Richard Franulovich, head of FX strategy at Westpac, suggests that the recent fall in global PMIs brings them into line with the recent tightening in global financial conditions.
“The US PMI in particular has closely mimicked the evolution in US financial conditions; as US financial conditions eased in 2017 and into 2018 amid surging equities, tightening credit spreads and still low interest rates the US manufacturing ISM rose to multi-year highs over the same period. Then, as financial conditions tightened sharply late last year the ISM manufacturing index tumbled to a two-year low.”
“The Eurozone manufacturing PMI does not track developments in Eurozone financial conditions as slavishly but still follows the broad cycle. The tentative good news is that financial conditions have stabilised early in 2019, with similar implications for the PMIs.”