PMI Day: Is Optimism Running Out?

By Orbex

As the first day of the month, tomorrow sees the release of PMI data from across the world.

Heading into the weekend with China closed for a holiday, we could have some extra volatility in pretty much every currency pair.

After the beat in PMI data from China yesterday, there has been some renewed optimism. In fact, the global business outlook might come in better than the initial predictions.

The general theme among the forecasts for October PMIs is a slight decline in optimism. Nonetheless, this is the norm for businesses as they calibrate their outlook throughout the winter.

This is indicative of how countries south of the equator will see a boost to their PMIs, while northern hemisphere companies could see lower numbers. Lower PMIs can also weigh on stock market performance, particularly going into a weekend.

What to look out for

Australia

Economists anticipate the Australian Markit Manufacturing PMI to jump quite a bit to 57.3 from a prior of 52,0.

This follows announcements from several Premiers that lockdowns will end before Christmas. Particularly now that Australia is going into their summer season, there will be higher economic activity and hopefully less covid spread.

The UK

On the other hand, we can expect the UK’s Markit/CIPS Manufacturing PMI to drop to 56.3 from 60.3. It could potentially go lower, as the survey was carried out just as there were media concerns of energy supply shortages.

Switzerland

Analysts expect the Swiss procure.ch Manufacturing PMI to slip slightly to 65.5 from 67.7 in the prior reading.

They are apparently factoring in the expectation that Switzerland’s largest trading partners are facing a potentially difficult winter. However, given the size of Switzerland’s health care sector, their manufacturers appear as the most optimistic in Europe.

The EU

The expectation for the Spanish Markit Manufacturing PMI is to remain quite optimistic. Nevertheless, it could dip to 58.2 from 59.5. This is in line with peripheral countries having more room to grow since covid impacted them more severely at first.

The Italian Markit Manufacturing PMI will also show a modest decline to 59.4 from 60.9 in the prior month. A factor the markets might pay more attention to is the “incoming orders” data release. They do so to see if European firms are holding back on investments going into the winter.

The forecast for the French Markit Manufacturing PMI is to drop marginally to 55.2 from the previous 57.2. This is still well in expansion, but French authorities’ refusal to rule out further lockdowns this year might not be the best for inspiring business confidence.

The German Markit Manufacturing PMI will be the most affected, dropping to 58.5 from 62.6 prior. Some of this is probably related to the expectation that supply chain shortages will get worse over the coming months. Also, China’s potential financial woes might hit Germany, as the country is the largest buyer of German-manufactured goods.

Lastly, the EU’s Market Manufacturing PMI could dip below the psychologically important level of 60, coming in at 58.7 from 61.4. A miss in expectations by over two points could significantly damage investor sentiment and weigh on the markets.

On the other hand, it’s likely that the market will be caught off guard if PMIs are higher this month than before. In turn, this could push indices higher.

Article by Orbex

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