The PMI data for October looked good, with the US ISM index very strong, Japanese activity strengthening and Chinese and European activity holding on. This means that global manufacturing should accelerate to a decent pace heading into 2014 after a sluggish 1H13.
The US data were the standout in terms of strength, with no noticeable impact of the government shutdown on manufacturing.
The most recent bounce seems to have more substance to it than the rise seen at the start of 2013, which proved to be a false signal in terms of a change in momentum. But given the patchy nature of growth in the US since the 2008 crisis, its probably not worth getting too excited about a sustained uplift based on these data just yet.
The China data were ok, with both the official and HSBC data a little stronger than in September. So it seems like industrial activity continues to trend upwards.
A similar story is confirmed by looking at coal burn rates in the first 20 days of the month. This swings more wildly than industrial production, with power generation generally weaker than IP in the last 18 months and available hydro generation also having a large influence. But this is an actual activity indicator, which has shown an increase in YoY growth from September.
The final European data won't be released until the 4th of Nov, but it seem likely it will be in line with the flash numbers. These numbers were a bit stronger than September and its good news that the Eurozone is growing.
But slow growth after a lengthy decline is not much of an achievement. To be sure, the relative performance of the PMIs highlighti the cost of the structural problems with the Euro and the approach taken to solve the issue.
While global manufacturing growth should be pretty good, slow European activity will be more important for some commodities relative to others. In particular, Europe accounts for a higher proportion of ex-China growth than the US and Japan.
The chart on the left weights the three indices with relative copper consumption. The recent move above 50 has seen a draw-down in LME inventories in Europe over the last few months, but better growth is needed to more meaningfully tip the balance, especially in light of strong supply growth.
