The latest round of PMI data showed that the degree of weakness seen in the US at the start of 2014 was largely due to weather, while indices in EU and Japan were a bit lower than last month. While this suggests growth is still decent, there does appear to be an inflection point in the trajectory of activity.
Chinese PMI data were divergent, with the official number a little higher and the HSBC number weaker. This is not unusual in periods when demand is slowing. It still seems conditions are weak, although there are tentative since of stabilisation in things like
coal burn statistics.
The seasonality in the official PMI data has become less clear in the last few years, although some of the components continue to show more seasonality than others. The employment component, for example, usually troughs in Jan and rises in March after Chinese New Year. This year is no different although the gains have been weak, perhaps speaking to broader weakness.
The headline US ISM index was solid, recording a gain, reversing a big chunk of the losses seen since the start of the year.
That said, most of the gains was due to the jump in production from very weak levels in February. When looking at the new orders - inventory components, it suggests growth is moving to a slower track than the end of 2013.
PMI indices for Japan and Europe are also a little lower, although do remain in growth territory. Thats enough to make full year growth numbers look strong for these countries. But while that may drive results in spreadsheets based on annual numbers, its not what drives market outcomes.
This is particular important for commodities, especially when thinking about the trajectory of supply and inventories. A slow down in the rate of growth in demand against steady growth in supply will change the rate at which inventories build or diminish, which will ultimately impact prices.
As an example, it looks like ex-China copper demand is moving past the inflection point of maximum growth, although not dramatically so. But this will be important to watch in the next few months, particularly as Chinese demand continues to look shaky.
As an indication of this, shanghai copper premiums have continued to tumble this week, quoted at ~$80-90/t
