, the question is how sustainable this effect could be? That’s the big question mark. Our Industrial Giants PMI (manufacturing PMI from China, Japan, Germany, South Korea and Mexico) climbed to the highest since April (we still wait for the data from Mexico, but it has the lowest weight) but is still down in y/y terms whereas the DAX is at +17.5%! Looking at the chart we clearly see that markets discount a repeat of 2013 scenario where the European economy was recovering from the euro-crisis but also the global economy was at much earlier phase of expansion.

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Already priced in? The global economy needs to keep improving to justify recent DAX rally. Source: Macrobond, XTB Research

Key economic event this week: industrial output in Germany (Friday, 7:00 am GMT)

Asia – waiting for hard data

The lift in PMIs was seen across Asia. All the Chinese, Japanese, South Korean manufacturing and India manufacturing PMIs improved. That’s the good news. Having said that corporate profits are down y/y in China and Japan and South Koran trade data for November shows that slump in exports continues. That should make investors a bit cautious – these brighter PMIs still need confirmation from the hard data.   

The Chinese equity market is not convinced with the PMIs – will we see a retest of 10000? Source: xStation5

Key economic event this week: Caixin PMI services (Wednesday, 1:45am GMT)

US – looking for a strong NFP

It’s going to be very intensive week in the US with both ISMs, ADP report and NFP report on Friday. ISMs are always interesting but since the US lags this economic cycle investors may pay more attention to the NFP report. It’s been showing steady employment growth but at slower pace than in previous years. We can see that November has been above average month so far in this decade but expectations are already high (employment gain of 180k) and the US dollar has been strong. Taking this into account a risk of disappointment shouldn’t be ignored.   

The November NFP has been above average so far during this decade but this already seems to be priced in. Source: Macrobond, XTB Research

Key economic event this week: NFP report (Friday, 1:30pm GMT)

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