A Synchronized Global Downturn Intensifies As JPM Global Manufacturing PMI Plunges

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Last month, we reported that CPB Netherlands Bureau for Economic Policy Analysis’ world trade volume fell 1.8% in the three months to January compared to the preceding three months as a synchronized global downturn gained momentum.

Four months later, and the performance of the global manufacturing sector remained depressed in April. This is the month where global trade data should trough, in preparation for a 2H rebound. However, that is not the case – as a synchronized global downturn intensifies.

IHS Markit reported that rates of global expansion in output, new orders and employment were fragile, and below their long-term trend lines, while new export data dropped.

The J.P.Morgan Global Manufacturing PMI, a composite index produced by J.P.Morgan and IHS Markit in partnership with ISM and IFPSM, posted 50.3 in April, down from 50.5 in March, teetering on the edge of contraction, to record its lowest level since June 2016.

“The weakness in the global manufacturing sector was most evident in the intermediate and investment goods sectors, both of which saw production and new orders contract during April. The consumer goods industry fared better, with growth of both output and new business accelerating during the latest survey month. Consumer goods was also the only category to see new export work increase, albeit only moderately,” said IHSMarkit.

The decrease in export business was widespread for the eighth consecutive month. Softness was observed in Greater China, the Eurozone, Brazil, the UK, South Korea, Turkey, the Philippines, Canada, Mexico, Australia, Poland, and the Czech Republic.

“The global manufacturing sector remained subdued at the start of the second quarter, with the PMI barely above the 50.0 mark and rates of expansion in output and new orders still lackluster and well below long-run trend levels. In particular, the capital goods sector PMI underscores that business capex remains stalled. International trade flows remain a significant drag on the manufacturing sector. New export business has now decreased for eighth successive months,” David Hensley, Director of Global Economic Coordination at J.P.Morgan said.

The International Monetary Fund warned last month: this is a “delicate moment” for the global economy as many countries are experiencing a severe slowdown.

The global economy has “lost further momentum” in the last six months, said IMF Managing Director Christine Lagarde.

Lagarde pinned the deceleration of global growth on “the impact of increased trade tensions.”

Not surprisingly, the stock market’s 2019 uptrend has ignored the deterioration in global growth, as investors focus on trade optimism and a dovish Federal Reserve that has expanded the market’s P/E multiple. However, with President Trump’s surprise threat to raise the 10% tariff on $200BN of Chinese goods to 25% on May 10 in what BofA has called a “major escalation” – the whole narrative of expanding multiples in preparation for a 2H rebound could all but be fantasy at this point.

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