Evening Note

Among the many indicators we monitor outside of the components of our own macro index are Markit's individual country purchasing managers indices.

Yesterday and today saw releases for Australia (44), China (50.7), Japan (38.4), Russia (36.2), Spain (38.3), Italy (45.4), France (40.6), Germany (36.6), Great Britain (40.7), South Africa (50.2), Brazil (38.3), Canada (40.6), USA (43.1) and the Eurozone aggregate (39.4).

A score above 50 denotes expansion over the prior month, below 50 denotes contraction. So, save for China and South Africa, much of the global manufacturing space remains firmly in contraction mode as economies begin to open back up. Which supports our view that a strong V-shaped global recovery is a low-probability scenario. But of course we'll crunch the data as we go and remain open to all possibilities.

In terms of China's, in particular, expansion score, we must note that the country's first order was to restart its manufacturing engine, despite the fact that there were -- and to a great extent remain -- far fewer willing global customers (vs pre-virus) to take what has to be a rapidly-growing inventory. Which lends itself to further distortion down the road as those inventories will have to be worked through. 

The manufacturing survey that we do feature in our index was also reported today; it's performed by The Institute for Supply Management. Which came in at 43.1, up 1.6 points from April's 41.5. 

This, from the report, reflects the high level of uncertainty that we'll be navigating in the months to come. Keep in mind that the report reflects results for May relative to April. The industry-specific commentary makes sense:

“The coronavirus pandemic impacted all manufacturing sectors for the third straight month. May appears to be a transition month, as many panelists and their suppliers returned to work late in the month. However, demand remains uncertain, likely impacting inventories, customer inventories, employment, imports and backlog of orders. Among the six biggest industry sectors, Food, Beverage & Tobacco Products remains the only industry in expansion. Transportation Equipment; Petroleum & Coal Products; and Fabricated Metal Products continue to contract at strong levels,” says Fiore.'