11 April 2021
Source: Bloomberg & Momentum Global Investment Management
What this chart shows The lock downs imposed by governments across the world had unprecedented impacts on all areas of life and this was reflected in the steep drop in PMI (purchasing manager indices) data last year. PMIs are diffusion indexes that serve as an indicator of business activity and market conditions relative to the previous month, with 50 the point separating expansion (>50) and contraction (<50). Here we decompose PMIs for the US, UK, Euro zone and China into their manufacturing and services components, with the manufacturing sector data climbing sharply in recent months. The latest data was released last week and the US hit 64.7, the highest reading in 37 years. Meanwhile, the services sector PMIs reveal pockets of disruption. The US, UK and China are in expansion, however the Euro zone has been in decline (less than 50) for several months, perhaps unsurprising given the third wave of the pandemic now sweeping across the region, triggering further restrictions.
Why this chart is relevant
The strong PMI data out of the US was one factor in pushing the US equity market to all-time highs last week. The all-important services data printed at its highest level since data began in 1997, which is significant as larger portions of the US, UK and Euro zone economies are derived from these sectors. For example, over 77% of US GDP is accounted for by the services sector, including financial services, media and technology. As seen by the subsequent market impact, investors have reacted favorably to the positive PMI news. However, as evidenced by Europe, there is no guarantee of a straightforward path out of the pandemic and investors are sure to watch this data closely over the coming months as further restrictions will no doubt impact activity.
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