Markets on Edge
Right now investors are scared. After all it is September and this is the worst month for stocks and after September comes October, famous for some of the worst stock market crashes of all time.
With Europe in a 2 year long recession, Greece in a 5 year long depression, France is a socialist mess, China up to its eye balls in ghost cities, the possible end of Quantitative Easing, Syria using chemical weapons on its citizens and the US threatening air strikes, should we be running for cover?
Well according to Capital Economics, an independent global macro-economic research house, maybe, just maybe the world isn’t as bad as we think it should be?
In a research note released by Capital Economics last week, it noted that the US Manufacturing Index just hit a 28 month high in August with a reading of 55.7 (a reading above 50 shows the US manufacturing sector is expanding). According to Capital Economics “at 55.7, the headline index is consistent with a further acceleration in (US) GDP growth to around 3% annualised in the third quarter”.
They also noted that their Global New Export Orders Index rose from 54.0 to 56.1 in August, in seasonally adjusted terms, the highest level in 5 months, on the back of improved conditions in the Euro-Zone, China and the UK. Further evidence that global commerce could in fact be improving, not decelerating.
This data is also consistent with the Global Manufacturing Purchasing Managers Index results, also released last week, which showed increasing input purchasing activity in China, the Euro-Zone, Japan, US and the UK.
According to Capital Economics “The latest PMIs point to a broad-based rise in manufacturing activity in August. There was a further increase in the headline manufacturing PMIs for the euro-zone, the US and the UK. What’s more, in contrast to July, PMIs for China and Japan also rose.”
They then go on to say “The most striking feature of the surveys for August was the further improvement in Europe. Headline indices rose for nearly all the euro-zone countries, and Germany’s manufacturing PMI reached a 25-month high. In addition, the headline PMI for the UK reached a 30-month high. The surveys also suggest that activity picked up in emerging Europe and many other emerging economies. As a result, the global manufacturing PMI, published by Markit today, rose from 50.8 in July to 51.7 in August, its highest level for over two years. On past form, this points to global growth of over 3%. (See Chart 2.)
Source: Thomson Datastream, Capital Economics
However, Capital Economics did temper some of their enthusiasm for accelerated growth going forward noting that emerging markets, once the growth engine of global economic growth, is now the drag, stating that “activity in the major emerging economies is likely to remain relatively subdued. Admittedly, we do not expect the recent sell-off in EM assets to have a big knock-on effect elsewhere, not least because none of the major emerging economies seems at risk of a full-blown crisis – with the possible exception of India.” At the same time they also admitted that while it was possible Europe was finally emerging from recession, it did not expect substantial growth.
So perhaps the world isn’t as perfect as we’d like it, and perhaps we still have some months yet before the next catalyst moves stocks higher, but it appears the world is not as bad as the headlines may have you believe.
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The information contained in this report is General in nature and has been prepared without taking into account your objectives, financial situation and needs.