Friday , 29 September 2023

World’s Latest PMIs Forecast Weak/Negative Growth in Manufacturing & Services

The [latest] Purchasing Managers’ Indexes (PMI) [from] around the world forecast weak growth to negative growth in manufacturing, and weak to moderate growth in services over the near term, with the composite of manufacturing and services forecasting weak growth. [See the major country specifics below.]

PMI is:

  • based on a monthly survey of businesses to gauge current conditions and trend…
  • a short-term coincident indicator with short-term forecasting utility.
  • centered around 50 and ranges from 0 to 100.
    • Values above 50 indicate growth and
    • values below 50 indicate contraction.

In the table above, pink shaded cells show contraction and bold red values indicate the current index value is lower than the prior monthly value.

Once plotted on a long-term chart, the PMI may have intermediate-term trend forecasting utility.

World PMI Trend Lines

The world composite PMI trend line [below, compliments of]…Trading Economics, shows the world slowing.

United States PMI Trend Lines

The USA Manufacturing PMI trend line [below] shows the USA slowing and at the lowest rate of manufacturing growth since 2013

The USA Services PMI shows the USA slowing.

World Bank GDP Growth Forecasts

The World Bank sees GDP growth:

  • slowing (not declining but growing more slowly) in 2020 compared to 2019 in the United States, Euro Area, Japan and China…[and]
  • increasing in Brazil, Mexico and India.

…The chart [below] looks at the year-over-year GDP growth rate of the selected countries and regions [since 2015 with forecasts of future growth/contraction]:

It is important to preface the above information with a note that the GDP growth rate of each country or region has different correlations to the performance of the stocks listed there. For example:

  • a country whose broad stock market has a high percentage of globally diversified listed stocks (e.g Switzerland or the Netherlands) may correlate more with the World GDP growth rate than the local country GDP growth rate;
  • while a country whose broad index has mostly local operators (e.g. Vietnam) may correlate more with the local GDP growth rate.

The economy and the stock market are two different things at any given moment, but ultimately they tend to relate to each other over the long run.

  • The Euro Area and Mexico have the highest current dividend yield among the selected countries and regions,
  • while Brazil and Mexico have the highest cash flow yield (cash flow divided by price) but, when normalized relative to the debt level of U.S. stocks, Japan, China and Mexico have the highest cash flow yields.

Proxy ETF Trends

The charts below show the monthly total return and the 10-month moving average (equivalent to the 200-day average) of proxy ETFs for the selected countries and regions.

The above charts show that:

  • The USA is in a long-term uptrend.
  • Brazil has been in an uptrend for about a year.
  • World stocks and Euro area stocks are beginning to form an intermediate up trend line.
  • Japan has made a serious break above its trend line, which has itself has not yet turned up.
  • India’s trend line is slightly positive, but the price is below the trend line.
  • China has just begun to turn up the tip of the trend line.
  • Mexico’s trend line is still pointing down, but the price is slightly above “trying” to reverse the trend direction.
Editor’s Note: The above excerpts from the original article by Richard Shaw have been edited ([ ]) and abridged (…) for the sake of clarity and brevity. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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(The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)