Wednesday, April 8, 2015

Solid Rebound in PMIs Augur Well for Global Economy (excerpt)

Stock investors have been going global rather than investing in the US. While going global has been mostly driven by relative valuation considerations rather than relative earnings, global fundamental economic indicators are generally improving. The reasons could be that lower oil prices are boosting global growth and that the stronger dollar is redistributing growth away from the US to other countries.

Especially impressive is the rebound in the JP Morgan Global Composite Output PMI from a recent low of 52.4 during December to 54.8 last month. The increase has been led by the service component, while the manufacturing component has meandered between 51 and 52. The Eurozone has been leading the improvement in the global composite, rising from a recent low of 51.1 during November to 54.0 during March.

The March PMIs suggest that manufacturing may be weakening in the US, while services are holding up. Japan’s M-PMI (50.3) and NM-PMI (48.4) were relatively weak last month. China’s M-PMI continues to hover around 50.0, while its NM-PMI has remained solidly above that level at 53.7. Both indexes are strong in the UK.

Today's Morning Briefing: Earnings Revival? (1) Another earnings season. (2) Oil, the dollar, and exports all weighing on earnings. (3) Analysts now expect S&P 500 earnings growth of only 2.6% this year. (4) Negative growth during H1-2015. (5) Recent forward earnings rebound waiting for confirmation from commodity pits. (6) US exports are the pits. (7) Going with “Go Global” for now. (8) Cheap is in fashion. (9) Puzzling: Weak currencies boosting forward earnings in Japan, but not Eurozone. (10) Global PMI rebounded smartly in March, led by Eurozone. (11) Focus on market-weight-rated S&P 500 Transportation. (More for subscribers.)

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