Tag Archives: US

Global PMI’s Are Rising Again After A Long Negative Streak

Purchasing Managers’ Indexes (PMI) are economic indicators derived from monthly surveys of private sector companies. Today the latest PMI Manufacturing Index for the US (The ISM Manufacturing Index) came out which was the most negative reading in the last decade.

Global manufacturing PMI’s are rising again though after a record streak of 15 negative months of declines. The last time this index went positive after a long streak of negative PMI’s it was 2009 and that turned out to to be the bottom and a great moment to buy stocks.

Global Manufacturing PMI
Number of months in a row of rising or falling Global Manufacturing PMI’s

The above index has coincided quite nicely with the Bloomberg World Stock Market Cap index which hit a high in January 2018. The index still hasn’t recovered since then.

Bloomberg World Stock Market Cap Index
Bloomberg World Stock Market Cap Index

Does The Inversion Of The Yield Curve Signal a Recession?

An inverted yield curve is one of the few indicators that before have always correctly signalled an upcoming recession. An inverted yield curve happens when the yield on 10 year treasuries is below the yield on 2 year treasuries (sometimes called the “2s10s”). The 2-10 year yield curve is the most common people view. Currently the 2-10 year yield curve is positive after it turned negative for the first time since 2007 at the end of August.

Yield Curve Inversion
Yield Curve Inversion

In the past a negative yield curve has always signalled that a recession could happen in the next 1 to 2 years. Note from the chart below that the curve can be at or below zero for a long period before a recession happens. Furthermore from the chart it looks like a rapidly steeping yield curve signals a recession is close.

Yield curve inversion long term chart
Long term chart of the yield curve

The question arises will an inverted yield curve signal a recession this time? A big difference in my opinion with other times is that this time the yield curve is watched by a lot of participants in the market and so a lot of stories are published about it.

Stories mentioning "yield curve"
Stories mentioning “yield curve”

From the mainstream media such as Drudge Report.

Drudge report yield curve inversion recession
Screenshot of the frontpage of Drudge Report on August 14, 2019

To the president of The United States who even talks about a “crazy” inverted yield curve.

Donald Trump President of The United States Tweets on the Yield Curve Inversion
Tweets from the president of the United States Donald Trump mentioning the yield curve inversion

And even members of the Federal Reserve such as Atlanta Federal Reserve President Bostic (picture below) and Neel Kashkari (in a post on Medium here) the President of the Minneapolis Federal Reserve are openly talking about the inversion of the yield curve and what it means for the economy.

Federal Reserve Bostic Yield Curve Inversion
Headlines from Fed’s Bostic on May 16, 2018

It remains to be seen whether the signal works this time.

US Investors Have Been Net Buyers Of European Equities For Over A Year Now

Confidence in the European economy is slowly coming back. The eurozone’s economy (countries that have adopted the euro as their currency) grew by 0.3% in the last quarter of 2013 compared to only 0.1% in the quarter before. The Dutch economy grew by as much as 0.7% in the fourth quarter relative to the third quarter. Growth for the whole 28-member EU was 0.4% in the last quarter of 2013. For the whole of 2013 the economy of the eurozone contracted with 0.4% while growth for the whole EU grew with 0.1%.

This growth in the European economy has gradually attracted investors from outside the EU to buy European Equities since last year. US investors have been net buyers of European equities for over a year now as the chart below, courtesy of Gavyn Davies, depicts. The Eurostoxx 50 ETF (FEZ) has showed a very nice return lately and is up 20% from a year ago.

NET US Buying of European Equities (12mma)

NET US Buying of European Equities (12mma)

But as Shaun Port of Nutmeg pointed out, most of this money has actually been going in UK stocks. Historically US investors seem to favor UK stocks above stocks from other countries in the eurozone. Which is pretty interesting because the FTSE 100 has been in the same tight range for over a year now (chart).

US Net Purcheses Of European Equities, Rolling 12-month total

US Net Purchases Of European Equities, Rolling 12-month total

As a bonus: here is the same chart from Shaun Port as a percentage of total market capitalization.

US Net Purcheses Of European Equities, Rolling 12-month total As A Percentage Of Market Capitalization

US Net Purchases Of European Equities, Rolling 12-month total As A Percentage Of Market Capitalization