Global PMIs (December 2012) poke up – markets set for the “risk on” trade. The global manufacturing sector continued to stabilise in December. At 50.2, from 49.6 in November, as indicated by the JPMorgan Global Manufacturing PMI. It lifted back above the no-change mark of 50.0 for the first time since May 2012.
Global manufacturing output, new orders and employment were all broadly unchanged over the month in December, though solid gains in output were recorded in the US, China and the UK. Emerging markets also fared well, with expansions continuing in Mexico, India, Brazil, Turkey and Indonesia. Although growth in Russia and Vietnam slowed to near stagnation, trends in output stabilised in South Korea and Taiwan following six-month periods of contraction.
The Eurozone and Japan remained the main drags on global manufacturing production and employment in December. The euro area saw output contract for the tenth month running, while jobs were cut for the eleventh straight month. The downturn in Japan gathered pace, with production falling at the sharpest pace since early-2011 and payroll numbers declining for the third consecutive month.
In all, a slightly better outlook for the near term for the global economy. At least its not heading down as before, but there are still massive issues to be resolved and this could all easily change. That being said, for the next few weeks these are several factors that could power the “risk on” trade higher:
- PMIs poke up, indicating some “green shoots” of economic recovery – as discussed.
- At least a partial resolution of the US “fiscal cliff.”
- Massive Fed and other central bank stimulus – quantitative easing.
- For the moment no Eurozone headaches – at least the problems are on the back burner.
- As we head into earning season the market outlook is for positive expectations.
- Political election uncertainties out of the way.
- Momentum – at the start of the year hedge fund manager’s push for performance – they need to get in or look stupid in front of their clients.
I have noticed this January effect in recent years. Markets start out the year on a tone and often carry through the entire month and into the first quarter. There are headwinds coming for sure later in 2013, but for now don’t fight the trend here in the short run – its “risk on.”
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