One of the reasons that US equities have been weak recently is that investors have grown concerned about the health of emerging markets. The PMI surveys that were released this week aren’t confirming these concerns though. Of the 23 manufacturing PMIs tracked here, all but five are still above the 50 mark, and 12 of the 23 actually increased in January.
Admittedly, China is by far the most important emerging market and it was one of the five manufacturing economies that is in contraction. However, the survey was still only 49.5, implying that contraction is relatively mild.
Other important emerging economies like Brazil, India, Indonesia, Mexico and South Africa all showed improvements over last month. Turkey’s survey remained above 50 as well, despite the negative headlines about that country. Even Greece reached above the 50 mark for the first time since August of 2009.
On the home front, markets were spooked on Monday when the US manufacturing PMI survey showed a sharp decline from 56.5 to 51.3. Looking at the global data though, it appears that the US was more of an outlier. The press release that accompanies the US data implied that the decline was largely due to weather. This view may be supported by the fact that Canada, our neighbor to the north, was the only other major economy that showed a decline on par with the US last month.
The PMI data is, of course, backward looking, but in order for markets to keep heading lower, bears are going to need confirmation from economic indicators that the environment is getting weaker. Otherwise, buyers are likely to step in to support prices. Still, price declines have a way of creating their own data.
(PMI surveys are released the first week of each month for economies around the world. Readings above 50 imply that business leaders believe that an economy is expanding. An increase from the previous month implies that the pace of the expansion has accelerated.)
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