Economy, leading indicators – and stock markets

Economy and stock markets at the end of 2019

It is not only from Germany that recent signals of a stabilisation of the economy have come: consumer barometer, ifo index, labour market development. These are all signs that there will be no recession in a short period of time. Despite the unresolved trade dispute, the indicators have also strengthened somewhat worldwide. This is reflected in the purchasing managers’ indices for the manufacturing sector (with the exception of the USA). Yesterday, figures on its counterpart came from the services sector, which has prevented many economies from crashing in recent months.

Economy: Purchasing Manager Indices Service Sector

The downturn in industrial production worldwide is clearly reflected in the global Purchasing Managers’ Index, which has since drifted into recession. Meanwhile, the service sector (globally) is holding its ground robustly in an area of expansion. After the industry index in the USA, which seems to follow international developments somewhat, was presented at a very disappointing 48.3 points, the current development of the Purchasing Managers Index – PMI Services – is being closely watched.

There was a lot of data available on Wednesday. The big surprise was China, but also in Japan and Europe the sector was robust:

  • Japan 50.3 points (previous month 49.7)
  • China 53.5 points, after 51.1 in the previous month a clear sign of life
  • India 52.7 points, (previous month 49.2)
  • Germany 51.7 points, (51.6)
  • Italy 50.4 points, (52.2)
  • France 52.2 points (52.9)
  • Europe as a whole 50.6 points constant
  • Great Britain 49.3 points, after 50.0 – the Brexit sends its regards
  • USA 53.9 points, after 54.7, still at a high level

In a general assessment, this means that the danger of an immediate recession has diminished as a result of these figures. This can also be seen in some ways in the stock markets, which are playing the goldilock-scenario. A weakly growing economy, with ample money supply for the markets, with very little competition from the bond side.

What’s next?

In our view, big names will try to bring the market to high levels by the end of the year. Not least because of the bonus payment after one of the most successful years of the last century with 25 percent plus. That was only about a dozen times in this long period.

Before that, there could even be a small boost. With the strange “window dressing” on the part of the funds, they have to bring those winning shares into the portfolio that they want to present in the annual report. Of course, valuations are drifting apart between the stock market and the real economy. But this is temporarily less relevant than the development in the trade dispute. If there is an escalation between the USA and China, the year-end rally could come to an abrupt end in the last 10 to 15 trading days!

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