US PMI’s Spook Markets

October 7, 2019

US PMI’s Spook Markets

Last week saw the release of a raft of data for the month of September, indicating that the US economy was succumbing to the global slowdown. Purchasing managers indices (PMIs) for both the manufacturing and services sectors in the US came in below expectations and sharply down from August. The ISM Manufacturing PMI released on Tuesday came in at 47.8, down from 49.1 in the prior month and below the 50.1 expected. A reading of under 50 indicates that activity is contracting. Furthermore, the non-manufacturing survey also fell sharply, to 52.6 from 56.4 in August. In both cases the release led to a sharp fall in equity markets globally. The US economy has been a bright spot in an otherwise concerning picture for the global economy. While PMIs can be volatile and sentiment driven, they often are a good forward indicator to actual activity. The market will therefore be closely watching the Q3 GDP figures to see if there has really been such a marked slowdown in the economy.


Hong Kong Protests Escalate

During the 70th anniversary celebrations of the Republic of China the protests in Hong Kong that have been ongoing for several months escalated, resulting in a protester being shot by the police. The persistence of the protesters and the apparent escalation in violence between the police and protesters suggests that these are unlikely to be a quick resolution. The disruption has begun to impact the economy of Hong Kong which benefits highly from mainland tourism. Furthermore, the longer the civil disruption persists the greater the impact to the financial centre’s reputation. There is already some anecdotal evidence that business is beginning to shift activity away from the city.


UK Recession?

Data released last week indicated that the UK economy may be in recession, having recorded a negative rate of growth in Q2. PMI data for services, which makes up the bulk of the UK economy, came in at 49.5, suggesting a contraction in activity in September. The UK has been impacted by weakness in the global economy as well as domestic political uncertainty. While a recession is yet to be confirmed, it would likely lead to the Bank of England cutting rates to support the economy. A recession would also amplify calls for the Chancellor to provide a fiscal stimulus. Nevertheless, the outcome of Brexit will likely determine the short-term pathway for the economy and few decisions are expected before the current end of October deadline is reached.


Market Data

  % 1w* % 1m*
UK -3.54% -1.85%
US -0.17% -0.24%
Europe ex UK -2.16% -1.97%
Japan -0.72% 3.50%
Emerging Markets -0.33% -0.01%
Oil -4.21% -3.01%
Gold 0.60% -3.70%