Economics & Growth | Equities | Europe | US
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The big event for the week ahead is the release of the November PMIs. But there are few other useful releases too. Here are my three focuses:
(1) Will International Investors Start Buying US Equities? Monday brings the release of the latest US capital flow data. It is for September, so it’s not the freshest dataset, but it is comprehensive. The line item I’m focused on is foreign purchases of US equities. One of the remarkable features of markets in recent years has been the outperformance of US equities and complete lack of interest by foreigners. Indeed, in April this year, saw foreign investors sell the most US equities in decades (see chart). The selling has slowed down, and the new data should confirm whether international investors are becoming less negative towards the US. This could soon become a dollar positive factor.
(2) Is the European Auto Sector Bouncing Back? One sector dominates the cycle of Europe, autos. When people want to buy cars, Europe does well. However in recent years weakness in China, a global shift to electric cars and increased European regulation against diesel cars has seen Europe (and especially Germany) stumble. Tuesday sees the latest data on EU car registrations. It’s a barometer of the health of the sector. It has been bouncing recently. If the data confirms that then there could be hope for the European business cycle. This could see euro yields rise.
(3) Will PMIs Show A Global Recovery? Towards the end of the week, we get PMIs from around the world. The key ones will be the US, Euro-area and Japan – all out on Friday. Recently, the manufacturing PMI for the US has been turning up (moderately), but the Euro-area and Japan’s have yet to show a clear recovery (see chart). Japan’s challenge has been the recent increase in sales tax, while Europe has suffered from notable weakness in the Germany. And of course, both have been hit by trade war uncertainty and weak Chinese growth. The US divergence probably explains US equity outperformance, so the trends in other countries are worth watching to see how long that lasts.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.
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