5 Charts On Current Macro Trends: China; The Dollar; The Fed; PMIs
Callum Thomas | May 01, 2019 12:02AM ET
Here's some of the standout economic and markets charts on my radar (originally posted on LinkedIn). I aim to pick a good mix of charts covering key global macro trends, and ones which highlight risks and opportunities across asset classes.
1. China PMIs: We just got the China April PMIs, and the news was probably disappointing to some. If there weren't doubts over China "green shoots" before, there will definitely be doubts now. Both the manufacturing (50.1 vs 50.5) and non-manufacturing (54.3 vs 54.8) were down vs March.
Yet there's a couple of things I'd point out: first is the 3-month rolling average of both PMIs is still up vs the lows and up vs last month (i.e. the trend if you would is higher), another very interesting data point is the export orders sub-index which not only rose vs March, but chalked up a 9-month high. The other thing is both are still above the key 50-point mark. So I would hesitate to throw the towel in on the China story just yet.
2. US Dollar Index - Breakout or Fakeout? If China PMIs missing didn't rattle you, then the US dollar breakout might have... A stronger US dollar typically ends up driving tighter financial conditions globally as it puts pressure on commodity prices and emerging markets, and indeed was arguably a key driver behind the EM/global stress episode in 2015/16.
I talked about this issue at length in both the Friday macro report and the Monday markets monitor. Basically my take is to be respectful yet skeptical of the breakout. I still lean to the bearish side for the US dollar, but if this turns out to be a fully fledged breakout (vs a fakeout - i.e. failed breakout) then I'm not going to be religious about it...
Chart Source: Global Cross Asset Market Monitor
3. Inflation Expectations and the Fed - rate cut time? One thing going against the US dollar is a more dovish Fed, and if this chart is anything to go by (and maybe it's not!) then if anything, the Fed should actually be even more dovish than the market has decided that they are. The chart shows the year-on-year change in the Fed funds rate against our inflation expectations composite . Basically through history the Fed has tended to lift rates when inflation expectations are rising and vice versa. Thus, the recent softness in inflation expectations arguably affords the Fed scope to cut rates.
Get The News You Want
4. US GDP Growth vs the PMIs: Some of you will be thinking after the previous chart, "but what about the strong GDP results?". Indeed it was a decent print, and goes against some of the more bearish narratives that have been floating around and proliferating as market volatility spiked. Yet the PMIs seem to point to at least a period of softer US GDP growth over the next quarter. We're yet to get the final results for April, so I'll leave it at that.
5. Speaking of the US PMI... or will I? Last chart gives some food for thought ahead of the April ISM. If you ask (believe?) US cyclicals vs defensives, they seem to be pricing in a pop in the PMI. They've been wrong before, and sometimes spectacularly (cough-2008-cough), but a 60 handle on the ISM would certainly wake up these sleepy markets! (source )
Thanks for reading, I appreciate your interest in my work.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.